Dubai: Since beginning its dramatic rise in value over a year ago, many commentators have pronounced bitcoin dead, saying instead that the true value of the polarising digital currency was to be found in its underlying technology, blockchain.
Cryptocurrency experts disagree, however, saying this analysis is too simplistic.
Whatever the true worth of bitcoin, in recent years it has been blockchain technology that has seen the overwhelming majority of investment from banks, governments, and large companies.
But what is blockchain, and why does everyone want to use it?
Essentially, a blockchain is like a record that is accessible to anyone; a ledger that registers every single transaction.
It can be used for a number of different things, including hospital records, financial transactions, and government data.
It is not controlled by anyone: There is no central authority such as a government or bank. Instead, everyone who uses it contributes to it in some small way. Supporters say this kind of structure makes it more efficient and fair.
Proponents of the technology also point to its transparency, and say it reduces the risk of fraud.
Blockchain creates a new standard of trust in transactions, users say, because it relies on mathematics to underpin its records, and the digital signature on each transfer makes tampering with it impossible.
The UAE has been quick to acknowledge the potential of such a technology.
In February 2016, Dubai’s Museum of the Future, an innovation centre, announced the formation of a research group focused on blockchain technology.
The Global Blockchain Council consists of 32 members including government entities, such as the Smart Dubai Office, international companies such as Cisco, IBM, SAP, and Microsoft, and blockchain start-ups.
Increasingly, banks are looking at ways to incorporate blockchain technology in to their operations.
In August 2017, the Financial Times reported that six of the largest banks in the world had partnered to create a new form of digital cash that would assist in clearing and settling financial transactions over blockchain.
On Wednesday, the governor of the UAE’s central bank announced that it was undertaking a joint project with the Saudi Arabian Monetary Authority (Sama) to use blockchain technology to issue a digital currency accepted in cross-border transactions between the two countries.
“It’s blockchain efficiency,” said Sally Sfeir-Tait, partner and global head of FinTech at law firm Clyde & Co, adding: “Central Banks globally are exploring how blockchain could support clearing and settlement’
This appears to be the first time two countries have agreed to work together on such a system, however, which Sfeir-Tait said was “unique, and an excellent initiative for distributed leger technology”
Despite initially being wary of blockchain because of concerns about fraud, banks are now exploring how they can exploit the technology to speed up back-office settlement systems and free billions in capital tied up supporting trades on global markets, the FT reports.
Sfeir-Tait said that using blockchain to replace existing systems would aid banks in reconciling and tracing transactions more efficiently and transparently, and help to “record transfers instantaneously, and in a completely auditable manner.”
“Think about the number of transactions [the two central banks are] going to be processing. Once you move on to the blockchain, trust, transparency and security are handled by the system itself. Therefore existing systems become redundant’ she said.
Mubarak Rashed Al Mansouri, governor of the UAE’s central bank, made clear that the digital currency would not be for consumers to use, but instead between the two countries’ financial institutions.
“This would be much more efficient. This is between us and the banks,” he said.
Overall, the move by the banks to introduce new, innovative technologies will help reduce the risk of human error, improve efficiency, cost effectiveness and speed, according to Alberto Lobrano, chief technology officer at Reaktor, an engineering firm.
“Both Saudi Arabia and the UAE have made very public commitments to embracing innovation as part of their strategy for the future, so it’s right they are taking a proactive approach to exploring the use of cryptocurrencies,” Lobrano added.
