Banking on Blockchain: Costs Savings Thanks to the Blockchain Technology

Luisanna Cocco, Andrea Pinna, Michele Marchesi
2017 Future Internet  
This paper looks at the challenges and opportunities of implementing blockchain technology across banking, providing food for thought about the potentialities of this disruptive technology. The blockchain technology can optimize the global financial infrastructure, achieving sustainable development, using more efficient systems than at present. In fact, many banks are currently focusing on blockchain technology to promote economic growth and accelerate the development of green technologies. In
more » ... rder to understand the potential of blockchain technology to support the financial system, we studied the actual performance of the Bitcoin system, also highlighting its major limitations, such as the significant energy consumption due to the high computing power required, and the high cost of hardware. We estimated the electrical power and the hash rate of the Bitcoin network, over time, and, in order to evaluate the efficiency of the Bitcoin system in its actual operation, we defined three quantities: "economic efficiency", "operational efficiency", and "efficient service". The obtained results show that by overcoming the disadvantages of the Bitcoin system, and therefore of blockchain technology, we could be able to handle financial processes in a more efficient way than under the current system. "Third-order impacts are long-term indirect effects on the environment that result from ICT usage, like changing life styles that promote faster economic growth and, at worst, outweigh the formerly achieved savings (rebound effects). These effects do not appear sequentially and disconnected. In reality they are nested, which means that second-order effects can only emerge on the basis of first-order effects and third-order effects can only appear as ramifications of second-order effects." Effective sustainability initiatives are needed as soon as possible, and environmental sustainability shall play a key role in doing business responsibly and successfully. Up to now, much effort has been spent to address the environmental aspects of sustainability of computer hardware, but there is much to do in the field of computer software, and software process models. A software product, "Green and Sustainable", should have an economic, societal, and ecological impact, and an impact on human beings as small as possible over its whole life cycle. However, such a software product can be achieved only if all the various stakeholders recognize these impacts, and the whole developing organization is aware of negative and positive impacts that the usage of the software product will likely cause over its whole life cycle. In past years, many organizations have launched sustainability market initiative to improve environmental performance and environmental management. In addition, many banks are experimenting with the blockchain technology, betting on its ability to promote economic growth by freeing up trade, in order to speed up the rate of technological innovation, and its ability to lead to faster development of green technologies (see work by [2] ). The introduction of blockchain technology may provide substantial energy savings if it may take the place of some of the energy consumptive systems, services and locations that support the fiat currency [3]. Blockchain technology seems to have the potentiality to optimize the global financial infrastructure, dealing with global issues, such as sustainable development, or with asset transfers much more efficiently than current financial systems. The financial sector incurs in many operative costs in order to efficiently run the whole system. These costs include time and money required to invest heavily in infrastructure, electricity costs to operate and from automated teller machines (ATMs), gas and water consumed by employees and waste produced. In addition, no fiat currency can be created without costs. Periodically in order to guarantee the quality standards for the banknotes in circulation, the worn banknotes are shredded, so, to all operative costs just mentioned, the cost of production of coins and notes and those for the shredding systems have to be added to get an overview of the total cost of the actual financial system. In contrast, systems based on blockchain technology have only to connect to the network and do not incur electricity costs such as those from ATMs, costs from gas consumed by employees or waste including, for example, paper and toner for printers. Furthermore, in these systems, the production cost of the cryptocurrency is included in the cost of mining activity that comprises also the costs of transaction validation, and, in turn, the distribution costs of new cryptocurrency. This, of course, implies substantial savings with respect to the traditional financial system. The mining activity is the process by which new bitcoins, or, in general, new crypto coins, are generated and new transactions are verified and added to the blockchain, the public ledger which stores the entire transaction history. Anyone who is connected to the Bitcoin network and owns suitable hardware can participate in mining and is called a "miner". In order to secure the network, by adding to the blockchain only the valid transactions, the participants have to solve a computationally difficult puzzle. Specifically, they have to find the so called "Proof of Work" (PoW) burning computational power on useless calculations. Whoever first solves the puzzle gets a reward in Bitcoins, and eventually gets the transaction fees associated with the transactions compiled in the block validated by her. Two recent articles by [4] and by [5] explore the energy efficiency of Bitcoin. Malmo wrote: "adopting Bitcoin as a major currency in the next few decades would just exacerbate anthropogenic climate change by needlessly increasing electricity consumption until it is too late" (Ref. [4]). Deetman is less pessimistic and categorical than Malmo. He discussed how hashing is related to mining hardware and hence to energy consumption, providing noteworthy "optimistic" and
doi:10.3390/fi9030025 fatcat:4mts46yt45ajjdoamqvrfbtppy