Blockchain Technology: All you need to Know! One of the most talked about yet misunderstood topics in recent times, blockchain is completely modernizing the way digital transactions are conducted and could ultimately change the way several industries conduct their daily business.
Here is all you need to know about blockchain technology. Read our article on blockchain technology which will help you prepare for your upcoming examination.
What Is “Blockchain Technology”?
In the Budget Speech 2018-19, our Finance Minister quoted a term called Blockchain Technology which can be trusted for future Banking Activities. But is it limited to Banking Sector only? Well the answer is a big NO. Let us discuss the Blockchain Technology in detail.
A blockchain is a series of blocks that records data (financial, in case of Banking) in hash functions with timestamp and the link to the previous block. These blocks are anonymously stored with other stakeholders within a network. This eliminates centralised points of vulnerability which cybercriminals can exploit. Moreover, previous blocks cannot be overwritten in a blockchain and all transactional data is verified with every relevant stakeholder, making data manipulation is extremely impracticable. If simply put, it is one of the secure ways where the transaction is carried out in the absence of centralized authority and the record is maintained in a public ledger. Bitcoin is the best example to understand how Blockchain Technology works.
Bitcoin is a decentralized, public ledger. This ledger is known as a blockchain. There is no trusted third party controlling the Bitcoin Blockchain. Instead, anyone can read it, write to it, and hold a copy. The Bitcoin Blockchain tracks a single asset: bitcoin (the entity). The bitcoin blockchain has rules, one of which states that there will only ever be 21 Million bitcoin. All participants must agree to Bitcoin’s rules in order to use it.
Because anyone can read it and write to it, Bitcoin needs a method to establish consensus among untrusted nodes. It solves this problem via clever economics:
- Incentive: The first miner to verify transactions and devote immense computing power to secure the blockchain can append a block of transactions to the chain of previous blocks. This miner is rewarded with bitcoin, and the race starts over every ten minutes.
- Disincentive: Bad actors are dissuaded from attacking the blockchain, because it’s effectively a money-losing proposition.
How Blockchain Technology Will Affect The Banking Sector?
Nobody is sure about the impact blockchain, and its improved version will have on banking over the next few years. But right now, it offers three main advantages over conventional banking.
Conventional financial transactions consume a lot of time as they travel through some third parties. For instance, a normal payment goes through a gateway, stock exchange, or clearinghouse. As many as ten entities may be involved in the transaction, exchanging messages, reconciliation, or security which means the seller receives payment only after days.
Transparency and Accessibility
Compared to firewalls, mobile encryptions have the advantage of allowing users to access transaction details anytime, anywhere with internet access. Authorised parties can access the transactions stored in blockchain’s shared ledger.
Reduced transaction costs
Blockchain accelerates transactions which reduce the costs involved. It renders third parties and their charges unnecessary. Therefore, businesses that do multi-nation transactions stand to benefit.
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