Truth be told, the underlying principle behind the blockchain technology can be very confusing (trust me, it’s not just you). Traditional and social media platforms have reported a sudden surge in the value of different cryptocurrencies (powered by blockchain technology) and your browser is riddled with banner ads urging you to start trading and become a millionaire. Because it is all over the news, we are tempted to see it as a tool to revolutionize the financial sector but making sense of the concept can be a daunting task.

Think of it this way, with blockchain technology, information can be distributed but not manipulated. It is basically a digital and decentralized ledger that is programmed to record financial transactions. The transactions are duplicated across a network of computers, meaning information published on a blockchain can continuously be updated online. Now that you have a basic idea of what it is, I’m guessing your next question is what’s the point?

Internet fraudsters are fond of concealing their criminal activities by altering information or deleting documents found on a company’s accounting system. Blockchain technology reinforces the fact that there is no central administrator or centralized version to be corrupted. Instead, because the information is distributed across a network of computers, it increases the transparency of the transaction. When financial records are public, they can easily be verified.

Can the system be corrupted? To put in simple terms- it would be extremely hard to pull it off. Transactions on blockchain cannot be deleted or altered. Before transactions can be recorded, network participants must agree the transaction is valid through consensus protocol. The information is also time stamped and secured through the use of cryptography. If you want to create a new transaction, the original record will still be accessible. In other words, the history of any transaction or asset (previous owner, time of transaction, and location) will always be available.

Still here? Great! I know it took you a while to understand the idea behind blockchain technology, but now it’s time to highlight the three types of blockchain currently being used — permissionless, public permissioned and private permissioned blockchain (please don’t give up, I’ll make this brief). Permissionless blockchain is the most popular, as it is known for promoting the most famous cryptocurrencies. It can be used by anyone to transfer money or contribute information to the database. The power to validate transactions is not vested in the hands of a single person. Plus, you can protect sensitive information by remaining anonymous when performing transactions. In the case of public permissioned blockchain, there’s a chosen authority (government, institution or employee) to sanction a transaction. The data can be viewed by the public and sensitive information can be protected. Finally, the private permissioned blockchain is similar to the public permissioned blockchain except for one thing — the data is not available to the public.

Why is blockchain recognized as the most influential technology to hit the financial sector? And how can the advantages be applied to the banking industry?

Financial intermediaries like banks who are often victims of fraud, spend high amounts of money securing their network. Banks also require a service charge to transfer money from one part of the world to the another. Unfortunately, this can take days or even weeks to implement because moving money around the world can be a logistical nightmare. Blockchain technology however gives people access to fast, cheap and borderless payments, eliminating the transaction fees charged by banks. There’s also some good news for entrepreneurs. Trying to raise funds through countless meetings and long negotiations with financial organizations might soon be a thing of the past. An initial Coin Offering (blockchain version of an Initial Public Offer) offers entrepreneurs the opportunity to raise money from anyone at any time.

Are Nigerian financial institutions ready to embrace this technology?

The Nigerian economy can record a major win by taking advantage of this disruptive technology, especially for remittance. A study conducted by the Partnership for Economic Policy in 2012, using the Nigerian National Living Standard Survey (2004) shows that the receipt of internal remittances reduces the poverty headcount of households by 11.4% and poverty gap by 9.7%, while the receipt of international remittances reduced poverty headcount and poverty gap by almost 100%. The findings obviously suggest that remittances can be used as a tool to fight poverty in the country. Nigeria received about $22 billion (fifth largest in the world) in diaspora remittances in 2017 but spent $2 billion in remittance fees. Given the role of remittances in the alleviation of poverty, it is disturbing to know that sending them can be a burden to senders and receivers, as transaction costs for sending remittances to Africa are quite expensive. The adoption of blockchain can drastically lower transaction costs.

The emergence of blockchain has been described by the Director General of the Central Bank of Nigeria (CBN) as a ‘sink or swim’ situation. Although the technology is relatively new, CBN is taking a proactive approach to understanding how its adoption can improve business operations. Technology keeps evolving in today’s world and the Nigerian economy can benefit from the unique propositions acquired from the acceptance of blockchain technology — convenience, efficiency and transparency. The creation of institutions or platforms to teach the youth on the application of the technology, coupled with the enforcement of policies to enable its regulation, will be essential to ensuring Nigeria embraces the technology that can transform its financial sector.