BLOCKCHAIN TECHNOLOGY - FUTURE OF ONLINE TRANSACTIONS!
May 20, 2017 Posted / 5123 Views
MEANING OF BLOCKCHAIN TECHNOLOGY
Blockchain, a secure distributed-ledger technology, is the future of financial transactions. Blockchain is a disruptive new technology that allows for more transparency, ease and security in financial transactions. Also known as distributed ledger technology, blockchain is a web-based peer-to-peer transaction system. An innovative way of managing financial transactions associated with the bitcoin cryptocurrency, is being adapted and could become mainstream. All parties in a secure network receive copies of the records of financial transactions. This means that the transactions do not have to be independently verified by third parties.
The bitcoin blockchain was one of the first and most successful implementations of blockchain technology. A study found that nearly two thirds of global financial services vendors found that blockchain was the most important technological advancement since the internet. While blockchain was initially introduced for cryptocurrency, the underlying technology can be used on real world money as well. The World Economic Forum has hailed Blockchain as a technology pioneer. Blockchain technology is seeing an increase in investment, particularly from banking organisations. Blockchain technology is an opportunity to reduce the costs associated with financial transactions. Since part of the blockchain is saved in nodes, there is no requirement for a central authority. The records are not stored in a central database, so a single entity cannot tamper with the data.
Authorities are keen to allow innovation to develop, but not on any terms. The Financial Conduct Authority (FCA) has developed a "sandbox" to allow new ideas to be tested in a regulatory environment before going live.
If regulators are able to use the blockchain to support supervision of financial services, they could become more effective, argues Setl's chief operating officer Peter Randall. "It is possible on a blockchain to report every single time a bank fails to make a payment that it should have paid or fails to transfer assets that it had said it would transfer," he says. "With those things recorded indelibly on a blockchain, a regulator has the capacity to ask banks to reduce rates of failed trades. A regulator can see a bank starting to get into trouble then make the necessary policy adjustments in order to stop that bank from trading, or could inject some emergency liquidity."
ADVANTAGES OF BLOCKCHAIN TECHNOLOGY
The history of every transaction is encoded cryptographically in a permanent record called the blockchain. When one person pays another, this payment history, which is distributed and accessible rather than centralised, is automatically checked to ensure the person has previously received the amount of bitcoins they want to spend.
This clever method of managing transactions is now being employed beyond the use of bitcoin as a digital currency. In many ways, blockchain improves upon the current system for payment infrastructure. It creates certainty of ownership and it creates transparency. At present, there are centralised ledgers, but they need to reconcile transaction records with the accounts and records of anyone using an instrument, such as cash or shares.
The current system is susceptible to fraud because the records are controlled by entities. Blockchain technology has the potential of saving $20 billion per year in costs associated with financial transactions. This is apart from the loss that occurs due to fraud. The security and savings offered by Blockchain technology is why -banks want to implement blockchain. The ease with which blockchains can be established makes them of interest to firms operating in parts of the world that lack the infrastructure to transfer large-value contracts or amounts of money.
In October 2016, a milestone was reached in the traditional banking industry when 88 Bales of cotton were purchased for $35,000 in a cross border blockchain based trade. Over 70 banks and financial institutions around the world are part of the R3 blockchain consortium. The R3 consortium is a firm dedicated to accelerate the adoption of blockchain because of the speed, efficiency, security and accuracy afforded by the technology. R3 is looking for ways of implementing smart contracts, that trigger transactions automatically when certain preset conditions by parties are met.
In November 2016, the US House of Representatives gave the green light to blockchain technologies to encourage consumer empowerment and stimulate economic growth. The central bank is in discussion with both public and private players on the adoption of blockchain technologies. Payment, clearing, and settlements can be done with reduced friction on blockchain based platforms. The Institutional Trade Communication (ISITC) has proposed benchmarks for blockchain technologies to standardize the implementation.
There are several hurdles to overcome before blockchain is more widely adopted. Processing blockchain payments is not fast enough to support large-scale operations. As chains grow they become unwieldy. This is one driver towards the development of private ledgers tailored to overcome this lag. Different ledgers would not interact, but groups such as the R3 collective, which has 41 banks as members, are seeking to overcome the challenge by developing technology standards.
The use of automated value transfer and a permanent transaction record do not eliminate all the problems that can occur in a transaction. If an account is hacked, a theft could be made to look like a legitimate transfer. Market abuse could still be conducted using legitimate transactions at any point and would need to be tracked around the clock, not just in office hours. Consequently, regulators will require some changes to the way finance is run and regulated.
“If you are running transactions on a blockchain, which operates 24 hours a day, 7 days a week, you have then got to have real-time regulation,” says Mr Randall.
This raises further questions about the accessibility of a distributed ledger to authorities, notes EY’s Mr Ball, and also the role of auditors in overseeing transactions on a distributed ledger network.
“A lot of the blockchains will be private networks, so would that blockchain be audited as a chain or would each of the individuals somehow have to form their own view?” asks Mr Ball. “There are several issues impacting the speed of adoption, not least of which is the computing firepower that will be needed to run significant blockchains, but the questions [around regulation] are also likely to slow down adoption.”
While blockchain technology has piqued the interest of first world nations, who are looking to adopt the disruptive new technology, blockchain would be most useful in developing countries. Blockchain helps reduce the institutionalized corruption, because of the inherently transparent nature of the technology. Every transaction is recorded in real-time and is available for all parties in a network. Auditors get access to financial data only at the end of the year, but real-time access to such data will significantly ease up the process of auditing. The transparency means that government officials cannot abuse their power, and blockchain technology can help significantly reduce the incidences of the graft.
Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .
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