Memorandum
Date: To: From: Subject: Sample Informal Report
Introduction
Blockchain technology gain popularity with the advent of Bitcoins where it laid down the foundation of cryptocurrency. Today, however, blockchain has found wider applications in the financial industry and smart cities. The technology is critical as it has enhanced efficiency in both smart cities and financial institutions. A blockchain is a form of the digital ledger that allows the institutions to use bookkeeping systems. The blockchain is critical as it facilitates the transformation of the world into a global economy by transferring data and money and connecting to central banks around the world. Blockchain can increase the speed with which green technology develops as well as promote economic growth.
Facts
First, it is important to note that blockchain builds on trust a component that is critical in financial institutions and smart contracts. Usually, blockchain allows for the creation and distribution of time-stamped documents and prevents other parties from tampering with the data without detection. The technology is majorly focused on the centralization of the cryptocurrencies (Cocco, Pinna, & Marchesi, 2017). Data created in blockchain systems cannot be stolen or imitated by other individuals’ unless credentials are shared with unauthorized individuals. Additionally, blockchain allows users to share data systematical and spread it over the networks while making it impossible for hackers to retrieve and using the data hacked. With all the features of the blockchain, smart contracts are made possible and effective. Smart contracts involve the use of stored codes and automatically executing them on the blockchain allowing for many financial interactions. According to Di Pierro (2017), smart contracts are codes that are stored on the blockchain meaning that they allow encodable agreements to be executed.
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Given the smart codes in blockchain technology, there is a wider range of benefits with its use in the financial system. Smart contracts have become critical in the financial institutions where they are encoded in blockchain and are executed with the transactions. For instance, smart contracts will help in the development of bond networks when they are used in defining conditions for a transfer of bond (Cocco, Pinna, & Marchesi, 2017). Usually, financial institutions incur operational costs which include electricity costs, heavy infrastructure, time and money among other variables required to run activities efficiently. However, the use of blockchain technology will prevent banks from incurring a large proportion of the costs as they would only need to connect to the networks that do not require the use of electricity, printers, papers, or gas used by employees (Cocco, Pinna, & Marchesi, 2017). Therefore, financial institutions will save up on costs and thus increase profits.
The use of blockchain technology can bring great value to the financial institutions. According to Cocco, Pinna, & Marchesi (2017), the technology will improve the financial services like regulation, compliance, security settlement, payment, and trade. Additionally, the technology’s accuracy will help in overcoming inefficiencies that result from traditional financial systems like foreign exchange cost and time. Further, the technology will help increase discoverability and trust in banking institutions as well as augment the existing financial networks. Blockchain technology plays a critical role in eliminating services from agents, notaries, and brokers among others when making transactions. As such, it will facilitate the creation of an effective global economy.
The world economy today is greatly influenced by the banks among other financial institutions. Use of blockchain in the institutions is critical to the realization of a global economy due to the associated benefits of blockchain technology. For instance, blockchain technology can create investible assets, automate process across the globe, reduces settlement and transaction time, reduces the costs of translations, as well as improving transparency among parties involved. Di Pierro (2017) describes it as an enabler of trusted transactions. Thus, it allows parties to perform trusted transitions from a shared ledger. The digital ledger technology allows central banks, central banks, consortia, and different banks perform trusted transactions over the network (Bott, 2017). Importantly, the DLT allows the central bank to play is its primary role of money issuance to the financial institutions.
Feedback
Important, however, is the need to consider the disadvantages of using blockchain in financial institutions. For instance, there are legal challenges that result when central banks operate in the blockchain technology (Bott, 2017). Additional challenges may result with data operational security and governance. Security in the digital ledger technology cannot be guaranteed in financial institutions unless the creation of smart contracts is written perfectly and precisely. Usually, perfection is not guaranteed at all times as human beings can make errors.
Conclusion
The use of blockchain technology is critical for the ability to create smart contracts that can facilitate the realization of a global economy. The development and use of smart contracts will hasten improvement in projects used in financial institutions. These projects include the neutralization of agents and other intermediaries in the signing of deals. Also, smart contracts will allow for the development of programs that are automatic and thus save time. The use of digital ledger technology is critical for its precision that reduces mistakes that can be possibly made with use manual tasks like filling of forms prominent in the traditional financial system. Finally, blockchain technology increases safety in the systems as data cannot be lost to hackers.
References
Bott, J. (2017). Central bank money and blockchain: A payments perspective. Journal of Payments Strategy & Systems , 11 (2), 145-157.
Cocco, L., Pinna, A., & Marchesi, M. (2017). Banking on Blockchain: Costs Savings Thanks to the Blockchain Technology. Future Internet , 9 (3), 25.
Di Pierro, M. (2017). What Is the Blockchain?. Computing in Science & Engineering , 19 (5), 92-95.
