Continued from – Blockchain and Bitcoins 101 – Part 4
The banks today seem to be eager to adopt Bitcoin’s record-keeping system – the blockchain.
We have seen an overview of how bitcoin works and what a blockchain is. Please read part 3 from the series before continuing with blockchain.
Blockchain Technology is a ledger of business transactions that are maintained on a decentralized network or servers known as “peers”. This decentralized network allows peers to individually process and make decisions irrespective of decision of any other peer. The best example been the working of bitcoin.
These peers run on the same consensus algorithm and validate each transaction, only the valid transactions are added to the ledger, in a chain like fashion as we have already seen.
How Blockchain Technology works?
Financial institutes collaborate with the internet commerce to serve as a third party for processing of all electronic transaction. They validate, protect, and preserve the transactions as there is an unavoidable chance of fraud transactions.
But in Blockchain Technology, instead of third party handling the transactions over the internet, they use cryptographic proof like digital signature. Each transaction is digitally signed using the sender’s private key and it is sent to the receiver’s public key. The digital signature is verified based on two factors:
- The Sender must own a cryptocurrency (digital signature) on the transaction.
- The Sender must have sufficient balance in his/her account.
Then the transaction is broadcasted to every node in the network and after the verification it is recorded in the public ledger. Again, think of bitcoins.
Please read the previous parts in the series in case you have missed out any details – part 1, part 2, part 3 and part 4. Coming back to blockchain. The practical applications of blockchain technology, apart from the recording of transactions in the currency unit, can be listed as follows:
The traditional method to classify diamonds are the ‘Four Cs’ namely cut, color, clarity and carat. The diamond industry now uses blockchain technology along with the traditional ‘Four Cs’ method to assign each stone with a unique identifier and the diamonds are graded based on their carat value. Thus, blockchain creates a partially public information that includes all the diamond certificates for reference and all the sensitive data like policies and reports is kept private.
Copyright & Ownership
Blockchain technology is used by the artists/creators to record a digital copyright and take ownership on their work.
Distributed ledger can be applied to non-financial companies, for instance, Fatcom – uses blockchain for data management. They use blockchain identity ledgers for the data management and analytics of their applications. Also, with the use of blockchain it maintains permanent records of data which helps the other organizations to lower the cost of conducting audits and managing data.
Blockchain Applications in Banking
Banks have recently started the Know Your Customer (KYC) Registry, wherein every customer’s general information is documented. Here, blockchain – the distributed ledger has the benefits of process automation in order the reduce the compliance errors.
This registry not only helps to eliminate the additional effort that is required for the KYC checks, it also sends encrypted updates of the customer’s details to all the banks in real time. This blockchain-based registry is a ledger that provides all the historical and compliance data of each customer, which helps in the detection of fraudulent histories, irregularities, and criminal activities.
Santander bank is the first bank in the United Kingdom that developed an iOS application that used Blockchain Technology for international payments. Other major banks like Citigroup, Barclays and UBS are also using blockchain technology.
Five Interesting Applications of Blockchain Technology – http://www.edelman.com/post/blockchain-technology/
Potential Uses of Blockchain Technology – https://www.weusecoins.com/blockchain-uses/
Blockchain has developed a broader perspective of looking at security, which is based on the combination of its characteristics. A comprehensive approach can be considered which consists of the features like security of the user’s identity, communication and infrastructure security, audits to maintain business security, protection from malicious attackers and compromise/failure of servers. Since privacy and security are the core characteristics of blockchain, these features are the addressed in blockchain technology.
But there are attacks and security issues related to blockchain. Watch this space for more information on blockchain and cybersecurity.