Blockchain is the technology that underpins Bitcoin currency. Blockchain operates as an online ledger that allows every transaction to be tracked through peer-to-peer authentication. This means every single transaction is authenticated by the entire network and not by a centralised body (such as a bank or clearing house). As a “single shared source of truth“, the blockchain online ledger has the potential to transform the legal and financial markets.
About Blockchain Technology
In the blockchain, each ‘block’ is a recorded transaction timestamped with data. With Bitcoin, each block contains data about the recipient and sender’s details and the amount to be sent. For every single transaction that takes place in the blockchain, it is authenticated by the entire network through nodes. Each block in the blockchain authenticates the previous record to ensure rogue blocks cannot be added to the blockchain without first being validated by all previous blocks.
The ability to create a public ledger to track each transaction with minimal cost and without expensive settlement down will change the way the industry authenticates digital transactions. The public nature of the ledger means that it is open to all for participation, creating transparency and increasing efficiency.
The Impact of Blockchain
As it develops, the technology behind blockchain will be able to be implemented outside Bitcoin. Today, we are beginning to see blockchain being used to create and exchange binding “smart contracts”. Smart contracts are self-executing contracts that execute themselves once certain conditions are met. For example, if one party receives funds, it will automatically trigger an action to release funds to another.
The CEO of London’s fintech industry has said this could replace standard business documents to validated business agreements and relationships without turning to the legal industry. Not only would the settlement of transactions be more efficient, but also this platform could offer a low-cost solution by automating processes. By way of example, blockchain technology could be used to buy, sell and lease cars. Cars would receive a cryptographic signature when passing from each party. The cryptographic signature, in turn, would allow entry and access to the vehicle.
Moving Forward with Blockchain
Blockchain has the potential to revolutionise the finance sector by increasing efficiency and minimising fraud. By decentralising the market and minimising administrative tasks, the transparency of the blockchain should encourage stakeholders to look into how blockchain can help their industry. It is not a surprise that this technology is being cautiously reviewed by banks as traditional back-end services would no longer be needed.
Blockchain will fundamentally change the way we conduct transactions by removing the guard walls surrounding financial institutions. Over the next few years, we will begin to see reform surrounding decentralising the financial market as blockchain technology continues to be implemented by enterprises and financial institutions.