From its very beginning in early 2009, Bitcoin has revolutionized the way transactions are performed and recorded online.
Apart from its value as a currency, Bitcoin also brought the idea of blockchains as a transactional register into the spotlight. Blockchains decentralize transactions by allowing users to transfer ownership of digital goods or services without the need for a clearinghouse-style central bank or organization.
They do this by delivering a distributed ledger to every user on the network and syncing transactions across each ledger automatically whenever an authorized event takes place. Blockchains provide a robust and resilient method of tracking transactions that offers many advantages over traditional cash- or credit-based banking.
One of the biggest advantages of blockchains over traditional transactional registries is that it doesn’t require the overhead necessitated by a central bank or organization. Credit-card processing companies are extremely profitable due to the merchant fees and percentages they charge for each transaction, but these are unnecessary in a blockchain setting. Many apps and exchanges now exist for direct cryptocurrency transfer and payment, further removing middlemen and enabling trade without the financial repression of hefty transaction fees.
Freedom from foreign exchanges
Removing the middleman also takes a lot of power away from those organizations that traditionally oversee transactions. This includes not only central banks and credit organizations but also governments that may manipulate currency exchanges or unstable foreign exchanges that could fluctuate dramatically due to the zero-sum game often played in the markets.
Blockchain offers the advantage of modernizing invoices by sidelining or outright eliminating language barriers and foreign currency exchange rates as well as creating a sense of secure transactions and anonymity. This gives users anywhere in the world the ability to purchase, ship and profit from goods across international borders. It can also solve major logistical problems involving the transfer of digital properties between developers and users in different nations.
Engineered for encryption
By their very nature, blockchains anonymize use and rely on heavy encryption for stability. Bitcoin pays for its blockchain through the mining process, which is an encryption subtask that serves double duty by verifying transactions.
Almost all major blockchains use hefty encryption to protect information in the ledgers and ensure the security of the chain, even while sharing that information on freely accessible ledgers that sync with the rest of the blockchain in real time. This gives an unprecedented amount of insight into how the funds move without giving away who is moving them or which goods or services users are buying.
The encryption aspect of blockchains can also secure user data and financial information against unwanted tampering, making it easier to offer and process transactions while adding an extra layer of security through redundant distributed ledgers.
Email remains one of the least secure ways of verifying transactions, and blockchains are replacing many more common methods of safely communicating with financial advisors by eliminating the need for further encryption or standalone hardware. Pairing these with secure networks can deliver one more level of safety and security for savvy, modern bankers and investors.
The biggest advantage of blockchains to the business banker comes in the form of its efficiency. As Bitcoin and other cryptocurrencies have developed, so to have the platforms that service them. Where once it could take days for a transaction to process and update throughout the distributed ledgers, now users can get cryptocurrencies in hours or even as little as 15 minutes with direct transfers and online wallets.
This exceptional efficiency is one of the elements that could possibly make Bitcoin the currency of the future. By the point that transfers become seeded in moments, much how debit transactions are handled today, cryptocurrencies could even supercede traditional governmental currencies as a regular option for international and even domestic transactions.
Currency is far from the only use of blockchain efficiency. The secure method could be used to aggregate data in fields as far-flung as healthcare, industry and entertainment while still preserving the anonymity of the end user.
One of the most important things to realize is that blockchain isn’t risk-free. There are two major obstacles, apart from the expected slow adoption of new standards, that blockchain networks must encounter and address. The first is known as the 51 percent flaw.
As all blockchain distributed ledgers are synced and based on the most common information in the list, any person or organization that controls 51 percent of the distributed ledgers could, in theory, insert any information desired into the chain as they would have a master list of sorts. While this is a theoretical flaw that has not yet been exploited, the aggregation of cryptocurrencies and consolidation of them could lead to this problem in the future.
The second obstacle blockchain transactions encounter is that there are no refunds. Once an authorized adjustment to the distributed ledgers is made, it cannot be undone by any third party. The person accepting the transfer could, in theory, create a new transfer to the original owner of the digital content or currency in the name of customer service, but there are no fraud or oversight adjustments possible in a blockchain-based transaction.
Should an end user fail to receive paid-for goods or services, there may be no redress within the confines of the network itself, although standard legal remedies may remain an option.
Similarly, erroneous information entered into a banking account or a healthcare record could only be addressed with additional entries, never removed from the record. Addressing how to make such adjustments, and make them stick, is a concern for all new blockchains.
Despite these obstacles, blockchain technology offers a wealth of new options for modern banking applications. Fast exchange of information and quick transfer of digital goods and services can deliver a serious advantage in the ever-evolving business world.
As more and more companies embrace cryptocurrencies and the blockchain design that powers them, bankers and investors are likely to see increased use of distributed ledgers as a way to track more than just sales transactions in the future.