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

David Wessel
Brookings Institution, 2016
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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.

Summary

Global consumers and businesses may make cryptocurrencies such as bitcoin the most popular payment options in the future. But virtual currencies are just one facet of a broader technology transformation that, over time, may fundamentally upend the current framework of centralized payment systems controlled by central banks and financial institutions. The advance underlying this new dispersed exchange system is the distributed ledger, which relies on a blockchain – “a database that consists of chronologically arranged bundles of transactions known as blocks.”

The distributed...

About the Author

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

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