Most people use banks and financial intermediaries to make money transactions. The origin of the blockchain is rooted in the need to allow consumers and suppliers to connect directly, removing the requirement for a third party to exchange virtual currencies such as bitcoin.
So, how does it work?
The blockchain was created together with bitcoin, and is the underlying technology that allows bitcoin to work; to exchange bitcoins, a virtual network is needed in which every computer is part of the “chain” and must verify and approve the exchange of money to remove the need for a third party to verify transactions and to avoid double spending of the same coin.
Blockchain is a technology that provides secure storage for every transaction occurring on the network, using strong cryptography, and thus creating a “digital ledger”, a decentralized database, storing all the details of every transaction of the digital currency that occur across the chain.
From money transactions to other scenarios.
Blockchains can serve uses other than money transactions. It can support businesses in 4 different ways:
Firstly, being a distributed ledger, they only allow data shared across business networks to be added and not modified.
Secondly, they support the creation of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
The possible advantages of a smart contract over its equivalent conventional financial instrument include minimizing counterparty risk, reducing settlement times, and increased transparency.
Thirdly, blockchains ensure appropriate visibility to different characteristics of the transactions, which are secure and verifiable.
Finally, blockchains have a validation system which requires all parties to agree about the transaction at a certain moment in time: notarization functions.
Even if blockchain technology was created and spread through the use of bitcoin and cryptocurrencies, money and financial services are not the only domains in which it appears to be promising; these four features can benefit multiple markets.
CRIF IT Solutions Area Director