What is Blockchain and how is it used?

September 16, 2016

A lot of friends ask me questions about the emerging of the Blockchain revolution. According to the recent news, four of the world’s biggest banks have teamed up to develop a new form of digital cash that will become an industry standard to clear and settle financial trades over a blockchain. Meanwhile, Ripple raised $55 million in Series B Funding. In my opinion, it’s no doubt that blockchain has the potential to disrupt everyday banking.

What is it?

Blockchain is a data structure for creating a digital ledger of transactions shared among a distributed network of millions and millions of computers. It uses state-of-the-art cryptography to manipulate the ledger in a secure way. It is based on the concept of consensus where every node agrees to every transaction, therefore avoids the need for central counterparty (CCP) model in the traditional settlement process.

How is it used?

The border implications of the blockchain are that cross-currency payments can be settled more efficiently by eliminates time delays and lower back-office costs. Customers nowadays demand faster, lower-cost global payments, where blockchain allows direct bank-to-bank settlements. Some use cases of the protocol include remittance service for retail customers, international transaction, corporate payment and cross-border intra-bank currency transfer.

What is innovation?

It leads to an opportunity that we can do transactions and satisfy double coincidence of wants without knowing who the other party is. The biggest innovation is the idea of a distributed database where trust is established through mass collaboration rather than a powerful institution that does the authentication and the settlement.

What problems could be solved?

The sorts of problems it could solve are beyond the financial market since the technology could offer an immutable record that we can trust. Existing identity infrastructure is broken and easily compromised. In a blockchain, once a block of data is recorded, it’s very hard to change, thus it can be used for genuine privacy protection. All copies of the existing blockchain run algorithm to verify the transaction when someone wants to add to it. Any malicious attempt to defraud the system would be rejected, while the proposed transaction will be approved when a majority of nodes agree it is valid by identifying matches with the blockchain history. As a result, it can be used to create an open protocol for identity on the web that creates a ‘web-of-trust’ and stores data encrypted.

References

  1. Martin Arnold, “Big banks plan to coin new digital currency”, the Financial Times, August 24, 2016, https://www.ft.com/content/1a962c16-6952-11e6-ae5b-a7cc5dd5a28c
  2. Alyssa Jarrett, “Ripple raises $55 million in Series B Funding”, Ripple official website, Sept 15, 2016, https://ripple.com/insights/ripple-raises-55-million-in-series-b-funding/
  3. Don Tapscott, Alex, Rik Kirklandm, “How Blockchains could change the world”, McKinsey & Co, May 8th, 2016, http://www.valuewalk.com/2016/05/blockchains-change-world/?all=1

Written by Victor Leung who is a keen traveller to see every country in the world, passionate about cutting edge technologies. Follow me on Twitter