FinTech: Blockchain and AI

Two key threads in the FinTech tapestry, by Lon Barfield

Think of the bicycle

Bicycle technology was stable for many years. You could look at a bike from a few decades ago and see the same ideas, the same components. In the late 70s and 80s that changed. There was a burst of new technologies, new metals, new ideas and new designs. The mountain bike was born in this era and bicycle design has been in a state of flux ever since.

There are other industries too where new technologies and new designs have suddenly and rapidly changed the shape of the industry; trainers, torches, waterproof jackets, and now it’s the turn of the financial services industry. This is the FinTech revolution brought about in part by the adoption of new technologies, but this revolution is not the result of one idea, it’s not the same as the transistor revolution where a whole gamut of portable devices were created by one breakthrough. FinTech is the result of many new technologies having an impact in many areas, and that impact is being moderated and encouraged by the regulations around financial and legal services. For this post, rather than consider a huge itemised list of individual technologies and applications areas what I will do is pull out two of the key ideas and discuss them and the ideas and issues around them.

These two key threads are Blockchain and AI. Although they have made big advances in recent years both these threads trace their ancestry back to the 1980s and 90s. Both developed gradually before being brought into the world of finance

Thread one - Blockchain

In a nutshell blockchain is digital media that nobody can change, ever. We are familiar with editing emails before we send them and with using photoshop to tweak images. Blockchain is digital media where once you have created something digital no one, not even you, can ever change it. Think of it as ‘Write once media’.

For anyone used to editing text and images it sounds like a pretty strange idea, but to those who need things to be set in stone it’s an amazing new technology, think of bankers, solicitors, lawyers etc. They will be able to write down a transaction or a contractual agreement and by doing it on the blockchain it will be a permanent and unchangeable record.

Smart contracts

So contracts on the blockchain are fixed and no one can change them, but it gets more interesting, it is possible to write a contract that is more than a statement of agreement, it can operate like a computer program; ‘on such-and-such date if this then do that’. And if there is digital crypto style currency involved then payments themselves can be part of this program; ‘On this date pay this amount to this person’.

IoT

If these digital contracts want to involve things in the real world then they need to know about the real world. To do this effectively you need sensors in the real world that feed information back to the digital world.
This is the internet of things, an internet where lots of things in the real world are connected up and report about themselves in real time.

Thread two - AI

AI stands for artificial intelligence, but intelligence itself is difficult to pin down. What we are seeing a lot of today is ML; Machine Learning, teaching digital systems to recognise patterns by feeding them existing data with outcomes so that they can learn to recognise the patterns and predict the outcomes without humans having to. Think of feeding an AI program lots of brain scans with outcomes and it can learn to spot those that have a brain tumour.

Big data

Back in the 1980s teaching AI was a difficult thing, there was no data for it to work on. Any data had to be laboriously keyed into the system bit by bit. 40 years later and we are awash with data. The whole of the web is a store of data and there is endless data being generated by sensors and other systems. Big data is the science of this data, how it is organised, managed and what are the ramifications it has.

There are strong links with the internet of things. Internet of things is about connecting real world assets up to the internet so that the status of parameters of those assets can be monitored. This monitoring over time generates lots of data that can be stored and analysed.

The bigger picture

So those are the two technologies that are currently having quite an impact on the financial world. There are many others, and there are many areas of application. And those two threads are full of far more detail than be covered in this post, but it’s a good introduction.

Finally I should point out that there it is not just about the technologies. There is a good deal of context around each individual FinTech topic and there are other subjects that are not technology but tie in very strongly with the technologies and their impacts on people. I am thinking of topics such as privacy, financial regulations, identity management, trust, history of FinTech and so on. The whole area is definitely not static, just like bicycle technology things are still developing at a fast rate. Watch this space!

Looking to discover what Blockchain and AI might do for your business and customers? Let’s talk.