Since its creation in 2008 by the mysterious Satoshi Nakamoto, Bitcoin has fascinated the technical world and bedeviled law enforcement. The digital cryptocurrency gained notoriety for fueling Silk Road, a marketplace famous for selling illicit drugs, but subsequently won commercial acceptance from outlets like Expedia and Overstock.com. More recently, Bitcoin has been the object of much attention for its wild price gyrations and the introduction of Bitcoin futures.

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Because a blockchain does not rely on a central authority to approve transactions, proponents believe it offers a faster and more transparent way to record and track the movement of assets. Ironically, the fact that copies of a blockchain can be distributed across numerous computers potentially makes it more secure against cyberattacks than a single master copy of transactions.

In its most basic form, a blockchain is a computer file that serves as a digital ledger, recording transactions and acting as an authoritative record of past transactions. Importantly, the blockchain is encrypted. Thus, it can be copied and shared widely. As transactions occur, it can be securely updated to reflect the latest transactions. The Bitcoin blockchain, for example, is maintained by computers around the world competing to process the latest transactions. Bitcoin’s blockchain works like a public Google Doc in the sense that everyone who wishes can view updates as they occur – except that there is no Google (in other words, no central administrator) involved in Bitcoin, as the network is fully decentralized.

While Bitcoin and competing cryptocurrencies have captured headlines, many industry experts believe the underlying technology that makes Bitcoin possible —known as “blockchain”—could have a profound influence on the future of global finance.

Given its attributes, blockchain could radically alter a global financial system that remains surprisingly slow, asynchronous, and error-prone, says Bob McDonald, a professor of finance at the Kellogg School.

“There are many inefficiencies in the way banks and other financial institutions work. The inefficiencies have to do with recording and retrieving information and accessing definitive records of transactions among banks, or between banks and customers, or between companies and shareholders,” he says. “Much of the plumbing in the financial system is devoted to having a common, authoritative, up-to-date database of who owns what and who has what obligations to whom. That’s what blockchain can provide.”

Instantaneous, In-Sync, and Transparent

In McDonald’s view, the curious case of Dole Foods illustrates the cumbersome nature of the financial system.

In 2013, investors sued David Murdock, chairman and CEO of the Dole Food Company, for allegedly devaluing the company’s stock before taking it private. Two years later, after a court in Delaware ruled against Murdock, he agreed to compensate shareholders an additional $2.74 per share.

And then things got weird. There were 36 million Dole shares outstanding. However, investors filed payment claims for 49 million shares. How could this have happened?

According to Bloomberg, some of the discrepancy was caused by unsettled trades and short-selling.

Let’s say you owned Dole Foods and you had an account at a firm like Schwab. In this scenario, your Schwab shares are actually held in “street name,” meaning that Schwab records you as a shareholder, but Dole Foods does not know you are a shareholder. Schwab’s total shareholdings of Dole are recorded by the ledger at Depository Trust Corporation (DTC)—but the DTC does not know that you are a shareholder either.

If you bought or sold a share, the transaction at that time would have taken three days to complete; during this period, the trade had not yet “settled.”

To complicate things still further, Schwab could have loaned your shares to someone wishing to short-sell Dole stock, in which case there would actually be no Dole shares in your account, just an obligation by someone else to return them eventually and in the meantime make payments due you as a shareholder.

Against this backdrop, investors may have thought they had shares of Dole, but those shares could have been included in transactions that had not yet settled or loaned out by Schwab.

In the above situations, investors should have actually been paid by other investors, not by Dole. In theory, the brokers who facilitated these unsettled transactions and short sales were responsible for distributing the $2.74 to the correct parties. But in practice, two years later, there was confusion. The judge ordered the brokerage firms to sort it out and determine who should make and receive the payments.

In McDonald’s view, the case is emblematic of the complexities and limitations of financial infrastructure that allows securities to change hands in a matter of seconds, yet where transactions can take days to settle, and investors are left largely in the dark about what they actually own.

Blockchain technology could solve this problem by processing all transactions without any delay, and keeping all accounting systems in sync.

“Currently, there’s a gap between the time you buy a share and the time you’re actually labeled as the beneficial owner of the share,” McDonald says. “The transaction takes multiple days to clear. But with blockchain technology, it would happen quickly, and the process would be transparent. Schwab can still lend out customer shares, but the process would be more open and explicit than it currently is.”

Efficient and Less Expensive

Another major benefit of blockchain technology—perhaps the one that is most likely to lead to its wide adoption—is that it could drastically reduce expenses.

Payments are an obvious application. “There are trillions of dollars of trapped working capital on the balance sheets of Corporate America,” says Caitlin Long, president of the smart contracts company Symbiont. “A large corporation will have about 2,000 bank accounts around the world, and they’re trapping cash in all of them. If you think about this from an economic point of view, that is the ultimate dead-weight loss in an economy. If we can speed up the payment infrastructure among central banks, that will free up a tremendous amount of working capital around the economy.”

A less obvious arena for blockchain is the syndicated-loans market.

“There’s a tremendous amount of paperwork that hasn’t been digitized yet,” says Long, speaking at the FinTech and the Future of Finance conference at the Kellogg School earlier this year. “This is a market notorious for sending faxes back and forth.” If the process were automated, she says, not only would it speed up the process of selling loans—it would also save companies a lot of money.