You may have heard the term “blockchain technology” in the context of online digital money, but what is it really? Can you use it to replace banks entirely, as some forex traders have been discussing? And if it can’t be used to move money around the world for free, what’s its real value? Fortunately, we don’t need to know the answers to those questions to understand why distributed ledger technology could change the way we do business forever. In fact, it could change the world.
Distributed Ledger Technology (DLT) is really nothing more than a concept, but one with potentially enormous value. Financial institutions have long been exploring the idea of how they might utilize distributed ledger technology to complete settlement and clearing among themselves. The problem has always been that digital currency doesn’t travel the same way across international borders nor does it benefit from the same level of safety that money does on a physical stock exchange. A distributed ledger is simply a database on the Internet that allows the transfer of monetary value from one party to another.
There are several ways to think of a distributed database. First, there is the conventional model of a database that stores monetary data in a traditional computer system, just like a spreadsheet or database. With this kind of system, two parties come to an agreement to enter into a transaction and then the transaction is processed. This traditional model is limited to transactions between a handful of entities because it doesn’t allow for the safekeeping of confidential financial information.
A second way to think of a distributed database is as a piece of technology that gives you the power to transact securely without the use of a third party. The use of the term “blockchain” in this context implies that the technology supports the idea of a digital currency rather than a conventional currency. By putting this latter term in the context of the decentralized ledger technology, we imply that the currencies used by the nodes in the system are real currencies that are stored on the devices where the transactions are processed. The protocol that implements this kind of technology then ensures that these currencies are kept in sync with each other and are not subject to any external influence.
So, how does this kind of technology work? Well, the main goal of any good leader is to ensure the smooth operation of business activities. The core function of a group of experts operating in the vicinity of a decentralized ledger is to develop the needed infrastructure, as well as the procedures and protocols necessary for the safekeeping of such information. In the case of the bitcoins, these professionals have come up with the bitcoin protocol, which is a modification of the peer-to-peer file sharing protocol that has been used by the punk culture since its beginning.
The use of the bitcoin protocol, in effect, aims to provide an alternative to traditional financial services and products. In order for individuals to be able to understand the benefits that they can derive from the use of this kind of technologies, it is important for them to first understand the way in which the conventional transaction methods work. For instance, the transaction costs involved in the money transfer industry are beyond what most people can bear, even with the help of technological advancements like the blockchain. Therefore, many people are looking for ways in which they can reduce the transaction costs that they have to deal with.
Another reason why people are looking for alternatives to the conventional transaction methods is because they want to avoid the risks that come with centralized systems. There is also a fear that these systems may cause more problems for the participants in the supply chain. The introduction of the bitcoin protocol into the industry has provided solutions for all these problems, as well as laying the foundation for new innovations.
The core function of the distributed ledger, like the bitcoin network, is to provide a system of secured transactions between parties that require a secure connection. The development of the ledger follows a process called “proof-of-work”, in which a certain number of entities are asked to contribute to the development of the ledger. Once the proof-of-work is complete, a specific number of blocks are issued along with the software that form the backbone of the blockchain. The bitcoin protocol has revolutionized the way business transactions are conducted in the financial service industry, and it will no doubt influence the way things work in other industries, including the banking industry and the insurance industry.