As the most innovative technology of modern days is carving its path into the world of business, finances, and various types of industries, many pose the question "Can Blockchain technology change the world of finances we know today?" If the answer to this question is yes, then this change would surely affect some areas and institutions such as largest banks, central banks, major financial institutions and even government institutions.
First of all, it's important to answer the simple question: "What is Blockchain technology?"
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What is Blockchain?
A blockchain is a huge public ledger of all Bitcoin transactions that have ever been made on the network. It is constantly growing in a form of "completed" blocks that are added to it with a new set of recordings. The blocks are added to the blockchain in a linear and chronological order. In the following four steps there is everything that should be known about this innovative technology.
1. Blockchain Technology
The blockchain is an ingenious invention by the founder known by the pseudonym, Satoshi Nakamoto. Since its creation, it has evolved into something much greater. By allowing digital information to be distributed but not copied, blockchain technology created the conditions for having a new type of internet. At the beginning, it was created only for the digital currency, Bitcoin. Nowadays, the tech community is trying to find other potential purposes for the technology.
Bitcoin has been called "digital gold" because until today the total value of the currency came close to $9 billion US. Blockchains can make other types of digital value as well. Blockchain technology it is a combination of already proven technologies that are applied in a new way. It was invented as the orchestration of three technologies: the Internet, private key cryptography and a protocol governing incentivization.
2. A Distributed Database
Information which is held on a blockchain exists as a shared and constantly updated database. The blockchain database isn’t stored in any single location, which means that the records it keeps are public and easily verifiable. There is no centralized version of this information on the network which can be corrupted. It is hosted by millions of computers simultaneously, and its whole data is accessible to anyone on the internet.
3. Blockchain durability
By storing blocks of information that are identical across the network, the blockchain cannot be controlled by any single entity. Blockchain is also a revolutionary invention because it has no single point of failure. Since bitcoin was invented in 2008, the Bitcoin blockchain has operated without significant disruption. For example, the internet has proven to be durable for almost 30 years, which is a good track record, regarding the date of creation of blockchain technology and its continuous development.
The blockchain network is in some state of consensus, as it automatically checks in with itself every ten minutes. The network simply reconciles every transaction that happens in ten-minute intervals. Each group of these transactions is known as a "block".
Transparency - The data is embedded within the network as a whole and by definition it is public.
It cannot be corrupted - Trying to alter any unit of information on the blockchain would mean using a huge amount of computing power to override the entire network.
By design, the blockchain is a decentralized technology, meaning that every operation that happens on it is a function of the network as a whole. By creating a new way to verify transactions, the traditional e-commerce system can become unnecessary. Stock market trades are almost simultaneous on the blockchain.
A global network of computers uses blockchain technology to jointly manage the database that records all Bitcoin transactions. Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a peer-to-peer basis.
Changing the Modern Finance World
Some significant names such as Goldman Sachs, McKinsey Consulting, and Consumers' Research have written positive reports regarding this question. Moreover, the government of the UK, senates of Canada, United States, Australia and the European Union have all done some examinations and analysis of this new system that could potentially play the key role in the future.
Numerous new startups tend to create white papers putting the accent on use of Blockchain technology as well. So, here are the most important characteristics of Blockchain that can largely affect the modern financial world.
Efficiency of Cross-Border Transactions
The digital revolution has largely affected the way the media work and the finance industry in a certain way as well because every financial institution uses computers nowadays. Some major names in banking world still use a complex infrastructure, resulting in having a quite lengthy and complicated process when it comes to something simple, such as sending money abroad. Researchers and financial experts concluded that the infrastructure of cross-border transactions is the same we had in 1970.
On the other hand, Blockchain technology enables financial institutions to connect directly with each other, totally avoiding the bank as an intermediary. This way, large financial institutions would use a single large database to keep track of transaction process without the need to put any central database or management system in the process. This change would enable banks to secure digital links and relationships between themselves in a brand new way, which is way easier than before. Blockchain technology is just built to resolve this kind of problems between financial institutions in a very efficient way.
The Use of Digital Assets
The new element that the appearance of Bitcoin added to the new digital era is digital property. Before the launch of this powerful cryptocurrency, any digital asset could be copied by simply clicking a "copy" button. But nowadays, we have something new and unique, the uncopyable digital code. Digital code obtained a huge value for with this innovation. As the BTC value is based on the capacity of Blockchain, the cryptocurrency developers created coins that can act as stocks in companies. These can be the asset, but Blockchain can also have a bigger role, which is running the market itself.
Blockchain in Markets
This characteristic enables Blockchain not just to record and store data about transactions. For example, the company Nasdaq became one of the pioneers of the new market system when they enabled private companies to issue and trade share by using the blockchain technology.Blockchain was invented as the orchestration of three technologies: the Internet, private key cryptography and a protocol governing incentivization.
Blockchain is considered to be a fully transparent system of records when it comes to regulators. It can also be coded to authorize transactions that follow the regulatory reporting, which is a huge advantage compared to the current regulatory system.