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Written by Cyndie Martini
on August 10, 2017

New technologies in the financial sector are always changing the way credit union leaders view their businesses and the ways they can serve their members. One of the most talked-about yet little-understood financial technologies currently is blockchain.

Blockchain is often associated with cryptocurrencies like Bitcoin. While Bitcoin and similar products rely on the blockchain technology, blockchain can actually be used in a large number of ways, not in the least bit limited to currencies.

Blockchain is a method of digitally tracking transactions. When a transaction is made, it's passed through a highly connected distributed ledger that ensures the transaction was accurate, Business Insider reported.

Each block contains some basic information:

  • An ID number called a "hash."
  • The previous hash so the blocks can be arranged chronologically.
  • Any number of transactions.
  • A public key so the sender and receiver can identify the transfer.

The idea behind blockchain is a more secure technology - one that's impossible to spoof or alter, and one that doesn't require a centralized ledger to validate every transaction. This, in turn, holds a number of potential opportunities for financial institutions.

CU Ledger: Blockchain for credit unions

The Credit Union National Association has already taken the first step in making blockchain technology a standard for the credit union industry. Since mid-2016, CUNA has explored the benefits of creating a distributed ledger that views individual credit unions as nodes - or, the points of verification that comprise the larger blockchain network.

The first test of CU Ledger will be focused on member identity. The goal is to effectively identify members to create a seamless exchange between customer and institution. With credit unions acting as the centralized authenticator, members would be able to use a platform called "sovereign digital identity" to have control over their identifying information, Credit Union Magazine reported.

"All our identities are is data," Elliot Cotto, chief creative officer of CUNA consulting partner Best Innovative Group, said, according to Credit Union Magazine. "Everything about us is data, and if it's data it can be digital."

When communicating with a business today, consumers must work with the company to prove their identity. Perhaps they answer a few security questions, or input a verification code that was texted to their phone.

With CU Ledger and the sovereign digital identity, consumers will be able to provide an unfalsifiable digital ID. This benefits the user by giving them complete control over their digital identity. And it benefits the institution by not requiring it to take the verification process onto itself while still cutting down on fraud, CU Journal pointed out.

CU Ledger will work through a downloadable app that the user will open every time he or she needs to provide proof of identity. A fingerprint scan will quickly and securely verify the user's identity. To do this CU Ledger uses an open-source technology called Sovrin, a blockchain network created by Evernym and which is used specifically for digital identity management.

Timothy Ruff, the CEO of Evernym, said there are many possibilities for this technology to benefit people and companies beyond financial institutions. For example, it could be introduced to peer-to-peer payments to ensure transactions are actually getting to where they're sent. But for now, CU Ledger is focused on credit unions.

"That's cool, and if that happens it would be fantastic, but even if it doesn't, having a bulletproof identitity-authentication system just for the internal operations of the credit union would be worth it," Ruff told CU Journal.

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