Block-Chain Technology

Block-chain technology is a very important technology and the most popular reason which makes its importance is cryptocurrencies which are hot and current topic in today’s modern world. One who is going to invest in cryptocurrencies should have the knowledge of this technology because it is a very futuristic technology and the issues arising in banking system either it is for security  or transactions related, all these types of issues have been solved by block-chain technology. In future this technology will be  spread around all over the world in multiple  areas.

Why we need block-chain technology?  

Issues with current banking systems.

Bitcoin : A digital currency

  

The first issue arise with our banking system is high transaction fees.  Take an example of two persons, person A and person B, suppose person A wants to transfer some amount to person B then in case bank will charge some fees to process this transaction, if the amount transferred is very small say around 10,000 bucks then the charges can be negotiated. But in many organizations this amount of transaction is very large and frequency for transaction is also very high, in these cases one can easily estimate the amount that bank or third party will charge to carry out transactions. The problems in these cases are severe if bank charges are high. Also there is restriction on number of transactions that you can make in a day. 

Second the most importance thing to analyze is that we have to follow the rules and regulations of third party like minimum/maximum amount, time period for transaction, there are many sites on which debit/credit card can be used for transaction purposes. Another point to analyze is that net banking frauds; to understand this one should know how banking system works? All of the information regarding your account is stored in sever of that particular bank. Suppose if this server get hacked then what will happen? Think! This particular problem is solved by block-chain technology. This is the major advantage of block-chain technology.  In this technology the information will not be stored at one server or one party but it will be stored at various secured places (called public ledger). 

Bitcoin

Third point is related to double spending. Let understand this.

Suppose we want to make a transaction through our e-wallets as generally we do, in this case probability may increase that at same time we made two transactions, if we do this two transaction in similar way and our account/wallet balance is not enough to back expenses then the case of double spending arises, both the transaction got accepted and we may face blockage like problems. Here we need third party which notices our transactions.

Why we need to remove this third party?

The double spending problem is main problem you need to solve if you introduce a new electronic scheme. The importance of third party is that first we can trust as they are mainly govt. approved second they provide security. But what is the cause which limits the need of third party i.e. disadvantages using third party. Major disadvantages are:

    1. Half of adults all around the world doesn’t have access to             financial services because the institutions are too far away/too expensive to use.

2. In  2008 financial crisis several banks were failed which teaches that there is no such thing as trusted third party. They failed because of mismanagement, greed or they can be involved in illegal banking activities.

    3.Third parties haves the power to suspend customers accounts. For example paypal has suspend wikileaks donation account.

Due to this advantages people want to remove third parties. Security, trust and money are one on one side, other thing to notice that is expenses to manage servers which includes employees, buying of new technology to secure transactions etc. it will be also be fruitful to banks. Just think that what amount can a bank save if it acknowledges block-chain technology. That why new banks are focusing on block-chain technology.

How concept of block-chain technology solved these problems

The main points to understand are:

1. Decentralized power
2. Public ledger
3. Immutable to hacks
4. No double spending

Decentralized powers:

If we talk on management system, the leaders are of various types like autocratic and many leaders’ delegates their power i.e. they distribute their power to some trusted or capable employees/members etc., some leaders are of bossy character i.e. they have control on even a small job. Similarly our present banking system resembles characteristics like bossy characters, to carry out a transaction we have to go for third party/bank i.e. we have to take permission for a service. To remove this types of issues concept of decentralization was introduced. In decentralization power is distributed. This decentralization introduces public ledger. It is the public ledger among which power is distributed.

Moreover present banking system is not so strong to face cyber attacks. Block-chain technology is approximate  impossible to hack if we compare with banking system. Many cases around the world exist where amount from account goes to zero without the knowledge of user. 

What is block-chain technology?

Bitcoin, Ethereum and Ripple

Many of you may be familiar with Bit-coin, a type of digital currency that operates independently from a central bank, but the technology behind that system most people are not familiar with this is technology which we called block-chain technology. There are different block-chain which may public or private and all they allow anyone to send value anywhere in the world where the block-chain file can be accessed. Think of each chain as an online database stored in a distributed, peer to peer fashion. The devices for data bases are not all connected to a common processor and each block – ordered records – has a timestamp and a link to previous block.

What block-chain can do for the financial and banking sectors?

Fraud reduction: Even though block-chain is new technology, its potential to reduce fraud in the financial world is getting a lot of attention since 45% of financials intermediateries such as stock exchanges and money transfer services providers suffer from economic crimes every year. Most banking system around the world are built on a centralized database that is more vulnerable to cyber-attack because it has one point of failure rather than many-once hacker breach the one system they have full access.

Smart contracts: Because block-chains can store any kind of digital information including computer code that can be executed once two or more parties enter their keys, block-chains enable us to have smart contracts. This code could be programmed to create contracts or execute financial transactions one a certain set of criteria has been achieved- delivery if products could signal an invoice to be paid for example.