What is blockchain?

Blockchain is a digital ledger that can record digital currency transactions publicly. It is the technology behind bitcoin, which is a digital currency that was invented in 2008 involving peer-to-peer payment through digitally signed messages. This 'cryptocurrency' is created and held electronically and is seen as an easier, cheaper and more efficient way of spending money because it removes the need for a middleman, such as a bank or credit card company. The Bank of England defines blockchain as “a technology that allows people who don’t know each other to trust a shared record of events”. It explains that the distributed ledger “is a genuine technological innovation which demonstrates that digital records can be held securely without any central authority”. 

Transactions cannot be deleted or altered, and private blockchains and strong encryption exist to improve security. Nevertheless, the technology is not immune to cyber attacks. Companies using digital currencies, such as Bitfinex, have been targeted by cyber criminals during the past year. In 2016, former minister for welfare reform Lord Freud announced that the Department for Work and Pensions had started a trial of distributed ledger technology to pay welfare benefits, but despite blockchain being described as very secure, the announcement still sparked privacy concerns.

Cybersecurity

Speaking at the Pensions Management Institute’s annual conference on Thursday, Dinis Guarda, founder and chief executive of Humaniq, a company that provides blockchain-based financial services, argued that blockchain is “a revolutionary technology that is replacing the internet as we know it”. Guarda explained that all aspects of the economy, including the pensions industry, are in the process of being “digitalised”, with blockchain usage increasing. However, he also said that despite blockchain technology being particularly safe, cyber security was still an issue.

Andy Agathangelou, founding chair of both the Transparency Task Force and the Technology Task Force, noted that “in many ways, in operation terms, the pensions industry is built on data” so the topics of data integrity and data protection “are fundamental issues for our industry already”. Martin Bartlam, a partner at law firm DLA Piper, said that “initially there was a lot of distrust” when it came to the concept of virtual currency. But over time, regulators and other established industry bodies were getting more involved and starting to realise that because it is a system with a permanent record, blockchain is “a good way of checking what’s actually happening”. Blockchain is “a powerful tool [and] it’s the way people use it that will determine whether we see scams”, he said.

Adapting to change

In terms of advice for pension professionals looking to adapt to an increasingly digitalised world, Hossein Kakavand, chief executive of Luther Systems, a company that leverages blockchain technology to help financial institutions’ transaction management, highlighted the importance of organisations “engaging aggressively in developments in technology”.

Chuck Reynolds
Contributor