A blockchain is a public ledger which holds all Bitcoin transactions which have ever taken place. This ledger is constantly growing as every day completed blocks are added to the blockchain. These blocks also come with a new set of recordings and are added to the blockchain in a linear and chronological order.
Computers connected to the Bitcoin network using a client who validates and relays the transactions are known as nodes. Each node gets a copy of the blockchain, which is automatically downloaded upon joining the network. The blockchain has all the information concerning the addresses and their respective balances right from the first block to the recently completed block.
Breaking Down Blockchain
The blockchain stands as proof of all Bitcoin transactions, and that’s why it’s seen as the leading technological innovation of Bitcoin. All the recent Bitcoin transactions are recorded in the current part of a blockchain known as the block.
Once the block is completed, it goes into the blockchain as a permanent database. A new block is usually generated once the older block gets completed and the number of such blocks in the blockchain is countless.
However, you should understand that the blocks are not randomly placed in a blockchain. They are usually connected to each other like a chain, in a proper linear and chronological order. Every block usually contains a hash of the previous block.
Blockchain Vs Banking Transactions
The blockchain technology can be compared to the full history of banking transactions. Bitcoin transactions are entered in a blockchain in chronological order; the same way bank transactions are entered. The blocks, on the other hand, are quite similar to individual bank statements.
Following the Bitcoin protocol, all the nodes participating in a system share the blockchain database. One can find the records of every blockchain transaction ever completed in the full copy of the blockchain, and they can easily get an insight into the facts of a particular address at any point in the past.
Many people have hailed the blockchain as the revolutionary holder of the promise the internet did close to two decades ago. Even business figures like Richard Branson and Bill Gates have positively commented on its potential.
When the former UK Prime Minister David Cameron included a blockchain expert in his entourage during his trade mission to Asia, many were surprised. Yet, those who have been keeping tabs with blockchain technology were excited to see decision makers start embracing the undeniable potential of this technology.
Blockchain Possibilities and Applications
Financial experts say that blockchain possibilities are limitless and its applications are very wide. Some of its applications include:
- Storing the identities of clients,
- Handling cross-border payments,
- Clearing and settling bond or equity trades and
- Handling self-executing smart contracts – like a credit derivative which pays out automatically or bonds which regularly pay interest to the holders.
Other experts even argue that the technology has the capability to disrupt companies which have forged reputations as disruptors like Airbnb and Uber. Blockchain, at its core, is a network of computers, which must approve any transaction which takes place before it’s recorded in a computer node.
Like with Bitcoin, the technology’s first application which is normally applied to money, all transactions are secured through cryptography, and the costs are usually shared amongst those in the network. The transfer details are then recorded on a public ledger which can be seen by anyone on the network.
Central Lender Vs Shared Database
In the present banking system, all client information is kept in a central lender. In a block chain, on the other hand, all the information is stored in a shared database in a transparent manner, and no one acts as a middleman during the entire process. Many agree that this creates trust amongst the parties involved, and there is no chance for abuse from any party in a dominant position.
The lack of a central authority in the blockchain is the feature which created a lot of worry amongst the traditional financial institutions. This is because most of these institutions gave central authority a wide berth. The idea that seemed to be borne out, especially when cryptocurrency was in the center of major scandals like transacting drug money to the disappearance of client assets.
However, almost every major financial institution has overcome this initial suspicion and started embracing the technology. The technology has transformed from being labeled as a threat targeting the banks to being heralded as the back office makeover of the banks. This became a very bitter blow to those who propagated the idea of blockchain technology as a threat to the global banking system.
Banks Hiring Block Chain Specialists
Some banks have even started hiring specialists to investigate the ways in which block chain can be used to increase speed and reduce the costs in payments as well as trade finance. While some consider this as the scenario where suits are replacing hoodies and ripped jeans. Some of these experiments which were conducted secretly have already started to earnest in the past few years.
There is a huge desire to make the blockchain technology successful. It has major rewards to financial institutions: doing away with inefficient intermediaries in the banking sector can save billion for consumers and the financial sector too.
According to a recent study conducted by a Spanish bank Santander, block-chain technology will reduce banks’ infrastructure costs for cross-border payments, regulatory compliance, and securities trading by $15 billion to $20 billion in a single year.
Financial experts agree that the technology will work very well in many areas, and it is very easy to predict how it can revolutionize the financial sector. It is set to reduce the time taken for securities settlement and also reduce the amount of capital which is usually held by banks against each trade.
Blockchain and Cyber Crimes
Block-chain also presents an opportunity for the big banks which are struggling to modernize their outdated IT infrastructure. Most of these banks are facing immense pressure from cyber-criminals, digital challengers and their regulators and the technology will give them the opportunity to plan much of what they can achieve.
One of the features in the blockchain technology being eagerly explored is its ability to provide identity and the history of the individual’s transaction records which cannot be forged. Insurance companies believe that the interlinking records could be highly useful when it comes to cross-checking the actions of a particular individual.
Its distributed ledger can be used to store either an individual’s or a company’s validated data. This is something financial experts say if applied globally, can offer more security over the identity of the data and its storage location.
Some governments are also said to be investigating the potential of the technology. For example, the government of Honduras is currently handling land titles using the technology while the Isle of Man has started registering its companies using the technology. It is believed that a longer term ledger which cannot be tampered with can be used in the healthcare industry to store medical records or develop tamper-proof voting systems.
Brooke loves surfing through social media, so she made it a full time job and works as a social media manager at Entrance Software Consulting Company. And loves all things Tech. When not working, she eats and sleeps, in that order.