Part 1 – What is Blockchain and how is it evolving?
At a recent roundtable in Geneva, Patrick Maes of Credit Suisse considered that Blockchain could be the most significant innovation in banking since the beginning of money.
Chances are that if you have heard about Blockchain that you have heard it in relation to Bitcoin. Whilst Blockchain is the technology behind Bitcoin, it has uses that go much further than Bitcoin and other cryptocurrencies. In the last few years these uses of Blockchain have been evolving and have been making news.
What is Blockchain?
A transfer of value needs to involve the gain of value by one party and a corresponding loss of value by the other party. In the physical world, this transfer of value is straight-forward as a physical item is handed from the seller to the purchaser. In the virtual world, this is more complicated as a perfect copy of an item may be transferred and so there is no loss in value to the seller.
Blockchain is a method of authenticating this transfer of value in the virtual world.
Blockchain involves the following elements:
- A digital ledger that keeps a record of all transactions taking place on a peer-to-peer network.
- All information transferred via Blockchain is encrypted and every occurrence recorded, meaning it cannot be altered.
- It is decentralized, so there’s no need for any central, certifying authority.
- It can be used for much more than the transfer of currency; contracts, records and other kinds of data can be shared.
- Encrypted information can be shared across multiple providers without risk of a privacy breach.
How is Blockchain Evolving?
Blockchain was introduced in Satoshi Nakamoto’s 2008 research paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
A second-generation Blockchain system called ethereum introduced the idea of “smart contracts.” These are little computer programs built directly into Blockchain that allows financial instruments, like loans or bonds, to be represented. The ethereum smart contract platform has hundreds of projects being developed.
The original Blockchain is secured by “proof of work,” in which the group with the largest total computing power makes the decisions. These groups are called “miners” and operate huge data centres to provide this security in exchange for crypto-currency payments. These data centres consume large amounts of energy and so are located in countries like Iceland or China to take advantage of cheaper energy. The new “proof of stake” systems replace these data centres with complex financial instruments to provide the security.
Currently in Blockchain, every computer in the network processes every transaction which is slow. Blockchain scaling would accelerate the process by figuring out how many computers are necessary to validate each transaction and dividing up the work efficiently. To manage this without compromising security and robustness is a challenge.
Blockchain continues to evolve. We are moving from proof of concept to real applications that will revolutionize finance. Our next article will look at some of the implications for finance.
Mark Kissack, Senior Consultant
Source: IoT World News
2. BLOCKCHAIN – HOW THIS TECHNOLOGY COULD REVOLUTIONIZE FINANCE
1. FINTECH – A GAME CHANGER?
2. FINTECH – A GAME CHANGER?
3. FINTECH – A GAME CHANGER?
ALL 3 PARTS : FINTECH – A GAME CHANGER?
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