Today, “Blockchain” has emerged as a hot topic in the business space. Investors are beginning to wonder what this new technology could really offer them, beyond the ability to trade cryptocurrencies like Ethereum and Bitcoin. Indeed, few people understand the true potential of the blockchain, and what it might be able to do to transform the way that we verify identities online, and manage transactions.
In simple terms, a blockchain is a de-centralised ledger that verifies, records, and enforces various forms of transaction. As the name might suggest, blockchains are like a long, digital chain of transactions, typically recorded in “blocks”. Every time a new transaction becomes a part of the chain, a new block is added. Because the information held in each block is encoded with cryptography, transactions can’t be altered or changed with ease, which minimises the risk of fraud.
Blockchains and Smart Contracts
The truth is that potentially some of the biggest benefits of Blockchains can be found within their smart contracts. These contracts are a simple way for companies to automatically agree upon, and push specific contractual obligations. Because the terms of contracts can be recorded on a decentralized ledger this way, there’s no way for them to be altered. What’s more, these clever contracts have protocols that are encoded within each block to automatically execute specific obligations following certain criteria.
In other words, if you agree that you’ll purchase services one day, for a price that you’ll pay on a future date, a blockchain could execute that contract for you. The transaction would be encoded to include programmes that automatically deliver the funds on the correct data after the services have been delivered, with no middleman involved.
The concept of “smart contracts” means that blockchains have the potential to transform many of the industries reliant on secure transactions. However, for the meantime, many people use smart contracts through the transference of cryptocurrencies instead – a peer-to-peer digital payment system.
Improving the Financial World with Blockchain
Though cryptocurrencies are an intriguing part of the Blockchain puzzle, giving people access to finances that aren’t regulated by a central authority, they only scratch the surface of what Blockchain could be capable of. The more we understand the technology, the more we recognise it’s potential. Even large companies like Microsoft are beginning to explore initiatives like offering “Blockchain as a Service“, or BaaS.
With Blockchain, it’s possible to spread transactions and financial contracts throughout other areas of the financial services industry. Now, cryptocurrency has begun to test the Blockchain on a larger scale, the focus remains within the payment industry. For instance, the development of the international “SWIFT” payment system, has begun to create a blockchain proof of concept, testing whether blockchain technology might help banks reconcile their accounts in real-time. Currently, 28 financial institutes are testing the tech.
In the future, it may be that all depositary transactions are recorded on decentralised ledgers in the blockchain, rather than a single centralised option. This could reduce the threat of fraud, and enhance security for everyone involved.
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Rob is Founder & Publisher of UC Today, a leading news publication specialising in Unified Communications & Collaboration technologies.