If we hear the word "Blockchain," we quickly relate it to the implicit technology of cryptocurrencies, especially Bitcoin. However, this technology has many other applications, in finance and other sectors.
For 20 years to the present time, we have lived in the Internet of information, the free flow of information throughout the planet. Many experts predict that the next revolution of the network will be generated by the blockchain, the Internet of value, which allows value sharing (titles, files, patents and others) in a digital, decentralized (without the need for a central authority) and totally reliable way.
Blockchain, the digital trust:
The Blockchain is primarily a record, a ledger of digital data that is shared among many other different parties. Its essence is that once any information is entered, it can never be deleted or modified, being permanently recorded.
We can consider Blockchain as a distributed database (multiple databases related to each other), which allows to execute transactions between two or more parties in a verifiable, transparent and permanent way.
The blockchain generates a total consensus among its users, all participants have a copy of it. Therefore, Blockchain enables trust in any type of business relationship.
Main features of Blockchain:
Blockchain technology has the following advantages, essential in any economic transaction:
Security: Absolutely nothing can be modified or deleted, only added progressively. That means that once the transaction is done you cannot manipulate the system dishonestly.
Transparent: It is a record or "general ledger" in which the different transactions made are stored, you can only access to consult, without being able to modify those transactions. The veracity of the information is therefore guaranteed.
Trust: In decentralization and the lack of a central node where all the information is gathered, makes the parties involved fully trust this technology.
Cost and time savings: Significantly reduces the tasks of recording and controlling data in transactions. The blockchain avoids record duplications, only one record regardless of the number of participants (without Blockchain, if there are three participants it means that each of the three parties makes the record of the transaction).
Real-time transaction: Its immediacy (considering that there are no timeouts) minimizes the risk of counter-party produced in other transactions where the payment commitment it takes several days to execute (avoiding risks of non-payment, bankruptcy, fraud, etc... throughout the payment process).
On the other hand, its drawbacks stem from blockchain problems with scalability. The Scalability of a system is the ability to grow in volume and manage the increasing workload. In Blockchain, scalability is measured through transactions that can be processed in a given time.
Scalability issues can be slow compared to other centralized systems (most payment systems). Each block that is created has a certain limit of transactions, if in a time interval many transactions enter, the waiting times increase.
Another problem with this technology is the issue of regulation, it is not known what type of regulation the Central Banks (Europe and the United States) will undertake in the future regarding this technology applied to finance.
Blockchain applications in finance:
As we mentioned initially, the blockchain does not only have application in cryptocurrencies. Here are some of the possibilities offered by blockchain in finance:
Smart contracts:
One of the most important developments of Blockchain was made by the Ethereum Blockchain, through smart contracts or Smart-Contract. Smart contracts are applications that operate as computer programs and run through Blockchain, in a decentralized way.
To simplify, a Smart-Contract is a software code that will be executed by itself under certain circumstances agreed between the parties in advance. They usually include a financial transaction. For example, if the value of oil falls to a fixed price, an amount of money is invested in a certain share, just as Stop Loss works in the International Currency Market.
Smart contracts will provide financial services in the future without the need for intermediaries.
They have endless possibilities: Online voting systems, Insurance, Betting.
Smart-Contracts incorporate the main features that Blockchain (immutability, security and transparency).
Perpetual Identity:
Digital identification is becoming more and more important in the financial world. Being sure that a user is really the holder of a digital financial contract is vital. With all this, the introduction of a personal identity (Passport, deed) in Blockchain guarantees the veracity of the identification.
Some experts say that in the near future there will be a blockchain accessible to all financial stakeholders, where it will be possible to obtain digital identification. Thus, once the ID has been entered in that registry or blockchain, any bank or fintech will be able to access the ID (with the user's authorization). Therefore, any user will only need to enter their ID or passport once.
Digital payments, Stellar or Ripple:
There are very efficient digital currencies in international payments and micropayments:
Ripple: It specializes in cross-border payments (payments between different countries). Ripple's system is designed for financial institutions and payment providers around the world. This technology prevents cross-border transactions from going through intermediaries.
Stellar: It is an ideal platform for micropayments, due to its speed, low commissions and equal treatment between users.
Some financial institutions are starting to develop processes through Blockchain in various business areas.
Issuance of securities and digital assets:
Blockchain allows companies to issue digital securities or assets(a property, a financial asset, a cryptocurrency...). Once the assets are entered into the Blockchain, they can be traded between different companies. This transmission of digital assets facilitates trade and collaboration between companies.
Other Blockchain financial developments:
Without a doubt, cryptocurrencies is the sector where the blockchain has been most developed. Blockchain technology was born as the essence of bitcoin and is currently present in most digital currencies.
Other financial areas have also found solutions in the blockchain. For example, the US stock market, Nasdaq, uses Blockchain on its private stock market.
Blockchain, the technology that will revolutionize the Internet:
At first, Blockchain began in the shadow of bitcoin, but little by little, the blockchain has been implanted in different sectors (finance, medicine, food...). Many governments and multinationals are taking positions on blockchain, investing millions of euros to implement this technology in their organizations.
For years, the "Internet of connectivity and information" has changed the way we live, think and relate. For many, blockchain along with new digital developments (Big Data, IoT, Artificial Intelligence, cognitive system...), will be part of the next digital revolution. Actually, Blockchain will allow sharing value (titles, files, patents...) in a digital and decentralized way in most economic sectors.
Thus, the development of the blockchain is not directly related to the evolution of digital currencies. Despite the questions of cryptocurrencies, we can catalog Blockchain as a technology that will revolutionize the digital world.
Alejandro O. Asharabed Trucido