The banking industry has praised blockchain technology for the potential it has shown in reducing cost and also making processes more efficient. It potentially underpins many operations. Banks usually prefer to call the blockchain technology Distributed Ledger Technology (DLT) for distinguishing it from the blockchain of Bitcoin. In fact, many banks are carrying out experiments with this technology. Blockchain not only helps in faster and cost-effective cross-border transactions but also in the creation of cryptocurrencies and the possibility to earn digital tokens (including DeFi coins and NFT tokens).
Spanish bank BBVA’s in-house solution has used smart contracts to develop an app that cuts downtime and costs related to issuing loans. The bank’s head of digital transformation at the investment banking division, Alicia Pertusa, said:
“We saw that blockchain was not just disruptive tech but it could have an impact on the way we run our current products.”
On a trial basis, the bank has issued a 75 million euro (US$89.7 million) loan to a company called Indra. Pertusa said the transformative technology saves around 40-50% time while issuing a loan on the blockchain in comparison to the traditional process.
BBVA has made it clear that the loan was put on the public Ethereum blockchain. However, it has no link whatsoever with the Ether cryptocurrency.
An important cross-border money transfer mechanism developed by using blockchain technology is One Pay FX. It was launched by Spanish lender Santander. It works on xCurrent, a Ripple blockchain product.
This blockchain-based product helps customers in sending money from one currency to another across many countries including Brazil, the United Kingdom, and Poland.
First of all, messages are sent by Ripple’s xCurrent technology between the banks involved in the transaction. The messages carry the data needed for the transaction to get completed.
Once this message is transferred, a pre-transaction phase takes place. It includes verification checks. Then the funds are held across all banks, followed by transfer of funds. Santander UK’s head of innovation, Ed Metzger, said:
“As an industry, we recognize international payments is not the smoothest. Users of this technology are able to mitigate those pain points.”
The entire transaction takes place on a distributed ledger system. It enables verification of all the details across multiple banks. Customers can see the cost of the transaction as well as the money that will arrive in their app.
This is very clear how disruptive blockchain technology is to the financial world. It has the potential of bringing paradigm change in the industry, in terms of decentralization, transparency, cost-saving, and many other aspects.
This brings us to the moot question: what is blockchain? What’s so special about it? How does it work? What are the pros and cons? How can it help you in real-life situations?
Let’s try to explain blockchain in the most simple way possible so that even the newbies can also understand.
Blockchain is a record-keeping technology on which networks of cryptocurrencies such as Bitcoin and others are created. In simple words, blockchains are databases that store information electronically on computer systems. This means blockchain records information securely on nodes or computers across the world, which are then verified by the miners. They help to record transactions in one of the most secured ways available currently.
The relevant information/data are stored in a structured way in table formats. This helps in easy search and filtering for specific information. Databases are larger forms of spreadsheets (which can store a limited amount of information). Servers solve the problem of housing huge amounts of information by using hundreds or thousands of computers.
Blockchains are also specialized forms of databases. The main difference between a blockchain and a database is the manner in which the data is structured. The information collected by a blockchain is in the form of groups, which are called “blocks”.
These “blocks” hold sets of information and they have certain defined capacities. When a block gets filled with data/information, it is chained onto the previously filled block. That’s how a blockchain (a chain of data blocks) is formed.
Blockchain has come up as the biggest buzzword in technology currently. The first major project where blockchain technology has been used successfully was Bitcoin, which was released in 2009. Bitcoin (BTC) is the first-ever cryptocurrency and its transactions are guided by the underlying blockchain technology. Cryptocurrency is a digital currency or coin that runs on blockchain technology and you can buy it on crypto exchanges including decentralized exchanges (which you can fund through transfers from bank accounts, credit cards, debit cards, PayPal, and other options).
Bitcoin’s first version was laid out by a whitepaper named “Bitcoin: A Peer-to-Peer Electronic Cash System”. It was the brainchild of an anonymous person or a group of persons called Satoshi Nakamoto.
The bitcoin blockchain is a public ledger of every transaction that has taken place. The best thing about it is that no one can change or tamper the transactions retrospectively. They say the Bitcoin blockchain transactions are more secure and safe than that of the current systems.
Specialties of Bitcoin blockchain are:
In some countries (such as India), Bitcoin, Ethereum, Ethereum Classic, and other altcoins are called privatized blockchains and cryptos. You can buy and sell BTCs or trade crypto through online brokers legitimately. You may consider taking help from financial advisors while deciding to trade bitcoin and other cryptos.
Bitcoin is a decentralized cryptocurrency, which is not controlled by any central authority. Blockchain is the technology behind Bitcoin. Unlike fiat currencies such as the US Dollar, Euro, Yuan, or others, the Bitcoin blockchain is not issued by any government or central bank.
The concerned blockchain is maintained by a network of people, who are called Bitcoin miners. These miners are also sometimes known as “nodes” on the network. The miners run purpose-built computers or mining rigs and compete to solve complex mathematical problems for completing a transaction. The machines having maximum computing power are able to solve the puzzle faster.
Many people make Bitcoin transactions across the world. The daily BTC transactions were 330,000 in December 2020, which increased to around 400,000 in early January 2021. Each BTC transaction starts from a wallet, which again has a “private key”. This private key is a digital signature, providing mathematical proof that the transaction has come from a wallet’s owner.
Many such transactions are happening across the globe. They are grouped together and put in a block by following strict cryptographic rules. Once a block gets filled up by the transactions, they are sent out to the bitcoin network. The BTC network runs on high-powered computers. It is these computers that compete with one another for solving complex mathematical puzzles to validate the transactions.
The reward for completing one block goes to the one who first solves the puzzle. Once a Bitcoin block is validated, it is added to the BTC network’s previous blocks. This creates a chain of blocks, known as a blockchain.
Bitcoin or any other blockchain cannot be tampered with. Every block in the blockchain has a hard, cryptographic reference to the previous block. This is part of the mathematical problem, which miners solve to complete the block and add it to the Bitcoin network to form the chain of blocks.
When a miner is solving a mathematical problem, it involves working out a random number known as the “nonce”. It along with other data (including the size of the transaction, etc.) creates a digital fingerprint known as a cryptographic hash, which is encrypted. Certain cryptographic conditions are met by each unique hash. That’s how blocks are completed and added to the blockchain.
Hypothetically saying, if a person wants to tamper a block, he/she has to tamper with the previous block. In this way, the hacker has to tamper over half a million blocks. This means that the miner has to re-mine the cryptographic puzzles of all these half a million cryptographic puzzles, which is impossible.
Though the Bitcoin blockchain has a complicated process of moving money, it has its own advantages.
Traditional payment methods are usually registered on privately-held databases. They are, in turn, owned by entities that are either government-controlled or corporate-controlled. The general public can’t access these databases. This means they are closed. As the traditional payment method is owned by a single entity, it is, therefore, open to cyber-attack or fraud. That’s why these traditional payment networks get crippled in case of fraud or attacks.
In the case of the Bitcoin blockchain, all the transactions are recorded and no-repeat payments are allowed. For authenticating the digital coin’s movement, several parties are needed. This decentralized aspect of blockchain ensures that the entire network never collapses even when a part of it goes down. Even if one miner goes out of action, the transactions still carry on.
There are many other blockchains other than that of Bitcoin. Some of the most important blockchains are:
Let’s check some of these important blockchain platforms:
Ethereum is the second most popular blockchain platform after Bitcoin. It specializes in smart contracts. Smart contracts are contracts that automatically execute when certain conditions are met by all interested parties. Automation speeds up the process and ensures that no mistakes are done.
Ether (ETH) is its digital coin. Ethereum allows developers to create decentralized applications (also called dapps or decentralized apps) on its platform. It leverages the blockchain networks and potentially uses Ether to power its product.
Ripple is also a blockchain that specializes in cross-border currency transactions. When it comes to money transfer from one currency to another throughout the world, it is expensive and also takes lots of time. That’s where Ripple’s blockchain system called xCurrent comes in handy. It removes the intermediaries and therefore makes cross-currency transactions in seconds. XRP is the cryptocurrency attached to Ripple.
Chainlink solves a major of the biggest problems of blockchain: how to communicate information to and from the blockchain?
ChainLink is a decentralized oracle system that solves the problem of communicating information to and from the blockchain. It, therefore, bridges the gap between the blockchain world and the outside world.
Traditionally, it is the sensors (called oracles) that transfer information to and from the blockchain. Almost anything can be monitored by the oracles including weather, the value of stocks, account balances, sports scores, and many more.
These oracles are useful to the blockchains because they provide a reliable way of initiating smart contracts when outside parameters are satisfied. However, the main problem with these oracles is that they are centralized in nature.
It is this centralized aspect that is the weakest spot in the blockchain. The entire network is subjected to risk if any one of the oracles gets compromised or corrupted.
The success of Chainlink is that it tries to solve the “Oracle Problem ” by integrating various next-gen protocols and ultimately creating the first blockchain oracle network of the world.
Chainlink allows companies to leverage the powerful network expansion capability of oracles in a trustless manner. This new system ensures that all the users receive corruption-free, correct, and timely data. Even if there is a single node failure, the Chainlink system automatically replaces it with a higher ranking alternative.
The cryptocurrency associated with Chainlink is LINK.
Bitcoin Ethereum dominates over 60% of the total global market, in terms of market capitalization. If you buy Bitcoin, try balancing the risk-benefit profile of your crypto portfolio by including other altcoins too such as Ethereum ETH, Cardano ADA, Polygon MATIC, Ripple XRP, Chainlink LINK, and others.
You can use these cryptocurrencies like Bitcoin in your retirement portfolio (such as Roth IRA) to get maximum return on investment. You can also check the savings calculator to check how much you have earned and how much you’ll earn in the near future. Crypto trading through cryptocurrency exchanges and holding those cryptos in your cryptocurrency wallet can earn you lots of money both in the short run and long run.
The ROI from cryptos is much higher than stocks, real estate, gold, fiat currencies, and central bank digital currencies (CBDCs), and other digital assets. As institutional investors learn about the advantages of Bitcoin, hedge funds now own Bitcoin. In fact, many firms have also applied for Bitcoin ETFs to the SEC, which is currently in the approval process. Nowadays, corporations such as Tesla, MicroStrategy, Square, and many other hedge funds are the largest holders of Bitcoins.
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If you still need assistance, you can refer to the following step-by-step purchasing guides for the various payment methods: