Cryptocurrencies have been prominent in the news over the past few years. When reading about digital currency, it is impossible to look past the concept of a blockchain. This is why we've compiled this short guide to blockchain systems, how they work and how to use them in financial services.
Blockchain - explained
On a basic level, the blockchain network is a database. It is used to store information, but rather than using a central database, blockchain networks distribute their data across multiple points of authority. With the information being updated across multiple computers in a network, any authorized individual can view the full financial ledger. There are three different categories of blockchains. Firstly, public blockchains allow anyone to participate (this is the bitcoin blockchain). Access to the public blockchain networks is open. Private blockchains, on the other hand, have restricted access only for users of a private network. This is used for banking with virtual currency or more sensitive financial industries and business processes. If you are not part of the network, you cannot view the ledger. Then, there are hybrid blockchains - these allow different blockchains, both private and public, to interact with one another. They enable transactions to take place between different blockchains.
How do blockchain technologies work?
A blockchain consists of groups of data. These are referred to as blocks. Each of them has a storage limit for data and once this is reached, the block is chained onto another full block. This then forms the chain of blocks or blockchain. Once the limit of a block has been reached, the data on it cannot be altered. This is a key difference between a blockchain and traditional corporate databases - traditional databases structure information into tables that can be altered whenever. There are many advantages to the concept of a blockchain - it decreases errors, makes transactions faster, more efficient, and more secured, and leads to a better customer experience.
Using blockchains in the financial system
When banks use blockchains, processes such as transactions are done much quicker. Put simply, a new block gets added to the existing chain, including all of the data pertaining to the transaction. There is no need to wait for central processing and funds can be exchanged between institutions as well on the blockchain. Compared to trading stocks, which can take days for settlement and clearance, blockchains cut down on all the third-party involvement for streamlined services.
Investing in blockchain technology
The Bitcoin network is not the same thing as blockchains. Blockchains are the foundation of bitcoins.
Investing in blockchain technology can be done by buying cryptocurrency - this will lead to greater demand in blockchains. Many big companies invest in blockchain business apps.