Blockchain, a software controlling the digital currency Bitcoin, could soon be adopted by banks and traders for future financial transactions.
Blockchain is a huge transaction database that is composed of agreements and contracts spread across computers digitally. These digital records are grouped together into what are called “blocks,” then are chronologically ordered into a “chain.” Each block, a large amount of data, is “hashed,” meaning that the block is encrypted into a fixed amount of data. Once this is done, the ledger cannot be changed or messed with, only added to.
“You don’t store details of the transaction, just the fact that it happened and the hash of the transaction,” explains Adrian Nish, head of threat intelligence at BAE Systems, to BBC.
Since the data is distributed to several thousand computers globally, it is more difficult for hackers to obtain every copy of the database simultaneously. This system keeps the data safe and private to the users.
Time reports that blockchain has been around for a couple decades, and was made popular through its role in Bitcoin. Bitcoin is a digital payment system invented by Satoshi Nakamoto. Users have the ability to make transactions directly with one another, cutting out the middleman entirely. It is a form of cryptocurrency that has the highest market value of its kind. Bitcoins are made as a reward for performing payment processing work. They are created through the use of computers performing difficult problems, which increase in difficulty over time. This action is called “mining.” These bitcoins can then potentially be traded for other currencies, products and services.
Bitcoin Vietnam Co. Ltd., Vietnam’s first bitcoin exchange, and Coinify ApS, leader of blockchain currency, have joined in a partnership to bring out advanced blockchain merchant encrypting methods to the Vietnamese market. This demonstrates the global utilization of Bitcoin.
Bitcoin lacks a central bank, meaning there is no centralized authority. This is why free-market consumers love using Bitcoin. If banks and other financial companies utilize the concept of Bitcoin, in theory, it should cause more efficient and cheap services for everyone.
“They basically keep our money safe and a big computer keeps track of who has what,” Simon Taylor, vice president of entrepreneurial partnerships at Barclays, said. “But getting these computers to talk to each other is remarkably complex and expensive — the tech is getting a little old.”
It is not only for banks though. The technology company Everledger utilizes blockchain to certify diamonds, and other objects associated with transaction history. It confirms that rough-cut diamonds are not being manipulated by militias to finance conflicts. Blockchain provides better tracking of customer repayment histories, thus reducing the risk of defaulters. Everledger uses blockchain to provide transparency to all parties involved, and is able to prevent diamond fraud.
Although blockchain has its advantages, there are still several challenges facing its widespread use, according to Beta News. Some of these challenges include the cost of transactions, security, scalability and verification time.
It is unclear how blockchain will be adopted in the financial services industry, but as innovations in technology change the way money travels, businesses will be keeping a close eye on blockchain and its potential role in future transactions.
“The idea has been very impactful, and is extremely involved and surprising,” said University of California, Santa Barbara computer science professor Stefano Tessaro, who shared his thoughts on blockchain with The Bottom Line. “To me, it is also fascinating how this technology has come up — the concept did not come from academic circles or industry, and in fact, the whole development of Bitcoin is still to date surrounded by mystery. Still, it works, and provides a new functionality and an interesting object to study for researchers from all areas. For example, beyond computer scientists, it has attracted interest from economists, and the dynamics of entire mining industries are interesting by themselves.”