What is it and how will it affect finance?
Tackling blockchain technology in the world of business and finance
By Irene Mae Pagsolingan
Technology offers a plethora of opportunities to meet peoples’ needs. As we pave the post-millennial period, technology is guiding the world of entrepreneurship and international business. This, in many regards, can be attributed to the emergence of blockchain technology.
If you are a neophyte in the fast-paced high-tech sector, this term is probably new to you. As Bitcoin and blockchain become more frequent topics of conversation, more and more young entrepreneurs are becoming curious about what blockchain technology actually is.
Regarded as “Web 3.0,” blockchain technology is currently believed to be the technologically disruptive force that will shake up the financial sector and make older institutions such as banks obsolete.
Blockchain technology is expected to make a great impact in entrepreneurship and finance. Listed below are five key points you must know about blockchain:
1. Everyone can see “it”
Imagine a shared google document. All users with document access or the right link can view the document which is neither copied nor duplicated.
In principle, this is how blockchain works.
Transactions, whether it is a money transfer, legal documents, etc., are placed in each “block” where every connected individual can view the document or transaction. Any changes made to the document, will be visible to anyone, thereby creating a chronological chain (hence the name “blockchain”) which is both transparent and traceable. Blockchain acts as a database, storing all these inputs.
Pretty nifty, isn’t it?
2. A decentralized database
The transparency of blockchain allows all the connected users to see if someone has made changes on any document and/or transaction; hence, no individual can have authority over the transactions made within the blockchain. This is understood as a good thing.
Public as it is, blockchain prevents any transactions to be changed in any way that would benefit one individual while putting others in disadvantage.
“Blockchain creates a centralization that is built on technology, rather than people or management. The technology does not receive profits of its own, nor does it make decisions based on emotion or self-preservation,” said Nikolai Kuznetsov, a financial analyst and professional trader, on one of his Forbes article.
3. Third-party organizations become unnecessary
Intervention and oversight from banks and other organizations have been, until now, the conventional way to prevent fraudulent transactions. In 2014 alone, it was estimated that banks charged $1.7 trillion in fraud prevention fees, which is about two percent of the world economy.
Imagine how many dollars could be saved and could be kept for future use. Through blockchain, users could verify the authenticity of the transaction with no charge.
4. Promises easy and secure transactions
Some consumers remain skeptical about blockchain’s security. Without banks or third-party oversight, how would consumers know their money is safe?
If a person tries to hack the database, this person must hack all the computers connected to it in order to have central authority. Take note that thousands of computers are connected to the blockchain. The latter is secured through cryptography, a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it.
Blockchain may also help small businesses and indigent people protect their important documents, such as land registration, business permits, etc. In the future, these groups can choose to store their files and documents via blockchain, making them visible and available for all to see. This would help to curb fear of documentation loss or questions around land and ownership rights.
Authenticity within blockchain technology is verified through a system ledger - an accounting book that each connected computer has. Every input is logged on this ledger and thus recorded and secured.
5. Identity Management
While security issues continue to stir questions about the future of blockchain, another concern is also raising questions. How are users to prove their identity? Many consumers find it difficult to trust someone online if they have not met him or her face to face. Similar to the process used to verify the authenticity of documents or transactions, identities are verified through given personal details and credentials.
Where Will Blockchain Technology Take Us Next?
Blockchain technology provides many ways for entrepreneurs to improve their businesses. Business Insider states, one way blockchain could elevate businesses is through organizing supply chains within shipping. A large shipping company, Maersk, conducted a test using blockchain to track its cargo during shipment. Cryptographic security made it difficult to mislay the cargo.
Another application of blockchain in business is through the use of smart contracts. Instead of using paper to seal contracts, agreement between two parties (i.e. businesses and clients/customers) could be recorded via blockchain.
As blockchain technology becomes more widely accepted amongst mainstream consumers, the possibility that it will disrupt the current status quo within the banking sector becomes increasingly likely. Lookout! The future of finance may look very different. Entrepreneurs take note!
Header Image Courtesy of: PA Times
Irene Mae Pagsolingan is a regular contributor for the Ye! Community. She is an experienced news editor with a history of working with online media.