Blockchains that can free finance
NEW DELHI: Last week, ICICI Bank staked its claim to be recognised as the first Indian bank to successfully execute transactions in international trade using block chain technology. A significant step, as blockchain is touted to be the next big thing after the Internet itself.
The block chain technology has the power to disrupt the financial world because it doesn’t rely on trusted third parties such as financial institutions to process electronic payments. At present, in digital transactions, we depend on banks to tell us whether our money has been delivered and rely on the third party for the security and privacy. But the truth is that these entities can be hacked, manipulated or compromised.
This is where the blockchain comes in. It maintains a public ledger of all transactions or digital events, which have been executed or shared among participating parties.Each transaction in the ledger is verified by a majority of users accessing the ledger. Once verified, the information can never be erased. What’s more, the blockchain does this without compromising on the privacy of the users.
Bitcoin uses cryptographic proof instead of a third party to execute an online transaction.
In the Bitcoin system, a person wishing to make a payment has a public address — similar to an account number — controlled through a private key, just like a PIN number. She uses the internet to identify herself and requests a transfer of bitcoins. This occurs through a change made to the block chain ledger by participants known as miners, who use computing power to validate transactions. The changes are then reflected in the public addresses of the two parties, showing that the tokens have been moved. The transaction is then broadcast to everyone.
In case of a physical bank, transactions happen through changes in ledgers of individual banks that are inaccessible to others.
WHAT IS A BLOCKCHAIN?
A blockchain is like a record of bank transactions where a block is a single transaction such as a withdrawal from an ATM .
A block represents the present and contains information about its past and future. Each time a block is completed it becomes part of the past and gives way to a new block in the chain. The completed block is a permanent record with each one comprising records of some or all recent transactions, and a reference to the block that preceded it.
A few hundred pending bitcoin transactions( a block) are converted into a mathematical puzzle every 10 minutes using a complex algorithm. The first miner to find the solution announces it to others and gets 25 bitcoins as a reward. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution is correct. If a majority approves it, the block is added to the ledger and the miners move on to the next block.
Block chain technology can be used in sectors such as securities, insurance and music industry, among others. For instance, instead of going public through the stock market, a company can directly issue shares via the block chain. This way it can avoid paying banks to underwrite the deal. But there are oppositions as well. In 2015, the Hacking Team — Italian producers of government surveillance spyware — worked on cracking the Bit coin system on government’ s behalf.