Blockchain might not be a household buzzword or a famous innovation that everyone’s talking about, but it plays an increasingly important role behind the scenes. Designed originally by Satoshi Nakamoto, the unknown individual or group behind Bitcoin, blockchain serves as a digital ledger for recording financial transactions and almost anything else of value.
You can compare blockchain to a regularly updated and widely distributed spreadsheet that contains a vast database of online transactions. In this sense, blockchain is a distributed database that isn’t stored in any one physical location. As such, the records it keeps are public and easily verifiable, which means that the information cannot be accessed by a hacker trying to reach a centralized version.
Because blockchain technology isn’t centralized, it provides a particularly robust way for storing transactional information. It doesn’t have any specific point of failure since the database is fragmented across countless servers and networks around the world. This also means it cannot be controlled by any single entity, and corrupting any data would require an impossibly large amount of computing power.
Who uses blockchain technology?
Since blockchain is ideal for protecting any digital asset or transaction that needs to be completely tamper-resistant, the finance sector presents the strongest case for its adoption. Originally, blockchain was developed alongside Bitcoin for recording and enabling transactions made in the cryptocurrency. However, its reach is rapidly expanding, particularly across the financial, healthcare, and transportation sectors.
Blockchain technology can also help businesses that rely on a steady supply chain whereby checks and balances need to be recorded and kept up-to-date without being exposed to any tampering. This allows supply chains to be updated in real time and enjoy a seamless connection independent of a single service provider. Additionally, any industries that rely on contract-based transactions, such as real estate rentals, can also benefit from the secure ledger that blockchain provides.
How blockchain is transforming finance
Global finance sees trillions of dollars moving around the world every day, serving most of the world’s population. Unfortunately, the system has many problems, all of which increase overheads due to delays, bureaucracy, and criminal activity. It may seem ironic then that the technology invented for facilitating the favorite currency of the criminal underworld (Bitcoin) may turn out to be the answer to many of the financial sector’s security woes.
Because the blockchain database is distributed across millions of physical devices all over the world, transactional trust is determined by the wider community rather than by intermediaries such as banks, government agencies, and credit rating agencies. In other words, it allows almost any asset of value to be transferred securely and privately between two parties, without the need for a middleman. Not surprisingly, this worries financial services businesses.
Given its wide-reaching implications, the increasing adoption of blockchain technology has left many businesses in the financial sector feeling anxious. However, the technology presents both promise and menace to the financial sector, depending on which way you look at it. On the one hand, it allows people to cut out intermediaries and safeguard their privacy, but that also applies to finance firms as well.
Financial service providers themselves rely on many intermediaries for carrying out a wide range of complex transactions. By investing in blockchain, such firms can reduce overheads and minimize transactional friction. In fact, according to Santander, the world’s banks can save $20 billion per year by using blockchain.
Ultimately, blockchain allows financial service companies to do more with less. On the other hand, failing to recognize the implications and opportunities of such a disruptive technology can leave companies straggling behind. There’s no doubt that blockchain is a game changer, and the major challenge is to find a way to embrace the new paradigm and stay at the forefront of technological innovation.
As is always the case with the introduction of new technologies, there will be both winners and losers. Here at Netcom Solutions, we help make sure that businesses in the finance sector stay at the vanguard of innovation by continually monitoring, testing, and auditing your network to ensure they’re safe from hackers and cyberattacks. Call us today to talk with one of our experts.