A Blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions.
Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it
in chronological order, it allows market participants to keep track of digital currency transactions
without central recordkeeping. Each node (a computer connected to the network) gets a copy of the
Blockchain, which is downloaded automatically.
Originally developed as the accounting method for the virtual currency Bitcoin, Blockchain – which
use what’s known as distributed ledger technology (DLT) – are appearing in a variety of commercial
applications today. Currently, the technology is primarily used to verify transactions, within
digital currencies though it is possible to digitize, code and insert practically any document into
the Blockchain. Doing so creates an indelible record that cannot be changed; furthermore, the
record’s authenticity can be verified by the entire community using the Blockchain instead of a
single
centralized authority.
A block is the ‘current’ part of a Blockchain, which records some or all of the recent transactions.
Once completed, a block goes into the Blockchain as a permanent database. Each time a block gets
completed, a new one is generated. There is a countless number of such blocks in the Blockchain,
connected to each other (like links in a chain) in proper linear, chronological order. Every block
contains a hash of the previous block. The Blockchain has complete information about different user
addresses and their balances right from the genesis block to the most recently completed block.
The Blockchain was designed so these transactions are immutable, meaning they cannot be deleted. The
blocks are added through cryptography, ensuring that they remain meddle-proof: The data can be
distributed, but not copied. However, the ever-growing size of the Blockchain is considered by some
to be a problem, creating issues of storage and synchronization.
The widespread adoption of DLT will bring enormous cost savings in three areas, advocates say:
-
Electronic ledgers are much cheaper to maintain than traditional accounting systems; the
employee headcount in back offices can be greatly reduced. -
Nearly fully automated DLT systems result in far fewer errors and the elimination of repetitive
confirmation steps. -
Minimizing the processing delay also means less capital being held against the risks of pending
transactions.
In addition, some smaller number of millions will be saved by shrinking the amount of capital that
broker/dealers are required to put up to back unsettled, outstanding trades. Greater transparency
and ease of auditing should lead to savings in anti-money laundering regulatory compliance costs,
too.
Given the incredible opportunity for decentralization, Blockchain technology offers the ability to
create businesses and operations that are both flexible and secure. Whether companies will succeed
in deploying Blockchain technology to create products and services consumers will trust and adopt
remains to be seen. Nevertheless, this is definitely a space investor should watch. The demand for
Blockchain-based services is on the rise, and the technology is maturing and advancing at a rapid
pace.