Blockchain is taking over the finance and tech industry as we know it. Bitcoin has been in the news for the past year or so, as investors and finance individuals watch the price of cryptocurrency ebb and flow.
But what is blockchain exactly…? And what does it mean for the financial technology (FinTech) industry in the future?
“Blockchain” is defined as a public electronic ledger. Essentially, it digitally keeps track of all transactions across multiple computers within a network. It can be shared as public record across multiple networks. It can keep track of bitcoin and cryptocurrency transactions and records. In short, it’s a lot like Google Docs on a grander scale!
Each page of a transaction creates a record. This record creates a block, hence the name. Each block ultimately affects the next block that follows.
Why the Buzz?
So, why is blockchain just entering tech news? With the emergence of Bitcoin, cryptocurrency has become widely popular. Bitcoin was hyped up as digital cash. Creating a system for payments electronically without going through a bank sounds promising.
The best news of all? It is impossible to alter records (or blocks). It is shared among users and digitally stamped by the server. When a user enters new information into the system, it can never be erased. While this may sound slightly nerve-wracking, it truly creates a system that is honest and true.
Sharing is Caring?
Multiple platforms we use every day (like Uber and AirBnB) create this “sharing economy.” However, these are third parties versus peer-to-peer.
As I mentioned earlier, blockchain technology is a lot like Google Docs as there is the ability to share records/transactions. This creates peer-to-peer payment without an institution in the middle (like a bank). You can communicate directly between the two parties within the need of a third.
There is certainly a large “trust gap” with the finance industry.
Business professionals spend hours verifying whether information provided to their company is actually true. This includes contracts, titles, financial documents, etc. Then there is establishing trust within the authentication platform as well.
Because it is impossible to delete old records/information from the blockchain, it is far easy to see the digital trail of these records. Blockchain is also accessible to the public as well. Information is not physically stored anywhere, which eliminates multiple risks. However, the need for tangible, paper documents and paper money may become a thing of the past.
Blockchain technology is across a network of computers, so the ability to hack these systems becomes tricky! Instead of someone attempting to hack one particular system, the hacker would have to hack each computer individually. It is extremely useful that the blockchain cannot be controlled by one particular entity.
While most systems use login information such as unique usernames/passwords, blockchain uses encryption for security purposes. The use of public (and private) keys helps generate a unique address for each user. A key will create a long sequence of random numbers. The only way to decrypt the public key is with the private key.
Perhaps this will be the system to shorten the gap and create a process that business professionals can trust.