Blockchain technology promises to transform finance the way the internet transformed communication.
What Is Blockchain?
Very simply, a blockchain is a digital ledger that keeps track of transactions chronologically and openly.
Imagine a public Google spreadsheet that anyone can access. Every transaction is encrypted and recorded on that spreadsheet, so even while publicly available, the personal information is hidden.
Blockchain technology has the promise to revolutionize finance in the same way the internet revolutionized communication.
Here’s what you need to know.
How Blockchain Strengthens Security
Up first is security. Blockchain is disrupting finance because its structure makes transactions more secure. Your data is recorded but scrambled into code so it is much more difficult to hack.
Even more importantly, blockchain is decentralized. Unlike big bank and internet servers, blockchain databases aren’t all stored in one single location.
Blockchain and Efficiency
Secondly, blockchain could disrupt finance because it is much more efficient than previous systems.
Some transactions that used to take days could be done instantaneously using blockchain.
Middlemen can sometimes slow the process of doing a deal. Financing a trade across borders, for instance, can involve lots of intermediaries, and lots of paper.
This is because there is an inherent lack of trust in other parties, so traders want checks and balances. But with blockchain, every party can verify the data at once, and has a record of the transaction.
Some big players have already decided that blockchain offers them a better way. The
Australian Securities Exchange
is now in the process of replacing its entire post-trade system with a blockchain system that could resolve trades faster than the current two-day system.
The Blockchain Effect on Jobs
Finally, blockchain has the potential to save the financial industry money on manpower.
Stock trades might take milliseconds these days, but it takes days to record and finalize all those transactions.
With everything recorded automatically on a blockchain, banks wouldn’t need people to manually record every transaction any more.
What Will a Blockchain Future Look Like?
At this point, it’s still too early to know exactly what kind of blockchain technology will stick around — just like we didn’t know what websites back in the early 90s would be the big winners.
But what’s clear is that blockchain has vast potential, and it’s worth paying attention to.
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