A General Definition of the Blockchain?
What is blockchain? A block is a record of new transactions. Once each block is completed it’s added to the chain, creating a chain of blocks: a blockchain. Information on the blockchain is publicly available. It’s decentralized, meaning it doesn’t rely on a single computer or server to function. So any transactions are instantly visible to everyone.
A Blockchain Is a Public Ledger
Blockchain is a public electronic ledger that can be openly shared among disparate users. It creates an unchangeable record of transactions, each one time-stamped and linked to the previous one. Each digital record or transaction in the thread is called a block and it allows either an open or a controlled set of users to participate in the electronic ledger.
Blockchain can only be updated by consensus between participants in the system, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of each and every transaction ever made in the system.
Many people see blockchain as an alternative to traditional banking. Instead of needing a bank or some other institution to verify the transfer of money, you can use blockchain and eliminate the middleman.
Blockchain Is Like Google Docs
Before Google Docs, if you wanted to collaborate on a piece of writing with someone online you had to create a Microsoft Word document. Send the document to them. Ask them to edit it. Then, you had to wait until they made those changes, saved the document, and sent it back to you. Google Docs fixed that by making it possible for multiple people to view and edit a document at the same time. Traditional databases work like Microsoft Word: only one person can make changes at a time. Blockchain changed that by instantly updating any changes for everyone to see simultaneously.
In the banking sector, this means that any money transfers are simultaneously verified on both ends. Blockchain could also be used in the legal business, architecture planning or any business where people need to collaborate on documents.
Advantages of Blockchain
Blockchain is based in Distributed Ledger Technology (DLT). Efficiencies resulting from DLT can add up to some serious cost savings. DLT systems make it possible for businesses and banks to streamline internal operations, dramatically reducing the expense, mistakes, and delays caused by traditional methods for reconciliation of the records.
- Electronic ledgers are much cheaper to maintain than traditional accounting systems; the employee headcount in back offices can be greatly reduced.
- Nearly fully automated DLT systems result in far fewer errors and the elimination of repetitive confirmation steps.
- Minimizing the processing delay also means less capital being held against the risks of pending transactions.
Blockchain can remove almost all human involvement in processing and therefore is particularly beneficial in cross-border trades, which usually take much longer because of time-zone issues and the fact that all parties must confirm payment processing. Blockchain can be used to set up smart contracts or payments triggered when certain conditions are met.
Which industries are using blockchain?
In essence, blockchain represents a new paradigm for the way information is shared. Tech vendors and companies are rushing to figure out how they can use the distributed ledger technology to save time and admin costs.
Numerous companies in 2017 began rolling out pilot programs and real-world projects across a variety of industries – everything from financial services to healthcare to mobile payments and even global shipping and energy. This has resulted in many innovative services and disruptive solutions. While some industry groups are working toward standardizing versions of blockchain software, there are also about 200 startups working on their own versions of the distributed ledger technology.
All the above have resulted in a huge rise in the demand for “blockchain” skills which skyrocketed more than 6,000% in the first quarter comparing to the previous year.
Blockchain in FinTech
Financial services technology is where blockchain is currently shining brightly. At a high-level, blockchain removes third parties from the transaction equation; in other words, a financial transaction on a blockchain needs no bank or government backer, and that means no fees. As blockchain entries can be seen in real time, the technology also has the potential to reduce time for clearance and settlement, which can take up to five days.
The Bottom Line
Blockchain is based on a distributed, peer-to-peer topology where data can be stored globally on thousands of servers – and anyone on the network can see everyone else’s entries in real-time – it’s virtually impossible for one entity to gain control of or game the network. Given the incredible opportunity for decentralization, blockchain technology offers the ability to create businesses and operations that are both flexible and secure.
The demand for blockchain-based services is on the rise, and the technology is maturing and advancing at a rapid pace. Whether companies will succeed in deploying blockchain technology to create products and services consumers will trust and adopt remains to be seen. Nevertheless, this is definitely a space investors are watching and companies are exploring.