ConnectOne Bank on How Blockchain Tokens Are Revolutionizing Transactions

While the latest on cryptocurrencies may grab headlines, they represent only a slice of the larger blockchain payments pie. The use of blockchain technology as a distributed digital ledger — a database of transactions nearly infallible by nature — promises to revolutionize how transactions are conducted and verified.

“In theory, it’s infallible,” said Frank Sorrentino III, chairman and CEO at ConnectOne Bank. “If the transaction is recorded on the blockchain, it’s near-impossible to undo that transaction. Whatever information was input becomes reality.”

Sorrentino compared a blockchain transaction to handing someone a gold coin: once money has changed hands, the transaction cannot simply be reversed. This is a good thing, he said, because it adds to the infallibility of blockchain payments. At the same time, blockchain payments are superior to hard currency because they are instant, transparent and unhindered by distance. Additionally, the blockchain creates a permanent chain of custody.

“I think it’s a fascinating evolution to almost get back to where we started, but in a much more frictionless environment,” Sorrentino said.

Bringing Blockchain Benefits to Fiat Currencies

The concept of a “token” as it exists in the world of blockchain is nothing new. On a very basic level, a property deed or stock certificate invokes the same principles as a tokenized asset on the blockchain: something that is either intangible or too big to carry is represented by something that is simple to exchange. So long as all legal requirements are addressed, a digital token brings all the benefits of that paper form of tokenization, but with the added benefits of blockchain technology.

“We can move dollars today, for instance, utilizing a tokenized deposit to facilitate a transaction across the blockchain network,” he said.

Sorrentino acknowledged that tokenization has risks, but they are no different from those involving hard currency.

“You take a $20 bill out of your pocket, and you hand it to the wrong person, or put it in the mail and it gets intercepted by the wrong person, too bad,” he said. “There’s no way to get that back. My mother always told me, ‘Don’t put money in the mail.’”

Unlike physical money or a bearer bond, tokenized assets have a chain of custody. That ultimate “paper trail” is decentralized, encrypted and nearly impossible to interfere with.

A Town Hall That Will Not Burn Down

From the earliest buzz around blockchain, some have understood the potential for the technology to serve a much more comprehensive role than just enabling cryptocurrencies, Sorrentino said.

“You think about titles for homes, you think about anything where there’s a chain of title, where multiple people will be engaged through ownership of a particular asset over time. Blockchain is just a more efficient way of dealing with that,” he said.

With paper-only transactions, records are held in some sort of central repository. For home titles, that might be a city or county administrative building. Not only is this less convenient, as records have to be accessed and recorded at a central location, but it also adds the risk that if anything should happen, such as a fire, all that information and proof of ownership could be lost.

“If your house was part of a registry on the blockchain forevermore, that transaction resides in a place where everyone can see it and understand it,” Sorrentino said. “We don’t have to wait for the town hall to open. I can transfer the title to my home to you right now on this call, as opposed to going down to the town, getting a certified copy, giving it to your attorney and having him review it.”

These principles apply to anything with a chain of ownership, from insurance contracts to stock certificates and even tokenized currency. Additionally, the immutable and transparent nature of blockchain tokens could even eliminate the need for such things as title insurance by removing the potential for human error, Sorrentino said.

“It’s a digital process, as opposed to depending on a human being to go look at those records going back over time,” he said.

Blockchain Payments Independent of Crypto

Sorrentino said he does not think cryptocurrencies will ever fully replace currencies backed by a central banking system. Ultimately, there must be a lender of last resort to weather a tough economic crisis. At the same time, blockchain technology can enable many of the benefits associated with cryptocurrencies within established economic systems.

Users can finalize transactions with blockchain tokenization regardless of location or currency in use. If someone in Paris wants to make a payment to another person in New York whose bank will not open for another six hours, a blockchain-enabled transaction can be finalized with all the relevant details recorded. Regardless of currency, time zones and markets, a tokenized transaction can take place instantly, transparently and irreversibly when it suits those involved in the transaction.

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