The Big Deal with Blockchain
What is Blockchain?
Blockchain is a digital, decentralized public ledger of transactions that is capable of creating trust without the need for intermediaries, and improving efficiency and security in the current financial system. This revolutionary technology has become popular for being the infrastructure for cryptocurrencies, such as bitcoin.
Explained in detail in Satoshi Nakamoto’s white paper, the distributed ledger in a blockchain is similar to a database that holds transaction logs across a network, in which the same information is visible in all locations at one time. Cryptography and digital signatures help the blockchain self-govern the validity of users and transactions in real-time, avoiding the need for a trusted 3rd party platform that would maintain overall integrity and structure. Trust is able to be established and maintained through these cryptographic proofs.
Think of a shared online spreadsheet that allows thousands of users to make changes, which update right away and are visible to the group - -without the need for a single individual to manage or organize the process.
How Blockchain Impacts Banking
Today's banking world uses traditional ledgers for parties that request transactions and runs these transactions through a clearing house, which acts as the authority in making updates to the ledger. Blockchain eliminates the need for a clearing house and has the parties involved update their own distributed ledgers after agreeing and verifying the respective transaction. This saved record is then timestamped and gets encrypted as a permanent part of the blockchain.
With the launch of Bitcoin in 2009, blockchain has fully come into the spotlight by being the first framework for a peer-to-peer currency system free of fraud.
Uses and Implications Beyond Finance
A growing consensus in the fintech industry is that blockchain is a true innovation with tremendous potential and usage not only in banking and financial services, but across other fields. The benefits of encryption, authentication, real-time transparency, and efficient record-keeping give blockchain the opportunity to truly transform industries by reducing billions in operational costs and increasing overall customer confidence.
Some components of blockchain that can immediately impact other sectors are:
A decentralized database is capable of spreading the risk of from one central server containing all data sets, to a network of nodes around the world;
A transaction platform helps manage records in real-time to be verified publicly from any access point, without the ability to manipulate fraudulently;
A peer-to-peer network removes costly intermediary parties that can delay transaction timeframes;
A layer of trust inherent in blockchain’s structure can be applied to industries performing transactions with clients who may be exchanging products, services, or information.
Industries that can benefit from blockchain disruption are: banks, insurance companies, remittance services, healthcare, logistics, government agencies, social media, digital content providers, and gaming.
Challenges and Outlook
As blockchain technology continues to develop and mature, there are still obstacles slowing its rate of adoption, such as:
lack of a ‘killer app’ that introduces and exposes blockchain to the masses;
lack of a software (blockchain) developers completely focused on blockchain;
lack of investment from established financial institutions, and investors;
Uncertainty with regulation from government agencies.
Despite the current barriers to growth, blockchain is still being held as a revolutionary innovation that will impact business around the world in the years to come.