Since the inception of the internet never has there been a technology with the potential to abolish vast amounts of record keeping while, at the same time, saving money and disrupting the IT sector as a whole. Much like open source software a quarter of a century ago, blockchain technology is positioned to disrupt the very way we carry out transactions and share information. Although seemingly new, the hype surrounding blockchain technology is indicative of its era-defining status.
So, what exactly is blockchain technology?
Blockchain, a public electronic ledger, provides open access to disparate users while creating an unalterable record of those users transactions, each stamped and linked to the previous in the form of a thread, known as blocks (hence its name). As the blockchain grows, the records are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp, and transaction data.
You might be wondering why blockchain has become such a popular topic of conversation. The answer lies in the cryptocurrency market. The meteoric rise in the value of Bitcoin — still the largest cryptocurrency in terms of market capitalization — and a growing number of alternative cryptocurrencies such as Ethererum, Ripple, Cardano, Litecoin, and Stellar to name a few have engrained the application of blockchain technology in the cryptocurrency market, thereby generating more and more avenues for peer-to-peer monetary exchanges.
How does blockchain technology work?
Blockchain technology taps into its distributed time-stamping server to provide a platform for automated management of its database, which facilitates the exchange of information by eliminating the need for a centralized administrator.
This structure makes it possible to use blockchain technology to create smart contracts — a protocol intended to facilitate and enforce negotiation to allow the performance of credible transactions without involving a third party. This makes blockchain technology much different from centralized currency.
Is blockchain technology secure?
Despite the belief that no system is un-hackable, according to Alex Tapscott, the CEO and founder of Northwest Passage Ventures, a venture capital firm that invests in blockchain technology companies, the blockchain uses a simple topology, making it the most secure today.
“To hack the system,” says Tapscott “you wouldn’t just have to hack one system like in a bank…, you’d have to hack every single computer on that network, which is fighting against you doing that.”
Blockchain technology uses a tremendous amount of computing resources. So, we can’t say it’s not un-hackable. However, it is far more secure than anything we have come up with in recent times.
Blockchain technology could be easily adopted by several industries, including FinTech, shipping, energy, and healthcare; helping to provide easier, faster ways of completing transactions.
Take for example the financial services industry where the process of payment, clearance, and settlement requires communication with the other organization through electronic messaging about its status in the process. As a result, completing a settlement typically takes two days and can earn the bank a substantial fee for facilitating the transfer. With blockchain based cryptocurrency, the bank (the middleman) is cut out of the process entirely. Currency can be transferred peer to peer, instantaneously.
By adopting blockchain technology, FinTechs could eliminate or reduce the need for confirmation, reconciliation, and trade break analysis, which would eventually lead to a more efficient and effective clearance and settlement process.
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