First up, a quick history lesson. Created by Satoshi Nakamoto along with Bitcoin, blockchain technology was invented to keep a record of the digital currency’s transactions. Similar technologies have been in the pipeline for years, but Nakamoto’s was the first to hit the big time.
In simple terms, whenever a Bitcoin transaction occurs, the data created is stored in a digital ‘block’. This is then added to all other Bitcoin transactions in a chain. Like the internet itself, the chain has no centralised database and the complex algorithms within each block are impossible to hack. The technology works almost like a shared file, visible to all, only affected by the buying and selling of the currency it was set up to record.
A new way
The decentralised-nature of digital currencies has seen many other blockchain technologies spring up. Completely unregulated by the financial status quo, digital currencies have no need to comply with existing rules and regulations, and have thus created a new way of recording information that perfectly suits their purpose.
By creating a database that is incorruptible, it’s not gone unnoticed that the technology behind the blockchain offers a far superior level of security to all current methods of data storage. Given the amount of data stored by governments, banks, and businesses in general, the technology looks set to take off on its own accord and become an entity in itself, separate to Bitcoin and the other digital currencies.
The blockchain in finance
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott: Blockchain Revolution
Although banks and other financial institutions have adopted all manner of digital technologies aimed at improving the service they provide, they’ve yet to find a way of speeding up the international market.
At present, a bank within a specific country uses a secure database to store transactions made by its consumers within that country. For a bank to make a transaction from one country to a branch elsewhere in the world, secure databases must be opened and closed at both ends. This procedure offers a high level of security, but is time consuming and costly.
Blockchain technology would allow all of the bank’s branches – worldwide – to make transactions from one country to another, bypassing the need for the opening and closing of two secure databases. Current protocols can see international transactions take several days. Blockchain technology would allow them to happen at the click of a mouse.
The end of the middlemen?
If adopted, financial institutions would be able to move money around the world much faster, taking better advantage of exchange rates and freeing up time to make more investments. Financial traders have also seen the benefit of using a blockchain. Such a move would speed up the share-buying and selling process. Much of the current red tape would be removed, along with approval processes presently required by the institutions that hold the money of both parties.
Cutting out these middlemen reduces cost, in the same way that contactless card payments do the same. And there are big savings to be made. Goldman Sachs has estimated that using the technology across financial institutions worldwide could save the global economy up to $6bn per year.
A decentralised database for financial institutions would also quicken things up for the wider industry. Regulators would potentially be able to access information currently held under a blanket of security measures. Blockchains offer a complete and fool-proof record, capable of registering all transactions from the dawn of a company’s creation, without the need for human data input.
eBay can be used as an example here. At present, sellers pay the site transaction fees for hosting and selling items. Whilst some of this money finds its way into profit, much is spent on the middle-men along the digital chain that moves money from one source to another. eBay’s rival OpenBazaar uses a blockchain to remove the need for such fees. Through their technology, one user can interact directly with another, transferring money without the old-school legal hoops to jump through.
So, on a much smaller level, such technology would quicken things up for consumers too – no waiting for money to clear, no need to have to prove the legitimacy of the money you’re spending.
Given the above, any institution or individual living in a money-based economy is likely to benefit from the new technology, for reasons of convenience if not financial. Beyond these uses, the change from centralised to decentralised databases could also change the way interactions are made across the internet.
As it stands, a website’s information is stored on its content management system (CMS), which is akin to a centralised database. If a hacker can get inside that database, they’ll be able to corrupt the data in whichever way they choose. Move that data to an incorruptible blockchain and it’s not only safe from hackers, but users no longer have to rely on the website’s server to deliver them information. This would mean super-fast download times and uninterrupted streaming across all devices connected to the internet.
Blockchain & cryptocurrencies: the next big thing(s)
There’s been talk for some years as to how cryptocurrencies could be the biggest thing to have hit society since the World Wide Web. Whilst time may eventually prove such claims to be correct, it’s uncertain whether cryptocurrencies will thrive in their current form, and whether Bitcoin will still be a market leader in 50 years’ time.
The cryptocurrency market looks set to continue to thrive in 2018, but it remains volatile and unpredictable. In the meantime, the technology created alongside the cryptocurrencies is likely to be adopted across major institutions, given its array of benefits – from convenience and security, to time-saving and profit.
By the time cryptocurrencies are used by the global population, blockchain technology may well be ‘old hat’. And given the ease in which changeovers from existing databases to a blockchain could be implemented, it has the potential to become a huge part of our daily lives, whilst going completely unnoticed by most.
Michael Brown, Writer at Credit Angel (opens in new tab)
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