Blockchain Technology will make or break your business in the future

Blockchain – Transforming the financial world

You must, have all, been hearing about blockchain, the new buzzword that the financial experts are often found mentioning these days. The myriad benefits that it can offer to the financial world. How it will transform the concerns associated with security of financial transactions.

So, let us understand, what exactly blockchain is. The shortest definition of blockchain is:

Blockchain = Distributed Ledger

or list, of all transactions across a peer-to-peer network. Data in a blockchain is stored in fixed structures called blocks.

Before we dig deeper let us first understand few definitions:

Cryptocurrency a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. 

Distributed Ledger a database that is consensually shared and synchronized across network spread across multiple sites, institutions or geographies. It allows transactions to have public "witnesses," thereby making a cyberattack more difficult. 

Smart contracts are agreements that are encoded in a computer program and automatically executed upon certain criteria being met. Advantages of smart contracts includes improved quality, reduced contract execution costs and increased speed. Smart contracts can be stored on the blockchain. 

Hashing in simple terms means to take an input string of any length and give out an output string of a fixed length

What is a Blockchain?

A blockchain can be defined as an anonymous online ledger that uses the data structure to simplify the way we transact. Blockchain allows the users to manipulate the ledger in a secure way and without the help of any third party.

In case of a bank the ledger is connected to a centralised network. A blockchain is anonymous, thus protecting the identities of the users. This makes blockchain a more secure mean to carry out financial transactions. 

The algorithm used in blockchain reduces the dependence on the people to verify the transactions. This technology, used for recording various transactions has the potential to disrupt the financial system.

A blockchain is a kind of transparent, independent, and permanent database coexisting in multiple locations and shared by a common community. This also why it is referred to as a mutual distributed ledger (MDL).

Who controls blockchain? 

It depends on the type of blockchain, which ranges from permissioned (where the verification blockchain is preselected by a central authority or consortium) to permission less (where anyone can participate in the verification process). At present it is the permission less blockchain that supports Bitcoin that has been the focus of more media attention. 

Why are financial services companies excited about it?

Crypto currencies has been in existence since Bitcoin was launched in 2008. But, the concept of blockchain has really taken off over the past 12 months as it can help to:

1. reduce or eliminate the need for certain intermediaries 

2. automate manual tasks; 

3. security as interference with transactions on the blockchain is extremely difficult and that every participant in the blockchain can view if any changes are made

4. distributed ledger stores the entire ownership history of an asset

The many uses of the blockchain are explored in the areas of:

1. Know Your Customer (KYC), 

2. Anti-Money Laundering (AML), 

3. Trade surveillance, 

4. Smart contracts, 

5. Collateral management, 

6. Settlement and clearing,

7. The ability to capture historical and current ownership of high-value items. 

Cryptocurrency Exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currency like US dollars or Euro. Some of the reputed cryptocurrency exchanges are Coinbase, Kraken, Cex.io, ShapeShift, Poloniex, Bitstamp, CoinMama, Bitsquare, LocalBitcoin, Gemini, Bitsane, Bittrex.

Applications of Blockchain:

1. This year the Australian Securities Exchange (ASX) announced that it would move Australia's equities clearing and settlement system on to blockchain.
2. NASDAQ, in October 2015 unveiled Linq, a solution that enables private companies to digitally represent share ownership using blockchain-based technology.
3. The land records has been put on a public ledger by the Honduras government. The minute there is a change in ownership, it immediately gets recorded publicly.
4. Sony is seeking Blockchain Patent for User Authentication System as Japanese technology major Sony has filed a patent application for a Blockchain-based multi-factor authentication system (MFA).
5. Cargo security is one fantastic application for blockchain; it could help prevent identity theft and 'fictitious pickups'
6. As per a patent application released by the U.S. Patent and Trademark Office, Verisign is considering using blockchain technology as part of a potential new DNS Security Extension (DNSSEC) project.
7. Blockchain courts will offer effective dispute resolution in smart contracts in US where a decentralized arbitration system on the blockchain, issues are resolved by a panel of jurors resident on the Jury.Online platform. Users on this platform can create deals and have them registered on the blockchain as immutable and transparent smart contracts. This enables every fact and detail of the deal to be available and traceable in case of any dispute. To settle eventual disputes, judges are chosen randomly from a pool of judges, unless the involved parties unanimously select a particular judge over themselves whose decision will be binding over the issue at hand. 

It is not a rosy picture all around. A significant drawback of blockchain is their distributed nature demands constant computational power at multiple locations, and all the on-going accumulated (electrical) power that entails massive amount of usage of power.

Nevertheless, if experts are to be believed blockchain architecture can significantly bring down the costs and reduce inefficiencies in the financial sector. The next 4-6yrs will be very exciting in the financial sector. Technology, if treaded carefully, will massive change the way we use currencies and usher in a new era in the financial words.