For the last few years, companies like Goldman Sachs and JPMorgan have been talking about their belief in the power of blockchain technology and its popularity. The technology is predicted to transform the way transactions are processed, but how? This week’s blog takes a deeper look into the technology’s functions and performance.
Blockchain technology was developed to allow financial data to be communicated to various locations. To put it simply, blockchain is a public ledger that incorporates real-time financial data from multiple parties. This system isn’t owned by any corporation; rather, it is monitored by the entire network. Each of the parties must agree on a change in order for it to be implemented. This group administration allows operation without a central authority, which saves time and money.
There are many terms correlated with this technology, including but not limited to:
Block: A collection of transactions that are grouped chronologically.
Block Height: The block’s chronological order (Height 0 is the first block).
Bitcoin: A cyber currency traditionally recorded through blockchains.
Hash: A method of identifying each transaction through a random set of encrypted numbers. Also within the record is the previous “hash” number, to establish a chronological order, a list of other transactions within the same group, or “block,” and a public key.
Ledger: A detailed record of the transactions storing.
Node: A computer connected to the system.
Private Key: a set of numbers that proves that you are associated with a specific transaction.
Proof of Stake: When the amount of existing cryptocurrency you own is used to determine the amount you can mine.
Proof of Work: The amount of computational power spent performing the transaction, which is used for verification and approval.
How can blockchain technology be beneficial?
Most often, this technology is used for Bitcoin. This is largely because Bitcoin was created to be untraceable and not subject to governmental and industrial regulations. For the financial industry, the possibilities of this technology are endless. In the future, taxes could be paid by blockchain and existing payment apps could be replaced by the technology. The biggest benefit is its ability to operate without much administration. This means banks could operate without requiring labor for bookkeeping and oversight. Additionally, the technology can be used in supply chains to record and track progress and inventory.
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