Blockchain is a tamper-resistant digital ledger that also shows when someone attempts to manipulate it without permission. This technology gets implemented in a distributed fashion, removing the need to have a central repository or authority. At its most basic level, a community of users works to record transactions within the community’s shared ledger so that nothing is changeable once publication occurs.
Author Arthur C. Clarke once noted that any sufficiently advanced technology is virtually indistinguishable from magic. This introduction to the massive benefits that blockchain provides will demystify this approach to further an individualized understanding of the matter.
How We Implement Blockchain Today
Blockchain implementations typically service a specific function or purpose. Smart contracts, cryptocurrency, and distributed ledger systems are all examples of how we use this technology for beneficial purposes.
Two high-level categories exist for our approach to blockchain. The network can either be permissioned or permission-less. In the former option, limitations exist as to the participation of specific organizations or people, creating fine-grained controls that grossly limit the potential for fraud.
Permission-less blockchains allow anyone on the network to read or write to it without the need to receive prior authorization. When you know the differences between these two options, then it is a more straightforward process to implement the correct subset to meet individual needs.
Blockchain Uses by the Finance and Banking Industries
According to Deltec Bank, Bahamas – “Blockchain provides a disruption opportunity for almost every segment of the finance and banking industries. It can transform transactions, change fundraising efforts, and create absolute transparency.”
Distributed ledgers can reduce operational costs within these industries. It brings everyone closer to real-time transactions between institutions.
It even creates an opportunity to tokenize alternative assets to turn them into securities. Instead of purchasing gold ETFs, for example, investors could choose fine art tokens.
That means more flexibility enters the banking sector because blockchain fosters independence instead of dependency.
Most Blockchains Use Similar Core Concepts
Despite the rapid development of new blockchain-related concepts, most networks are still using the original standardized core concepts of this technology. The distributed ledger is comprised of blocks, with each one containing a dataset of transactions or usable information. Then each header, except for the first block in the chain, includes a cryptographic link to the previous one.
Each transaction must involve one or more network users for blockchain to be usable. It generates a recording of the events that transpire, digitally signing each one based on the user submissions.
The cryptographic hash functions of blockchain provide three critical security properties that make this technology inviting through its support of 256-bit output size. Most modern computers support its algorithm in the hardware to promote fast computations.
The first property is its pre-image resistant nature, which means blockchain creates a one-way activity. It is computationally infeasible to determine the correct input value when given some output.
It is also a second pre-image resistant. You cannot find inputs that hash to specific outputs with blockchain. When a particular input occurs, then it is not possible to find a second one that produces the same output.
Blockchain is also collision-resistant. You cannot find two specific inputs that hash to the same output with this technology. It does not create the same digest.
What We Must Remember About Blockchain
Blockchain is not a cure-all technology that solves all of our problems. We must continue to develop this approach to manage malicious users, understand how controls get applied and have a better comprehension of the limitations of each implementation.
Then we can approach the issues of governance that will inevitably develop as more people and organizations use this technology.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.