Watch Out, Visa and MasterCard; Here Comes BlockchainThe hot, hot investment theme of changing how people pay for things is going to see even more dramatic changes in coming years than those imagined by upstarts such as Square.
A technology called blockchain, which has evolved as an open-source software program shared on the Internet, has the potential to remove multiple layers of processes and intermediaries in the sequence of steps that “settle” or “clear” payments from one party to another.
The immediate impact could be a big drop in the usefulness of credit-card networks such as Visa (ticker: V), MasterCard (MA), American Express (AXP), and Discover Financial Services (DFS).
As mentioned in this column last week, digital payment is the latest thing in technology, as evinced by the initial public offering two weeks ago of Square (SQ), the San Francisco start-up that provides merchants with an electronic reader for processing payments. Square’s shares recently were trading above $12, a third higher than the offering price.
But Square and other payment contenders, such as PayPal (PYPL), are just the start of a more profound revolution led by an open-source software program that creates a kind of financial ledger for transactions.
The technology came to prominence with the rise of Bitcoin. The virtual currency had a surge of popularity before a panic led to extreme skepticism about such fantasy money. But blockchain technology is a sound idea that’s separate from Bitcoin, and it could end up having a far greater impact than the currency.
Using a collection of computer codes, blockchain records credits and debits between parties. Whether the currency of those credits and debits is Bitcoin, dollars, or renminbi doesn’t matter. The system is kept honest by multiple computers comparing their versions of the ledger in order to come up with an authoritative single record.
http://www.barrons.com/articles/watch-out-visa-and-mastercard-here-comes-blockchain-1448691510
