Four reasons why you should know about blockchain technology

This article was written by Senthil Radhakrishnan, Vice President and Head of Capital Market Solutions Group at Virtusa. Senthil has been focusing on capital market technology for more than 16 years and has extensive experience in top investment banks, including UBS, JPMC, Barclays, etc.

Blockchain (the underlying technology of Bitcoin) is like a magic box that can create all kinds of unexpected innovative applications. It is also like a "small capsule" that packs many great ideas. Such a revolutionary technology is not common, and it is no wonder that all top banks and investors are attracted to it. The blockchain industry has received more than 750 million in investment.

Many people may not understand why discussions in financial institutions are centered around blockchain. Here are four reasons.

Self-Compliant Platform

It’s rare to find a system that can self-regulate with little or no human intervention. In any industry, such as finance, central banks and regulators (such as the Securities and Exchange Commission) need to develop regulatory measures to govern the industry. Blockchain can eliminate the need for companies or government agencies to regulate the operation of the system.

Blockchain is based on a concept called proof-of-work, where nodes (i.e., individual computers) confirm each transaction. The system has built-in checks and balances to ensure that groups of computers colluding with each other cannot hack the system. All of these checks and monitoring are done by computers. In addition, there are alternatives to proof-of-work, including other consensus models, but the basic idea of ​​P2P clients or nodes managing the system remains the same. In addition, the high degree of transparency brought by blockchain can reduce fraud because the blockchain is public and available for everyone in the world to view, which is called "crowd control." Just imagine how much money and efficiency this concept will save!

Binding Force

Users and their actions (transferring money to others or transferring assets) are recorded on the blockchain. Any transaction activity that occurs between two parties can be tracked, and if a dispute arises, it is easy to provide evidence in court. This is because all transactions require cryptographic public or private keys, and once a transaction is added to the blockchain, it is irreversible. Any record, asset, or digital currency on the blockchain has its public key on this block. The transaction then requires the private key signed by the previous asset owner. The blockchain also provides alternative proof mechanisms, such as requiring two people to sign a transaction. In such a system that is not endorsed by a company or government, a legally binding mechanism greatly improves credibility.

Continuity of operation

Global platforms where major financial transactions take place cannot afford downtime. Blockchain, as a P2P network, has many distributed nodes and supporting computer servers, which is extremely reliable. Each participating node has a copy of the entire blockchain ledger. This makes the entire network fault-tolerant, because the failure of one or two nodes will not hinder the operation of the rest of the network. This allows its availability to be 24/7 all day, all week, without the need for complex technologies such as disaster recovery backup centers or database redundancy.

Update without stress

The blockchain system sets a set of rules on who can approve transactions and what checks need to be done before transactions are added to the blockchain. The blockchain can be forked into new versions based on changes in the environment and business needs. Consistent with the entire Bitcoin philosophy, such changes should be accepted and equally beneficial to all users. In addition, these enhancements do not affect transactions that have already occurred and confirmed on the blockchain. This also brings additional stability and flexibility.

Original article: https://bitcoinmagazine.com/articles/top-reasons-banks-should-be-excited-about-blockchain-1446583077
Translator: Ashley Chacha
Editor: printemps
Source (translation): Babbitt Information