Why Saudi Arabia is turning to blockchain technology
Blockchain is an advanced technology that uses distributed ledgers to build blocks through the use of the internet.
It can track financial transactions and allows for the transfer of ownership and titles of physical assets, such as property, as well as keeping tabs on health records and other personal data.
Blockchain technology became well-known and popular when bitcoin was first introduced as a digital cryptocurrency in 2008 by a person or people using the name Satoshi Nakamoto.
Such technology has been proven to be cost effective and boost efficiency, since transactions can be executed without the need for a middleman or intermediaries such as banks or other financial institutions. It can therefore diminish transaction costs.
It is also proven to be a safe and secure technology to use because of the way that the data or the information has been recorded in the blocks by using techniques that make changing the data contained in the blocks difficult without the consent of parties involved in a transaction.
Distributed Ledger Technology (DLT) is an integral part of the blockchain process because it records the data into the block which are chained together to form the chain of blocks.
A single block can store up to 1 MB of data, depending on the size of the transactions, which means that it can house a few thousand transactions in one batch.
The Saudi Arabian Monetary Authority (SAMA) has recently announced the deployment of blockchain technology for money transfer to deposit part of the liquidity that it had previously announced to inject into the banking sector.
‘It is proven to be safe, secure and cost effective.’
Talat Zaki Hafiz
By deploying such advanced technology, SAMA aims to enhance its capabilities with regard to emerging technologies and keeping pace with the global trends of central banks.
Such a move will also allow SAMA to continue its efforts in exploring, experimenting and assessing the impact of such technologies on the financial sector.
SAMA is one of the first central banks to experiment with blockchain technology for money transfers. The move is one of the key initiatives launched by SAMA to promote fintech in the Kingdom.
Other SAMA actions include the Fintech Saudi Initiative launched in cooperation with the Capital Market Authority, the introduction of the SAMA Regulatory Sandbox, and an array of digital banking services and payments.
• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz