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The Hutchins Center Explains: How Blockchain Could Change the Financial System, Part 1
Article

The Hutchins Center Explains: How Blockchain Could Change the Financial System, Part 1


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Editorial Rating

8

Recommendation

While most people may not yet have bitcoins and other cryptocurrencies in their online wallets, the possibility that these virtual monies will transform the worldwide payment regime is real. Underlying this digital legal tender is the advanced technology of blockchains and distributed ledgers. In this first of two informative reports (click here for part 2), David Wessel of the Brookings Institution explains what the two innovations entail, how they operate, and what potential opportunities as well as risks they portend. getAbstract considers this useful primer required reading for those who want to understand the implications of the distributed ledger.

Take-Aways

  • The technology underlying digital currencies may have a long-term disruptive impact on global payment systems.
  • A blockchain – “a database that consists of chronologically arranged bundles of transactions known as blocks” – makes possible the distributed ledger, which “allows a payment system to operate in an entirely decentralized way, without intermediaries.”
  • A distributed ledger’s principal advantages are its high speed, its low transaction costs and its immutability.

About the Author

David Wessel is director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.