June 15, 2016
By Amar Bhatkhandé
Blockchain technology, first used to support the Bitcoin digital currency, has been around since 2008. However, Bitcoin acquired a questionable reputation when one of its prominent networks failed and it became linked to nefarious activities on the “darknet.” This hampered broad-based adoption of blockchain.
Blockchain is a data architecture that allows users to create a digital ledger of validated transactions that can be shared among a computer network. It maintains and settles transactions between participants in a distributed fashion, without a need for a central authority such as a bank or brokerage house.
Once an encrypted block of data is created within a blockchain, each participant gets a copy of the block (a singular or series of transactions created at the same time and grouped in a cluster). Everyone within the network can verify the transaction. After a majority of the participants agree on the transaction’s validity, the new transaction is approved and a new block gets added to the chain. The ever-expanding chain becomes nearly impossible to compromise, because a single transaction adjustment invalidates the entire block.
Blockchain is finally gaining the attention of central bankers who have spent the last year determining how to leverage the technology. In a meeting of the central banks of 90 countries, U.S. Fed Chair Janet Yellen urged attendees to accelerate their studies of various financial system technologies, including blockchain.
Bad publicity typically becomes a barrier to mainstream users of a technology. Also, institutional users were skeptical due to blockchain’s enigmatic developer, Satoshi Nakamoto. Ultimately, however, if a new technology has a marketable use, it’s only a matter of time before people adopt it. One key is the banking system’s growing confidence in the security and stability of blockchain. It appears, though, we’ve only scratched the surface of blockchain’s applications.