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Blockchain isn’t just for Bitcoin. And the credit unions are taking note.
Although blockchain is the technology behind the digital currency the headlines around the world, it can be used for a lot more. And while credit unions have only embraced blockchain in recent years, others are.
At present, the benefits of blockchain are still primarily potential for credit unions, but there are also many. Credit unions can use blockchain to facilitate and secure payment, more easily maintain and maintain records, and help manage customer identities.
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What is blockchain?
Let’s set the table for discussion. What is blockchain?
The two concepts behind blockchain are ‘corporate network’ and ‘ledger’. Together, these elements make the blockchain a smart and tamper-proof way to conduct trade, transactions and business processes. Network members exchange assets through a ledger to which all members share access. The ledger is synchronized over the network with all members who need to confirm a transaction of tangible or intangible assets before it is approved and stored on the blockchain. This shared perspective helps establish legitimacy and transparency, even when the parties do not know each other.
A white paper payment advice Glenbrook Partners and PSCU, a Credit Union Service Organization (CUSO), also helps add definition to the term. The white paper notes that the blockchain is “ideal for recording transaction history, property records – almost everything associated with value. “
Credit unions embrace blockchain
More and more credit unions are jumping on the blockchain bandwagon. In August, credit unions supporting the CULedger blockchain initiative formed a CUSO called CULedger, LLC. As CoinDesk Remarks, a CUSO “is a business entity, generally owned by a group of federally chartered credit unions, which provides certain services such as arranging business loans or processing payment cards.”
CULedger started in 2016 as a project between the National Association of Credit Unions and the West Mountain Credit Union Association To develop a concept for a system-wide credit union authorized distributed shared ledger platform. The business now includes the credit union advisory firm Best Innovation Group, PSCU and other partners of the credit union system.
Meanwhile, the National Association of Federally Insured Credit Unions announced in October that it would become the first U.S. financial trade association to join Hyperledger, a open source blockchain collaboration effort hosted by the Linux Foundation.
How Credit Unions Can Use Blockchain
Credit unions can use blockchain for a variety of critical functions.
Blockchain can facilitate person-to-person payments as well as international remittances and payments, notes the Glenbrook / PSCU white paper. However, it also has the potential to enable large-scale transactions between financial institutions.
Blockchains can also record changes in asset ownership. Indeed, notes the white paper, record keeping is a long and laborious activity “too familiar to credit unions” and can be one of the most interesting applications for blockchain-based databases.
For example, blockchains could make all parties a car loan – financial institutions, automakers, leasing companies, state and local governments and, perhaps, consumers – able to track vehicle ownership and loans more quickly and securely. “A system like this speed up and condense what is currently a multi-step process, reduce paperwork and have the potential to reduce costs, especially once a majority of stakeholders use the system“, notes the white paper.
Blockchain can also be used for identify customers more securely. The white paper says the blockchain could “hold proof of a user’s identity through the storage of a digital representation of a driver’s license or birth certificate, passport, biometric element such as fingerprint, photograph or other data “. Such a task would be a major undertaking and credit unions would still be required to validate customer credentials, but it could be of great help. CULedger also wants to tackle identity management.
“The digital identity was chosen because it is of the greatest benefit to our members,” John Best, CEO of Best Innovation Group, who leads the development of CULedger, tells the publication Tearsheet. “The challenge is this idea of sovereign identity – putting identity in the hands of the customer.”
There is great potential for blockchain, and credit unions should keep pace with the evolution and maturity of use cases as they plan to deploy the technology in the months and years to come.
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