Will blockchain change the future of banking system?
Many of the technologies we now take for granted were quiet revolutions in their time. Just think about how much smartphones have changed the way we live and work. It used to be that when people were out of the office, they were gone because a telephone was tied to a place, not to a person. Now we have everyday people building new businesses straight from their phones. And to think: Smartphones have been around for hardly a decade.
What is Blockchain?
Blockchain technology is a structure that stores transactional records, also known as the ‘block’, of the public in several databases, known as the ‘chain’, in a network connected. At their basic level, they enable a community of users to record transactions in a shared ledger (Record-keeping system)within that community, such that under normal operation of the blockchain network no transaction can be changed once published.
In 2008, the blockchain idea was combined with several other technologies and computing concepts to create modern cryptocurrencies: Electronic cash protected through cryptographic mechanisms instead of a central repository or authority. The first such blockchain-based cryptocurrency was Bitcoin.
Within the Bitcoin blockchain, information representing electronic cash is attached to a digital address. Bitcoin users can digitally sign and transfer rights to that information to another user and the Bitcoin blockchain records this transfer publicly, allowing all participants of the network to independently verify the validity of the transactions.
The Bitcoin blockchain is stored, maintained, and collaboratively managed by a distributed group of participants. This, along with certain cryptographic mechanisms, makes the blockchain resilient to attempts to alter the ledger later (modifying blocks or forging transactions).
History
The first major step towards blockchain came through bitcoin in the late 1990s. Many electronic cash schemes existed before Bitcoin (e.g., e-cash and NetCash), but none of them achieved widespread use. The use of a blockchain-enabled Bitcoin to be implemented in a distributed fashion such that no single user controlled the electronic cash and no single point of failure existed promoted its use.
Its primary benefit was to enable direct transactions between users without the need for a trusted third party. It also enabled the issuance of new cryptocurrency in a defined manner to those users who manage to publish new blocks and maintain copies of the ledger (a record-keeping system); in Bitcoin, such users are called ‘miners’. The automated payment of the miners enabled distributed administration of the system without the need to organize. By using a blockchain and consensus-based maintenance, a self-policing mechanism was created that ensured that only valid transactions and blocks were added to the blockchain.
Blockchain vs. Banking
The banking system is characterized by central banks which have some degree of control over commercial banks, and as such, they operate in a centralized system. A private blockchain does not have a central authority and therefore the system is decentralized.
To understand which one is the ideal one, it is important to look at what the two solutions offer. The banking system has existed for decades and it is therefore tried and tested. However, it also has its downsides such as slow and expensive transactions through services such as SWIFT (Society for World Inter-bank Financial Telecommunication) . On the flip side, the decentralized nature of a private blockchain means there is very little regulation and thus opening doors for evils such as money laundering, facilitating drug trafficking and funding terrorist activities.
It is difficult to choose between the two or determine which one of the two will be the ideal system to power the future of money. However, there are some things that are clear such as the fact that the banking system has been tried and tested and it works despite some issues and problems. Cryptocurrencies have proven to be innovative and a valuable part of the future but did not yet prove to be a reliable banking system
Advantages of Blockchain
In many cases, data stored on the blockchain is kept across thousands of devices. These devices take part in a distributed network of nodes. Because of this distribution, the data and systems are incredibly resistant. They are surprisingly impenetrable to both malicious attacks and technical failure.
Blocks that are confirmed are highly unlikely to be reversed. This means that once a piece of data is registered to the ledger(Record-Keeping System), it’s near impossible to change or remove it.
Despite the downsides, blockchain technology presents some unique advantages, and it is definitely here to stay. We still have a long road to mainstream enactment, but many industries are getting to grips with the advantages and disadvantages of blockchain systems. The next few years will likely see businesses and governments experimenting with new applications to find out where blockchain technology adds the most value.
Summary:
- Blockchains are tamper-evident and tamper-resistant digital records implemented in a distributed fashion and usually without a central authority.
- In 2008, the blockchain idea was combined with several other technologies and computing concepts to create modern cryptocurrencies.
- The first major step towards blockchain came through bitcoin in the late 1990s.
- A private blockchain does not have a central authority and therefore the system is decentralized.
Additional Resources:
- Article: https://dzone.com/articles/how-can-we-benefit-from-using-blockchain-technolog
- Article: https://www.investopedia.com/terms/b/blockchain.asp
- Article: https://www.ibm.com/blockchain/what-is-blockchain
About Me:
Hi!, I’m Aadin Zeeshan currently studying in my sophomore high school deeply interested in Artificial Intelligence. I like to spend my free time reading , writing , coding and Analyzing various political situations across the world. Check out my instagram page and my Medium Homepage to Know more about me and My portfolio.
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