Virtual technology continues to evolve at a rapid pace. The manner in which activities like trading and financial transactions once took place on the Internet has given way to the advent of the blockchain. You can take advantage of this virtual invention by understanding what a blockchain is and what role it plays on the Internet today.
Before you can use or develop your own blockchain, you need to understand what it is exactly and what purpose it serves. In short, a blockchain is a virtual data structure that functions as a ledger of sorts for financial transactions.
The transactions are digitally signed to verify their validity. In a blockchain, verified past transactions cannot be easily changed without the entire system going through a series of algorithms first. Likewise, new transactions can only be added and verified in real time.
This measure of protection ensures that the blockchain cannot be tampered with or altered, which makes it extraordinarily secure. The ledger and all of the transactions recorded within it are considered to be of high integrity.
Further, the entries in a blockchain can also be distributed or deployed within an approved infrastructure. The nodes or layers within the blockchain serve to provide agreement about the state of a transaction at any given time. All of them have copies of the existing and verified ledger distributed among them.
Blockchains are so innovative and secure that they are becoming commonplace among global companies like Citi, IBM, and Barclays. These companies utilize private blockchains. However, it is possible for a blockchain to be public, such as the one used for Bitcoin.
Blockchains have the ability to save companies millions in costly mistakes each year. Reports estimate that an effective blockchain could possibly save financial entities between $11 and $12 million annually in trading mistakes that result in expensive fees and higher operating costs.
For a blockchain to be effective, its nodes must execute a number of different algorithms in order to evaluate and verify the history of blocks within the blockchain. This process must occur any time a new transaction is added to the blockchain or when a transaction is changed.
A majority of the blockchain's nodes must agree on the history and validity of the new or edited transaction. Once an agreement is reached among the nodes, a new block of transactions is added to the blockchain itself.
If the nodes do not reach a consensus, the new block is denied and not allowed to be added to the blockchain. Agreement is essential and cannot be bypassed in order for the blockchain to function as an effective ledger. This consensus eliminates the need for a unifying and centralized authority that stipulates what transactions are valid and what ones are not.
Blockchains offer a number of unique advantages to companies that utilize them. To start, they get rid of the need for a central authority to verify or settle transactions. Companies have no need to utilize settling agents or clearinghouses for this purpose. They effectively reduce costs and speed up the process for making, verifying, settling, and recording transactions.
Second, they come with a low incidence of fraud thanks to the required digital signatures and verification for all transactions. The cryptographic integrity of transactions that are pending as well as the examination of multiple nodes within the blockchain safeguard against threats and the malicious use of this technology.
Finally, blockchains keep track of how assets move through a supply chain. They verify vendors and factories from the time of product or asset transmission throughout the lines of transportation until they reach their final destinations.
Blockchains are the future of how financial transactions will be handled on the Internet. These virtual ledgers provide unprecedented security and protection. They also effectively lower operating costs and eliminate expensive mistakes that could cost companies millions of dollars.
