Blockchain and Money

In this interactive module, we're embarking on a journey to dissect the potential of blockchain technology. Remember the internet in its early days? Gary Gensler, the instructor for this course, poses a fundamental question right from the start: is blockchain another foundational layer of the internet?

Think about this: In 1995, you could order a pizza online, but you still had to pay when it arrived because no one had figured out how to move money online. Fast forward to today, and the digital transfer of value is commonplace. But the question remains: how do we move value peer-to-peer without a central intermediary?

This isn't just about cryptocurrencies and speculative bubbles. As Gensler emphasizes, this lecture delves into the fundamentals of blockchain – those time-stamped append logs secured by cryptography and powered by consensus. We'll explore how this technology might act as a catalyst for change in the world of finance, addressing challenges like the "cost of trust", inefficiencies in payment systems, and the staggering number of unbanked individuals globally.

Beyond the hype surrounding cryptocurrencies, how might the core technological innovations of blockchain (such as time-stamped append logs, cryptography, and consensus mechanisms) be leveraged by existing financial institutions? Provide one or more examples.

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Sample Answers

Strong Answer :
Blockchain's core technologies could help financial institutions improve transparency and security. For example, banks could use time-stamped append-only logs to create tamper-proof audit trails for transactions, which would make compliance reporting much easier and more reliable. Consensus mechanisms could also be used to validate interbank transfers without relying on a central authority, reducing settlement times and lowering costs.

Strong Answer :
Financial institutions could leverage blockchain to streamline identity verification. By using cryptographically secure, decentralized ledgers, banks could share verified customer information (with consent) across institutions, reducing redundancy and fraud. This would align with KYC regulations while enhancing user privacy and speeding up onboarding processes.

Weak Answer:

Financial institutions could use blockchain to automatically approve all transactions without needing human oversight. Since consensus mechanisms mean everyone agrees instantly, banks wouldn’t need to monitor for fraud or errors anymore, because the blockchain would guarantee that every transaction is always correct without any mistakes.

Weak Answer:

Blockchain technology can help financial institutions by making transactions completely safe and anonymous across countries. Since blockchain is private, there are few security considerations, thus allowing banks to focus on moving money faster between people without countries being important.