Blockchain tech has acquired a widespread popularity across the world in a significantly less time span, especially in the banking and fintech domain. It would not be false to say that in the last ten years, the said disruptive tech has revolutionized the global financial ecosystem. In this article, we will discuss the role, future, and the working principle of the blockchain technology, and will briefly discuss the future trends associated with the same. Those considering enrollment into blockchain certifications, would especially, find the article much valuable than the other technology enthusiasts.
What Prompted the Advent of Blockchain Tech?
In the current setup of the finance sector, governments and federal banks serve as intermediaries or third-parties that facilitate the electronic transactions (by individual or businesses). It’s needed so as to create a bond of trust between the two parties involved in a digital transaction – the sender, and the recipient. But, with the involvement of a third-party, in this case, the federal bank (facilitator), the process becomes slow because of the various federal regulations attached with the processing of digital payments, and hence, the long delays in the flow of business.
In the wake of the incidents of cryptocurrency frauds off late, people have started talking on the credibility of blockchain-powered digital transactions, but we must not forget that even the digital payments infrastructure of the federal banks too, is prone to hacking and malware attacks. In the present times, blockchain-led digital payments are among the safest, in the context of frauds, and incidences of hacking.
Why Did the Need Emerge to Incorporate Blockchain in the Finance Sector?
To facilitate direct B2B digital transactions across international boundaries, there emerged an urgent need of a technology, and that gave birth to the entire blockchain industry that is thriving successfully, today. Blockchain-based digital payment processing deals in peer-to-peer transactions that eliminates the need of federal banks or any other intermediary organization.
The said disruptive tech makes it possible to form a financial ecosystem that is completely decentralized, and keeps a public record of all digital transactions that take place on its technology framework. Besides, the blockchain technology is much secure, tamper-proof, and more importantly, it keeps a collection of time-stamps for each and every transaction that gets processed on its technology infrastructure.
Benefits Associated with the Deployment of Blockchain Tech
- Blockchain stores details of electronic transactions on a public ledger, unlike what intermediary bodies do.
- The disruptive tech does help eliminate the fee charged by middleman (intermediary bodies) to facilitate transactions. Hence, businesses and individuals can save on the considerably high transaction-facilitation fee.
- Blockchain-based infrastructure is considered much more secure compared to traditional ways of digital payment processing. Moreover, the new-age tech is less prone to malware attacks and fraudulent activities.
How Does the Blockchain Technology Work?
Blockchain tech is a decentralized distributed ledger, and the working model of the same can be understood by knowing, how are the new blocks formed, and added, to the technology network.
Step 1: Imagine a User A wants to send User B, 500 bitcoins. And therefore, A will need to make a request for transaction.
Step 2: User A’s node would initiate a transaction by first creating it, and later, signing it digitally with A’s confidential key (generated using cryptography). A transaction request can be of many types on a blockchain.
Step 3: Transaction is now flooded (propagated) with the use of a flooding protocol, or sometimes called, gossip protocol, to peers who shoulder the responsibility of validating the concerned transaction, basis the pre-determined criteria. In general, more than a single node, also known as miner, is needed to verify the digital exchange.
Step 4: Once a digital monetary exchange is verified on the network, it gets stored in a block, that eventually gets added to the network. At this very stage, the transaction is deemed to have been confirmed.
Step 5: The newly-formed block adds to the ledger and the next building block is supposed to link itself automatically, to the chain . This link would be called a ‘hash pointer’.
Step 6: As soon as the new block gets added to the chain, it becomes available to the public to see. The transaction is now considered complete on the blockchain network.
We hope you have understood the elementary basics of blockchain, and its working, after being done reading the article. Many thanks for the read!