What is a blockchain? What is the relationship with Bitcoin?
Everyone knows what smartphones are, and many understand the impact of technologies such as mobile and social on their business. But when it comes to the new technologies we're introducing here; it's a different story. In this article, we'll take a closer look at the new concept of "blockchain," which even financial professionals are just beginning to understand.
For example, let's say you have a child who goes to college and spends his living expenses every month.
Imagine putting a "block" of transaction information (date, time, amount, etc.) on each monthly remittance. Both you and your child can see this block to confirm remittances and receipts. It wouldn't be possible for a poorly-paid kid to come in the next week and complain that "the bank made a mistake" and didn't send the money.
By adding blocks every month, a "chain" is formed. "Blocks" and "chains" record all information of the transactions with this child who id going to graduate from college. As you grow older and decline, you could show your child this chain to show how much money it cost to college and demand that you spend a similar amount of money on a quality home for the elderly.
This is the general mechanism of blockchain. Each block is a record of financial transactions, and a chain is a shared accounting ledger that all parties across multiple networks can view, or "nodes." Every time a new transaction occurs, it is validated by all nodes and, if valid, added to all copies of the ledger. That is, a new "block" will be added to the "chain".
Impact on financial structure
The modern financial structure evolved from 15th-century Venetian traders and 17th-century Dutch stock exchanges. Double-entry bookkeeping has been used from such an early stage and has shaped the system that underlies the modern financial world.
All types of exchange and transaction concepts, such as funds, commodities, stocks and loans, require each party to track and record all transactions using their own ledger. In most cases, this method is very effective. Occasionally, however, multiple ledgers may become inconsistent, leading to increased auditing, distrust, and oversight.
A blockchain property is that all participants use the same ledger and all can see it at any time. If there is only one ledger, there can be no mismatch. This new financial record approach offers a number of benefits, including:
Improve the credibility of transactions:
Since all parties can see all the blocks in the chain, it is easy to ensure the fairness of all transactions. It is difficult to carry out fraudulent transactions in the public eye.
Reduction of fraud :
Similarly, concealment, fraudulent communication, and elimination of financial transactions and other transactions will be very difficult, if not impossible.
Reduced risk-related “lack of ethics”:
Increased credibility and reduced fraud also reduce corporate risk. Evaluating contracts and transactions makes it easier to see "moral hazard" or "lack of ethics.
Reduction of transaction costs and reduction of processing time:
Since the number of systems and organizational infrastructures is reduced, the entire transaction process can be simplified and speeded up, and costs can also be reduced.
Bitcoin and blockchain are known as friends and discussed together, but they are not exactly the same thing as people think. Bitcoin is an application of blockchain, and blockchain does not require bitcoin. That said, it is Bitcoin that has proved globally how blockchain works and is rapidly arousing interest in blockchain, especially in the financial services industry such as banks and credit card payment providers.
However, blockchain disruptive innovation is not limited to the financial services industry. It also covers sectors that sell products through distribution and public works projects that measure and track the usage of electricity, water, and sewage usage. Short-term home leasing, car sharing, and food production from farms to dining tables may also experience the catastrophic transformation of blockchain. Examples of rapidly evolving blockchain applications include online voting, medical record keeping, a history of art and historical relics, non-profit banking for areas and people that traditional banks do not support, and time. There is also the process automation of general back-office operations that requires a lot of work.
Both financial and tech organizations have just begun to consider blockchain in detail, and its future uses. However, even in this early stage, it can increase efficiency, transparency, credibility and reduce risk, cost, and complexity.