You’ve probably already heard of bitcoin, the digital currency that many predict will revolutionize online payments and banking. Others are calling it an enormous fraud, owing to the facts that it’s barely regulated, and it’s the currency of choice for online criminals such as ransomware distributors. However, that’s far from the whole story.
Bitcoin also has some important legitimate uses that will likely position it to become a major player in financial markets over the next few years. That’s because it runs on Blockchain technology, which acts as a secure and decentralized ledger in which transactions are completely untraceable.
Using blockchain technology, transactions take place over a peer-to-peer network in which there’s no need for third-party payment processors or certifying authorities. Its current and potential applications include international transactions, insurance claims processing, asset management and more.
How Does Blockchain Work?
Blockchain works by cutting out the middleman and eliminating the need to rely on a contract or trust alone when making transactions. The processes may be divided into five main steps. The first is a transaction in which two parties agree to exchange a unit of value. Transactions are not just limited to digital currency either – users can send any type of digital data, including assets like land titles, contracts, and invoices.
Once both parties have agreed to make an exchange, the transaction is combined with other pending transactions to create what’s known as a block. This block is then sent to the blockchain network, a decentralized network of computers known as nodes. In other words, the block isn’t stored in a single location, but rather in multiple computers across the globe.
The machines participating in the blockchain network, which are often known as nodes or miners, verify incoming transactions using mathematical algorithms. Once verified, the transaction block is time-stamped, encrypted and added to the chain.
Finally, the unit of value, such as the cryptocurrency payment or other digital asset, is moved to the recipient.
How Does This Benefit Businesses?
The decentralized nature of blockchain makes it practically impervious to hackers. This is because the data is stored across thousands of physical devices located all over the world, thereby making it impossible for any one individual, company or even government to have direct access to the data. By comparison, other online transactions tend to be centralized in such a way that the data may be intercepted if there’s any vulnerability in the network carrying out the transaction.
What’s more, in order to alter records, every computer in the blockchain must agree that the transaction is authentic. In other words, a hacker must be able to compromise thousands of computers simultaneously just to change one block in the blockchain.
Blockchain transactions are also cheaper and more efficient, since they cut out the need for any intermediary like a bank. For this reason, it’s ideal for facilitating faster and cheaper settlements that could save companies enormous amounts of money on transactional costs while also enabling greater transparency between parties.
Over the coming years, blockchain will likely play an increasingly important role in many industries, particularly those subject to stringent compliance regulations, such as healthcare, law and finance. However, virtually any business can benefit from using blockchain, since it’s the most secure way to send documents and other assets containing sensitive information.
With so many far-reaching possibilities, blockchain has the potential to offer a faster, cheaper and safer way to send important digital assets.
Truewater offers the full range of IT consultancy and cloud computing services for businesses wanting to get more out of technology without the hassle that often comes with it. Call us today if you want to learn more about modern technologies.