The financial sector has not automatically embraced Bitcoin and other cryptocurrencies as a means of exchange. Why would they? The use of digital currency poses a direct challenge to the very thing that makes banks and wealthy investors rich. At the same time, it is becoming increasingly hard for financial institutions to look past the benefits that blockchain technology can offer.
A blockchain is the foundation of cryptocurrency, but this technology has far-ranging benefits that exceed the creation of digital money. The world wants to know, what can a blockchain do? Every day the answer becomes clearer as developers work with blockchains to create useful applications for the financial sector and others.
From Identity to Recordkeeping and Smart Contracts
The Bitcoin blockchain is perhaps the most well-known example of this type of technology. It was created to serve one purpose. It verifies and preserves a record of Bitcoin transactions. But when the technology was made available it did what all new technology does. It encouraged developers to take up the job of expanding it and making blockchains more useful.
One of the most successful projects in this regard has been Vitalik Buterin’s Ethereum. Buterin and his partners have created a blockchain that allows users to create Smart Contracts, develop decentralized applications, and more. Some of the things that are possible with this type of blockchain are identity verification, record keeping, and the management of Smart Contracts.
This type of functionality has gained the attention of banks and other financial institutions. The result has been that banks and businesses are creating their own research and development arms that will explore all the benefits of the blockchain. It’s an evolving technology, one that is sure to provide many exciting developments in the coming years. No one really knows the full extent of what a blockchain can do at this time, but here are some areas of use that have been established.
Blockchains Can Establish Digital Identity
Many people tout the anonymity that can be achieved when using cryptocurrency. This is true to some extent, but blockchains actually work to create a verifiable digital identity as it pertains to transactions. By this we mean that the public and private keys that are used to move digital tokens can be used to verify identity that is linked to possession of the keys.
The public key is what identifies the user from others on the network. The private key is what allows a user to give their permission for a transaction. When these two are combined, they form a solid form of digital identity. The keys are secured with cryptography. This is what makes the blockchain work as it does.
This doesn’t mean that there still aren’t ways to use the blockchain anonymously when it comes to spending cryptocurrency. What it does mean is that there is a way to establish identity for other functions like the creation of Smart Contracts.
Blockchains Can Keep Records
We stated earlier that a fundamental part of the blockchain is its ability to preserve a lasting record of transactions. This is a core element of the Bitcoin framework. A blockchain is also known as a distributed ledger. That ledger can be used to preserve Bitcoin and other token transactions, but it can also be used to record static data. Individuals have been using blockchains to record everything from marriage agreements to the transfer of property rights. Anything that can be kept with traditional recordkeeping can also be maintained on a blockchain with greater security.
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Blockchains support the inclusion of encrypted data, unencrypted data, and hashes which serve to verify that no tampering has taken place. A hash can even be used as a link to data that is stored offline, presenting a sort of digital fingerprint. The great thing is that the decentralized nature of a blockchain makes it very easy for multiple organizations to be able to access the same secure data. This has the ability to reduce the logistics and expense of data management and sharing among agencies.
Blockchains are Immutable
The term immutable in regards to a blockchain means that the blockchain establishes a permanent history of itself. There is no easy way to alter any of the records in a blockchain database. This is because trying to do so would essentially require altering the entire blockchain.
Immutability means a greater level of security. It makes it virtually impossible for someone to tamper with vital records, transactions, and contracts that become a part of a blockchain framework. This is something that is unprecedented in the management of data.
Blockchains are a Platform for Development
Ethereum and its blockchain have made it possible for developers to use blockchain technology as a platform for development. It is possible to create Dapps, or decentralized applications, which run on the blockchain. These apps could in turn be used to create decentralized autonomous organizations, or DAOs. Such an organization could manage itself without the need for third-party involvement.
Smart Contracts as developed on the Ethereum blockchain can be used for everything to automating a vending machine to controlling blockchain assets. The possibilities are limitless when it comes to this type of technology.
As blockchains become more advanced, more organizations and institutions will start exploring how to use them effectively. As previously mentioned, many companies are now creating departments that have the sole focus of determining how a blockchain can help their business. Even Facebook has quietly been exploring how they can use the technology for social media applications.
Blockchain legitimacy will also be of benefit to those who invest in cryptocurrency. More acceptance of the technology has the potential to increase the value of cryptocurrencies. All the signs point to an ever expanding concept of a digital society. It may seem futuristic, but this is where the world has taken us in 2018. The rate of blockchain evolution is so fast that there is no way to predict where the technology will take us in ten, twenty, or another fifty years.
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