Enter Details

Comment on stories, receive email newsletters & alerts.

This is your permanent identity for Business Insider Australia
Your email must be valid for account activation
Minimum of 8 standard keyboard characters


Email newsletters but will contain a brief summary of our top stories and news alerts.

Forgotten Password

Enter Details

Back to log in

GOLDMAN SACHS: 'The Blockchain can change... well everything'

Goldman Sachs is a big bull on blockchain, the distributed ledger software that underpins digital currency bitcoin.

In an “Emerging Theme Radar” note sent to clients on Wednesday, the bank says: “While the Bitcoin hype cycle has gone quiet, Silicon Valley and Wall Street are betting that the underlying technology behind it, the Blockchain, can change… well everything.”

In its most basic form, the blockchain records ownership of bitcoin and transactions involving the cryptocurrency across a wide network of computers, as opposed to a centralised ledger.

Transactions are signed off by the parties involved using the software, checked by the network or the “crowd,” then added to the blockchain — a long string of code that records all activity. Encryption in the software ensure these “blocks” can’t be tampered with or altered. And the decentralized nature means the “crowd” police the whole system.

Here’s a diagram Goldman produced to explain how it works:

BlockchainGoldman Sachs

The software cuts out the need for a “trusted middleman” to sit in between parties in a transaction, such as a bank or clearinghouse. This makes transactions quicker, cheaper, and easier when compared to the current systems banks use.

Banks like Goldman are therefore keen to see if it can be adapted for use with traditional currency, rather than just bitcoin. Beyond that, there’s excitement that it could be used for everything from issuing shares to “smart contracts” that only unlock funds once certain pre-conditions are met.

Or as Goldman’s analyst Robert D. Boroujerdi puts it:

It [blockchain] has the potential to redefine transactions and the back office of a multitude of different industries. From banking and payments to notaries to voting systems to vehicle registrations to wire fees to gun checks to academic records to trade settlement to catalouging ownership of works of art, a distributed shared ledger has the potential to make interactions quicker, less-expensive and safer.

It’s not clear whether Boroujerdi is talking about using the specific blockchain that underpins bitcoin for all these uses, or replicating the technology to build separate blockchains.

I noted in a recent piece that some of the best-funded bitcoin startups are pivoting their businesses or tweaking their messaging to make it more about selling the benefits of bitcoin’s blockchain to consumers or companies, rather than the bitcoin itself.

Boroujerdi says: “Bitcoin was just the opening act, with the Blockchain ready to take center stage.”

Despite Boroujerdi’s seeming runaway optimism, he does note that there are some drawbacks. One worry is the potential cost of developing and maintaining the network. Another is the lack of a regulatory framework. And a third is concerns over the capacity of the blockchain.

But the big trends are encouraging — venture capital funding for the sector is growing, as is usage of bitcoin’s blockchain.

Goldman Sachs isn’t the only big bank excited about the blockchain — in fact, most of them are. Thirty banks have now signed up to the R3 or R3CEV partnership, which Goldman name-checks in the note. R3, based out of New York, is trying to establish industry-wide standards and protocols for using the technology, as well as exploring potential use cases.

NOW WATCH: How a successful investment banker used insider information to bankroll his mistress and child

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.