Banks and banking systems have been a part of our journey since 2000 BC. The financial sector has witnessed changes and upgrades in its evolutionary process, method, structure of transactions and record of accounts throughout this journey. All through this period, money has been a core entity in influencing the mobility of goods and their process of transaction between two entities (human or organization). Banknotes based transaction took a digital turn around 1950. The subsequent imperative was to get accustomed to digital accounting and card based monetary transactions. Digital transaction created a disruption in its sector of application. The methods and processes involved in this disruptive change has gone through a series of change since its inception. What continues to haunt the financial sector is fraudulent transactions. Initially, financial organizations had no strategy on making transactions secure and minimizing the investment cost incurred over security. What could be a potential answer for such security issues? Such questions are still relevant and crop up in any pertinent discussion on financial transactions in the new age.
Is there an answer for security issues in financial transaction? Blockchain answers that question. It is the underlying technology used in modern cryptocurrencies, such as Bitcoin, Ethereum, IOTA, and the like.
A dragon in the new era
Dragons were depicted in Norse mythology as powerful creatures that could fly and breath fire. Vikings came up with the idea of using dragon idols in the frontline of their ship to inject fear in the minds of British people. Incidentally, Scandinavian soldiers were led to believe that their ships could sail on the sea like dragons flew in the air. Dragons are mythical creatures and people tend not to believe about their existence, unless they see one. But the notion of its power is well believed in all parts of the world. In an almost similar sense, Blockchain is like a dragon. Transacting money or goods of equivalent value without the aid of banks or any financial institution was thought of as impossible. Blockchain turned an impossible task into reality with its underlying technology.
Blockchain is a disruptive concept in the current financial scenario that could change the current state of affairs. It has the potential to bring to the forefront new ways of handling money and transactions. Blockchain enables P2P (Peer-to-Peer) transactions and removes intermediate parties, such as banks, the government, lawyers, and the like. It is encoded with a secure algorithm to protect transactions from malicious threats. The algorithm is mathematically fool-proof and cannot be hacked. The positive aspect of Blockchain is it creates trust among participants who involve in the transactions.
Blockchain is an elixir of bitcoin
Blockchain is a foundation technology and underlying framework for futuristic transactions that involves anything of value. There is no central regulatory authority to govern or control the way it runs. It has a self-regulation mechanism embedded within, known as “distributed consensus.”
Bitcoin is a digital money variant. Eric Schmidt, CEO of Google, once said,
“Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value”
Bitcoin is widely acceptable as digital money today and the world has had to adjust to its growing relevance. It is backed by sound technology to support its activity. Blockchain is the backbone that makes Bitcoin successful.
Elements of Blockchain
Blockchain has been adopted in the banking and financial sector to secure monetary transactions. It is a crypto-technology for any decentralized, distributed consensus system. It is a public ledger that everyone can see, is unchangeable and can view the entries. Since Blockchain assures every transaction is secure and confidential, the only person that has any control over it is the user.
The structure of Blockchain includes six elements, such as distributed consensus, Blockchain data structure, mining, proof of work, secure hashing algorithm and P2P network. It is a public ledger where the account entries are registered and shared across participants. The ledger data structure holds the details of all transactional history and other essential details of transactions.
Blockchain facilitates a decentralized banking system, which solves issues related to centralized systems, such as huge cost and time-consuming transactions. The transaction cost in Blockchain is a tiny fraction when compared to charges in centralized systems. However, what makes this distributed transaction system secure and viable? The answer is distributed consensus. Blockchain facilitates confidential transactions and its security. Being an immutable transaction, it avoids the risk of alteration in mid-process. All transactions are verified on a P2P network with utmost confidentiality and safety.
Blockchain has already been adopted in many cryptocurrencies, such as Bitcoin, Ethereum , and the like. According to Cyptocurrency Market Capitalization report, Bitcoin holds $43 Billion USD market cap, followed by Ethereum with $28B USD cap. This shows the intensity of cryptocurrencies and their adoption in venture capital and other financial transactions. The main reasons for such adaption of cryptocurrencies are: a) it is secured, and b) the cryptocurrencies cannot be frozen during times of economic crisis.
Leon Luow, a Nobel Prize nominee, once said
Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.”
We need to be well informed about Bitcoin and its underlying framework, Blockchain as the future financial era dawns on us. The dragon has emerged to usher in the new financial era.