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When people hear the words “blockchain” and “finance” used together, typically they think of bitcoin trading and cryptocurrency investing. And while the words “blockchain” and “finance” can be used to describe the growing trend of using cryptocurrencies as investable assets, they actually convey something far more significant.
In fact, because of blockchain technology, the financial industry is undergoing a revolution that, though it could take several years to materialize, will forever change the way banks, institutions, and individuals operate.
High profile organizations and companies are commenting on the many ways blockchain technology can change finance. The Harvard Business Review, for example, published an article last year detailing how blockchains can “can forge agreements, make transactions, and build value without relying on intermediaries… to verify their identities, establish trust, or perform the critical business logic — contracting, clearing, settling, and record-keeping tasks that are foundational to all forms of commerce.”
Likewise, consulting and accounting powerhouse PwC had this to say about the budding technology “We continue to see banks, brokerages, insurers, regulators, and others actively testing ways to harness the benefits of blockchain. The journey has only just begun.”
These encouraging notes come on the heels of the developments of some incredible blockchain platforms with unique functions in the financial world. One growing segment of the industry, cross-chain technology, is believed by many to be the future of blockchain technology. Cross-chain transactions, in short, allow users to exchange crypto assets across different blockchains at the same time. Several firms are devoting their time and money to develop cross-chain platforms.
The Ripple Platform
One established blockchain company experimenting with cross-chain transactions is Ripple. While it may not have a strict cross-chain platform like other companies do (see below), the Ripple Network still seeks to allow entities to exchange digital assets across different blockchains. In addition, Ripple is seen as the premier blockchain company for helping large banks settle cross border payments across different currencies–fiat and crypto–partnering with companies like American Express and Banco Santander. Ripple also recently partnered with the Saudi Arabian central bank.
Ripple, however, isn’t without its criticisms. It has had security issues since its founding and like most other blockchain networks, relies on individual users to secure private keys. For a network that is meant to be used by the world’s leading financial institutions, this might be a detractor that is too big to swallow.
The FUSION Platform
Unlike the Ripple Network, FUSION is a dedicated public blockchain that takes the form of a crypto-financial platform. It provides true cross-chain transactions, allowing both centralized and decentralization parties to communicate and transact with one other. Whereas the Ripple Network is focused primarily on large cross-border transactions, FUSION targets complete financial functions, ranging from cryptocurrency trading to cross organizational transactions to data aggregation from different sources.
In terms of security, FUSION bookkeeping nodes control the network’s private key mechanisms. Through a unique security protocol, the network will shard private keys and store them in different nodes. Thus private keys are not store in a centralized location–a user’s desktop, wallet, or account–but are instead distributed throughout various nodes.
The Lightning Network
The Lightning Network is in many ways the grandfather of the cross-chain transaction. A draft version of the white paper was released in January 2016, but since then, it has become the face of “cross chain atomic swaps”, whereby two users can directly exchange currencies of different blockchains. It enables users to make transactions across their respective blockchains, all without trust in third party mediators (brokers, exchanges, etc.). Like Ripple, the Lightning Network takes a narrower approach to financial transactions, in contrast to FUSION. It specifically targets individual transactions to enable instant payments across a broad network of participants.
Unfortunately, the Lightning Network requires users to maintain their own private keys, making security a potential issue. There are several threads and discussions asking why private keys must be held on an online device in order to use the network. In terms of the private key mechanism, the Lightning Network doesn’t provide a FUSION-like security protocol.
