ABA Banking Journal
No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
SUBSCRIBE
ABA Banking Journal
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
No Result
View All Result
No Result
View All Result
ADVERTISEMENT
Home Payments

It’s All About the Blockchain

March 7, 2016
Reading Time: 3 mins read

By Rob Morgan

Confused about virtual currencies and the difference between a bitcoin and blockchain? You are not the only one. You can’t read the news today without seeing a headline about a major investment being made in the area. But what is a virtual currency, how does it work and what does it mean for banks?

Virtual currencies­­of which bitcoin is the most prominent–are digital representations of value. They are marketed directly to consumers and used in place of government-issued money. Meanwhile, the blockchain is the “ledger” that keeps track of virtual currency transactions and allows users to establish ownership of these virtual assets.

A virtual currency stores value, as traditional currencies have for centuries. If you think about a $20 bill in your pocket, it has little more intrinsic value than the paper it is printed on. Despite this, it has a recognized value that you can use to exchange for real goods and services.

Virtual currencies operate in much the same way. Although there are few merchants that accept them, there is a market value for these currencies based on demand and a limited supply. Owning a virtual currency today is much like owning a foreign currency. There is an exchange rate (often volatile) and you can trade your virtual currency for dollars.

Ownership of a digital asset is different, however. To explain this, let’s use an example: your home. You do not own your home because you hold the keys to the front door. This would make hiring a housesitter an expensive proposition. You own your home because your name is the last one listed on the final deed of sale. This deed of sale is held in an official place, usually a local courthouse, where anyone can go to confirm ownership.

In virtual currency, the blockchain takes the place of this courthouse. It is the official record of all virtual currency transactions, listing the current owners of all of the currency in circulation. Unlike that local courthouse, the blockchain is a distributed ledger of ownership so there is not a sole copy of the blockchain. Instead, every participant in the system has a copy, and agrees in near-real time on this ownership record whenever a transaction is made.

So why invest in a currency that today has little transactional use and is rarely accepted as payment for goods and services? The answer lies in the blockchain. By distributing ownership of the ledger you are creating a system where ownership can be transferred (a payment!) quickly and efficiently. You do not need to go to the local courthouse or the central bank and wait for a transaction to be recorded and confirmed. Instead, it happens in real time. Moreover, the public nature of the ledger allows transparency in payments, preventing counterfeiting, fraud and double spending.

Faster settlement of funds has a real value. Settlement risks are reduced and funds can be made available to customers instantly. In fact, Banco Santander estimates that blockchain technology can save banks up to $20 billion a year by 2022.

The majority of bank investments today are in blockchain technology, not in virtual currencies such as bitcoin. More than 30 banks have joined a consortium called R3CEV, aimed at leveraging blockchain technology. Banco Santander recently made an estimated $4 million investment in Ripple, a company that facilitates payments on distributed ledgers. Neither of these companies use bitcoin; instead, they use the blockchain to facilitate the exchange of digital assets.

Bitcoin is a strong proof-of-concept that shows how blockchain technology can be leveraged to facilitate fast and efficient payments. Today the challenge lies in creating infrastructure that can leverage blockchain technology to safely facilitate real-world transactions.

ADVERTISEMENT
Tags: BlockchainPayments systemVirtual currency
ShareTweetPin

Author

Rob Morgan

Rob Morgan

Rob Morgan is vice president for emerging technologies at the American Bankers Association.

Related Posts

Basel tweaks proposed cryptoasset treatment, adopts certain ABA recommendations

How stablecoins could affect borrowing costs for the government, businesses and households

Economy
July 14, 2025

Policymakers must weigh short-term fiscal gains against the long-term health of the real economy.

Fed, FDIC withdraw statements on managing risks for crypto

Banking agencies release statement on crypto-asset safekeeping

Compliance and Risk
July 14, 2025

The Federal Reserve, FDIC and OCC released a joint statement on potential risk-management considerations related to holding crypto-assets on their customers’ behalf, or crypto-asset safekeeping.

Nearly $500B sent through Zelle in first half of 2024

Zelle grows to more than 2,300 financial institutions

Newsbytes
July 14, 2025

The total number of institutions on Zelle is now more than 2,300, with 95% institutions either community banks or credit unions.

BIS drafts guidance for central banks on AI adoption

BIS releases report on connections between banks and nonbanks

Compliance and Risk
July 11, 2025

Differences between regulations for banks and those for nonbank financial intermediaries may have created incentives to shift business activities to the NBFI sector, so bank supervisors should apply “close scrutiny” to such interactions, according to the report.

Using Artificial Intelligence to Make Sense of Mountains of Data

Three myths about AI in banking

Technology
July 3, 2025

Common myths and misperceptions might confuse about what to expect and misdirect investment and efforts.

Banking forward: What is top of mind for 2025? 

ABA survey: Most banks likely to stick with current core provider

Newsbytes
July 2, 2025

While 69% of bankers are "extremely" or "somewhat likely" to remain with their current core provider at the next renewal, when they do pursue core conversions, the primary reason is poor customer service, according to ABA's survey results.

NEWSBYTES

ABA urges lawmakers to take up Dodd-Frank reform

July 15, 2025

Budget reconciliation includes rural and agricultural benefits

July 15, 2025

Gould takes office as comptroller of the currency

July 15, 2025

SPONSORED CONTENT

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

July 1, 2025
AI Compliance and Regulation: What Financial Institutions Need to Know

Unlocking Deposit Growth: How Financial Institutions Can Activate Data for Precision Cross-Sell

June 1, 2025
Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

April 25, 2025
Outsourcing: Getting to Go/No-Go

Outsourcing: Getting to Go/No-Go

April 5, 2025

PODCASTS

Breaking down the bank-related provisions in the big budget bill

July 10, 2025

Podcast: Inside ABA’s new Treasury Check Verification System API

June 25, 2025

Podcast: Staying close to clients amid tariff-driven volatility

June 18, 2025
ADVERTISEMENT

American Bankers Association
1333 New Hampshire Ave NW
Washington, DC 20036
1-800-BANKERS (800-226-5377)
www.aba.com
About ABA
Privacy Policy
Contact ABA

ABA Banking Journal
About ABA Banking Journal
Media Kit
Advertising
Subscribe

© 2025 American Bankers Association. All rights reserved.

No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive

© 2025 American Bankers Association. All rights reserved.