Blockchain technology isn’t just for cryptocurrency.
With a new wave of financial technology came the world of cryptocurrency. This digital money has proven to be a polarizing topic, discussed in length across all industries. Whether it’s about the fluctuating Bitcoin market or what you can even do with your Bitcoin, people are talking about it. One of the biggest draws to cryptocurrencies is the decentralization aspect of the money. There isn’t one governing entity. Instead, the people that use this peer-to-peer system of money are in charge of monitoring it. This is where blockchain comes from.
Blockchain is the digital, public ledger where cryptocurrencies occur. Through a blockchain, everyone in the network can see every account balance. Every transaction includes a file with a sender, recipient public key, and the number of coins involved in the transaction. The transaction is sent with a private key by the sender in the form of cryptography.
A blockchain is decentralized and is constantly growing with completed blocks. The most recent transaction is added in chronological order, which allows the blockchain participants to keep track of the transactions without central recordkeeping.
Blockchain was created by the same developer who invested Bitcoin in 2008. Since the creation of cryptocurrencies, while the digital money may not be embraced by everyone, blockchain technology has grown in popularity, along with many other financial technology innovations.
Before diving into what blockchains can do, we should probably cover how it works.
How it Works
Many tech-savvy individuals are heralding blockchain as the best innovation in technology since the internet itself. Exchanging information without the need for trust or a central authority was highly sought after, apparently.
The easiest way to describe how a blockchain works would be to go back to its roots with Bitcoin. For the simplicity of this example, you need to know that one Bitcoin (BTC) is just like a dollar, holding no value itself. It holds value because we agree to trade goods and services in exchange for a higher amount of the currency.
To do so, users of the blockchain uses a ledger which is a digital file of all Bitcoin transactions. The file isn’t held in a central entity server but it is distributed across the world through private computers that store data and make computations. Each computer is known as a node of the blockchain network and has a copy of the ledger.
When User A wants to give User B a Bitcoin, User A sends a message to everyone in the network that says that everyone needs to change their records to lower User A’s amount by one Bitcoin and increase User B’s by one Bitcoin, or however much the transaction is.
It all seems a bit insecure, doesn’t it? The security comes with the cryptographic keys that are held by the two users, each holding a public and private key. With the combination of the public and private key, the user has a digital signature, proving ownership of the unit of digital money. The transaction information plus the digital signature makes a block. A blockchain consists of a series of transactions holding this information, hence the name blockchain.
Now that you have a better understanding of how it works, other applications may make sense. Blockchain is simply a way for transactions and actions to take place in a transparent and safe manner.
Blockchain’s Life Outside of Cryptocurrency
Most of the news surrounding blockchain is attached to cryptocurrency but there is more to blockchain than just cryptocurrency. It is fairly agreed upon that blockchain will grow beyond than just cryptocurrency. Big banks have been making deals with major technology companies and even small startups to develop ways for blockchain to work for them.
Here are just some of the ways blockchain has crept its way into our daily lives:
For one, blockchain can be utilized to maintain the various tasks that are involved in accounting, including tax code, managing business operations, and the demand for precision and accuracy. With blockchain technology, transparency gives visibility to all transactions for approved users. This can lower the workload for an auditor.
In the world of advertising and marketing, blockchain can help reduce “click fraud”, making sure marketing executives reach their target markets. Human resources can use blockchain to quickly verify credentials of job candidates and existing employees.
Information technology and cybersecurity can use blockchain technology to revolutionize the market by keeping track of digital interactions in a transparent and secure.
In 2015, FinTech company R3 joined with nine financial companies, Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, JP Morgan, RBS, State Street, and UBS, to invest in blockchain. Soon after, thirteen others joined.
Many large banks have begun to seek out blockchain technology, striking partnerships with major technology vendors and even smaller startups. Blockchain technology has the potential to cut banks’ infrastructure costs by $20 billion a year by 2022. This includes banks such as Bank of America, Bank of England, The Royal Bank of Scotland, HSBC, and more.
These are just some of the examples of how blockchain is being used all over the financial and business world. Keep an eye out. You may soon see it in more places and you don’t want to be left behind.
The shift we are seeing is that of a digital age. Tech-savvy individuals are seeking easy access, convenience, efficiency, and speed in every part of their lives, including their finances. Having the ability to make transactions from the convenience of a phone or other electronic platform is what is creating this strong push towards Fintech.
Looking beyond blockchains, we are seeing technology have a hand in simple things such as payment and holding money, and more complex life aspects like investment advising. Some companies are even developing ways artificial intelligence can assist in hedge fund managing!