What is Blockchain Technology? and How does it works?
Blockchain is best known as the underlying technology behind the virtual currency Bitcoin, which came to prominence in 2008. Blockchain is simply a digital ledger that provides a secure way of making and recording transactions, agreements and contracts – anything that needs to be recorded and verified as having taken place. Rather than using a traditional ledger or an excel spreadsheet, and being uniquely stored at one place, it is shared across network of computers and cannot be changed once recorded. As some of the experts have tried to explain, using traditional banking as an analogy, blockchain is like a record of all financial transactions, and blocks are individual bank statements.
How does it work?
It runs with the help of a software program, automatically distributing information to the database as new transactions are made. This database can be shared by a network of computers and be accessed by hundreds and thousands of people as per the interest.
What makes blockchain technology so secure?
All transactions on a blockchain are secured with a hash. The hash calculation contains the hash of the previous record, so to change an entry, all subsequent records would need to be changed. Every transaction, is treated as a block. The block validation system ensures that nobody can tamper with the records. Rather, old transactions are preserved forever and new transactions are added to the ledger irreversibly. Anyone on the network can check the ledger and see the same transaction history as everyone else but cannot edit it. So, it is somewhat like the internet, it exists on multiple computers at the same time in such a way that anybody with an interest can look it up and even hold on to a copy of it but cannot tamper with it.
This sort of tight security identifies any fraudulent activity more easily as every potential hacker would need to gain access to every computer on the network which has a copy of the particular blockchain database, in order to alter it.
Why is it trending now?
The remittance market has grown exponentially and will continue to do. Blockchain technology enables sending funds at lower costs or even no additional cost.
The fact that the data is very difficult to change in the blockchain, makes it very powerful and significant. Blockchain technology is often described as “trustless”. As once the data is entered, it cannot by changed and there is no need of a trusted party to certify the validity or verify the transactions.
Blockchain technology has uses beyond the financial world by being transparent, permanent and having an indisputable record of transactions. These features give it the potential to address corruption, money laundering and hold people accountable for their transactions. In particular, it works very well where there are trust issues such as wills or land registry.
How does it impact the remittance market?
For the remittance market, this could be really good news as there is no need for third party validation. By adopting blockchain technology, money transfer providers, will be able to extend a better customer service to their customers. They can divert their resources to build customer loyalty by offering other innovative services to their customers such as prepaid travel cards, travel insurance, or loans.
However adopting this technology will require investment and is resource intensive for those organisations and businesses adopting it, but will benefit them in the long run.
To sum up, Blockchain technology allows everyone to hold and make transactions as strangers but in a totally transparent manner. There is no mediator in between two people making the transaction, and the entire process easier and cheaper. This concept can be applied to the entire digital world, making any kind of exchange or transaction secure and accountable.