The Blockchain is something few people understand. In part, it’s because blockchain is kind of new and in another way because few organizations and fewer people know what it is and what it can do. Simply put, blockchain is a digital ledger of great proportions, designed to extend beyond financial applications to cover everything of value. Still not an easy concept for someone to wrap her mind around, so let’s break it down to better understand it.
The unique feature about blockchain technology is that data isn’t stored in a centralized location or server. By putting data onto a public ledger that isn’t deleted, it removes the need for a third party to validate and verify transactions. Without a bank to hold the money, blockchain makes it hard for criminals to be successful. In order to commit fraud, someone would need to act simultaneously on shared ledgers in multiple locations. This makes blockchain almost impossible to corrupt. In addition, with blockchain, all transactions are accessible by all users on the network. This transparency makes manipulation highly unlikely.
By using a network of computers (called nodes) to administer transactions instead of a third party, blockchain makes the transfer of money instantaneous. It eliminates the waiting period—sometimes several days—for payments to clear into a checking account or for money to be sent internationally. The Deloitte Center for Financial Services forecasts that by 2025 blockchain payment systems could equal the transactions processed by the ACH network.
Businesses are drawn to blockchain technology because it eliminates middlemen. A world without intermediaries has the potential to be less complicated and increase revenue. The lure for banks lies in the technology’s ability to streamline processes and increase efficiency, which lowers operating costs. A recent report by Accenture—culled from data provided by eight of the world’s largest investment banks—found that blockchain has the potential to save banks $8-12 billion annually and reduce their operating costs by an average of 30% per year.
No doubt, blockchain will impact on the global economy along with impacting the people who use it. Entities like financial institutions and tech startups geared towards the financial industry are entertaining how blockchain can provide payment options along with understanding the technology as we know it today and how it will evolve as it grows and expands.
For now, we can watch it and learn from how it’s currently being used and what possible applications it may fit for the future.
Photo courtesy of public domain.