From finance to agriculture and many industries in-between, blockchain is a proven game-changer in the word of secure information or financial transactions.
In a recent report, the market value for the blockchain sector will be over $60 billion estimated by 2024. This marks a significant increase over a more recent figure of $706 million.
Given the greater impact blockchain will have in the near future, it would be in our best interests for those who are not aware, to gain a bit of understanding of what blockchain technology is.
An Introduction to Blockchain Technology
According to Deltec Bank, Bahamas – “At its foundation, blockchain technology is a tool used to create an immutable distributed ledger of data. This leger data will reside on thousands of computers designed to keep the transactional transfer of data transparent and secure. This is made possible because of cryptography. All data packets or ‘blocks’ of data will each have a secure key assigned once the ‘blocks’ of relevant data are arranged in their block’s ‘chain’.”
In today’s world, this makes sense. Multiple parties located in various cities can engage in sending or receiving currency accurately and securely. In order for the transaction to be accepted, all parties must agree that all information is correct and only then will the transaction load into the ledger and remain there permanently tamper-proof.
As an aside, the term ‘ledger’ comes from the cryptocurrency side of things as financial transactions were the first to be recorded in a secure repository now known as a distributed ledger.
Innovations in Blockchain Technology
Innovation 1: This was the introduction of cryptocurrency, specifically Bitcoin, as the first major step in blockchains evolution. This was a tailor-made solution for blockchain. Bitcoin at one point reached a market cap of $145 billion.
Innovation 2: In a bit of a confusing term, the next innovation was called ‘blockchain”. Given the success of bitcoin, it was proposed that blockchain would also be used as a detached repository from currencies alone and act as a fully decentralized transactional technology platform. This saw the introduction of industries outside of banking and finance and more towards, aerospace, food and agriculture, real estate, supply chain, and insurance to name a few. The growth has been significant in all areas.
Innovation 3: This is where the introduction of a “smart” contract would occur with Ethereum leading the charge. In this iteration, commercial loans and fixed income financial products were released via the blockchain. Up until this point, only bitcoin tokens were used/exchanged on the platform.
Innovation 4: This is the most current innovation in use. It is commonly known as the “proof of stake” evolution. This is a digital technology model in cryptocurrency that gives an individual owning a considerable amount of coins more power over another individual who owns fewer coins.
This innovation was needed to fix an issue with the former “proof of work” model which was more difficult and inefficient as a stakeholder model. This ‘power’ enables stakeholders the ability to mine or validate block transactions based on the amount of cryptocurrencies they own.
Innovation 5: This phase has not been introduced publicly yet. This innovation would make all financial transactions perform much faster. For example, while Visa can handle 1,660 transactions per second, bitcoin handles at most, seven transactions per second. This is simply because it takes time to clear with authentication unless your pay more for expedited services.
Security in Blockchain
Blockchain is very well known as the most secure platform out there.
Blockchain users conducting financial transactions across the network remain confidential. This makes it extremely difficult for cyber-criminals to identify and steal their personal or financial data.
It is also virtually impossible to change information once it has been confirmed on the blockchain. This is due to each block’s validation with its own digital stamp or “hash” that is unique for each transaction.
This digital stamp cannot be altered by third parties, significantly reducing fraud and reinforcing a stronger facet of system security within the blockchain.
Benefits of Blockchain in Banking
Reduced costs: Using the blockchain will result in decreased overhead costs, increased efficiency and improved customer satisfaction.
For instance, when utilizing smart contracts, banks will require less interaction spent with intermediaries and counterparties. This will result in lower costs required for the maintenance and execution of contracts.
Faster transactions: Banks can take up to 1-3 days when verifying traditional transaction settlements. Moving assets through the blockchain would considerably reduce time to approval since the pre-approval process was already completed at the beginning of the original transaction. This can take from minutes to hours at most through blockchain.
Improved security: Banks would be able to secure transactional information via shared ledgers using blockchain. This is not possible using the traditional centralized system. Fraudulent activity, for example, from an intruder attempting to intervene and divert payments or trying to grab transaction details will not happen with blockchain.
Blockchain is very promising as a technology that can be greater than just a cryptocurrency platform. It is now attracting more mainstream applications in business. Costs will eventually be lowered as businesses will be able to facilitate secure transactions of all kinds without the need to engage intermediaries.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.