The rapid evolution of technology makes it imperative for all stakeholders of the financial ecosystem to welcome the changes and adapt to them as seamlessly as possible. Blockchain technology is redefining the way financial transactions are being carried out today. Blockchain-Powered Transactions reduces Cost and removes intermediaries. This technology holds immense promise for the imminent future of the financial industry and many more applications are already under development.
Disintermediation in the financial industry with Blockchain
Disintermediation has been a goal of business. It becomes increasingly clear that blockchain technology can eliminate the need of not only banks, but also all sorts of intermediaries involved in all sorts of transfers, be it capital or personal. Blockchain will also help in eliminating all the expenses that a client pays to the intermediaries. When a migrant worker, for instance, sends money home to his country, intermediaries that facilitate such transfers take hefty fees from the amount remitted. Transaction fees for international remittances are around 9% on an average globally. It would become so much better for everybody if we would have less people to deal with and more money to spend. Blockchain is the way to go forward to bring this into reality.
The promise of disintermediation
The Blockchain principle is based on a ledger, consisting essentially of a huge database, constantly updated in real time. Each user possesses a copy of the ledger, thus wielding a modicum of power and control. There is also the special characteristic that the ledger cannot be falsified. It is simply not possible to go back and alter this vast public register as all the successive lines have been encrypted, validated and then distributed to a multitude of computers across the network.
The prospects for disintermediation
Wide distribution and the cryptographic process are two aspect of disintermediation Each blockchain user has in fact two keys: a public key or encryption key – similar to an email box or bank account code – and a private (decryption) key, comparable to a bank card code or signature. It is this combination of two cryptographic keys that enables each transaction to be authenticated and its integrity is guaranteed, while at the same time preserving the confidentiality of the individuals behind the supply and demand process. In fact, all users take part in the verification and validation of the transaction in question. If anyone tries to alter a single element of a transaction, the fraud will be immediately detectable by all the members of the network. The idea is that the code itself will verify that the two parties to a deal are trustworthy before approving the transaction.
No central authority’ is equal to ‘no intermediary’
Thus one of the promises of the blockchain is that it frees anyone wishing to carry out a transaction from the need to involve a third party, whether a human being or a digital system. Suppose that you wish to buy a sofa via the Internet from someone whom you do not know. You transfer €200 to the person’s account. Although you do not go through eBay or some other sales site, your transaction will nevertheless be recorded in a sort of giant public accounts ledger. This virtual ledger will not be kept by eBay, some other Internet service company, or by your bank, any of whom would charge you some sort of fee, but collectively, by a vast number of people who use the blockchain. All these players, situated all over the globe, help to ensure the solvency, viability and integrity of the various parties involved.
The new intermediaries
Operating agents known as data miners are individual people or companies that connect to the network one or more machines equipped with the processing power to record the transactions, maintain network security and enable all system users to stay synchronised.
For the Bitcoin network, there were an estimated 100,000 miners in operation in 2015. These are the people who validate new transactions and record them as blocks in the encrypted public ledger, crunching billions of units of data into a random sequence of letters and numbers known as a hash, which is then stored along with the block at the end of the blockchain at that point in time. Miners are paid by being allowed to create a certain number of new Bitcoins for every hash they complete, and are in a competitive race with other miners to complete the hash first so they need to bring considerable computing power to the network. In addition, the pace of Bitcoin creation is regulated in line with the number of miners at work and the progress of the total processing power of the computers in the network..
There are all those Platform as a service (PAAS) providers, increasing in number every day, that enable their customers to create software applications based on the blockchain. The best-known of these, Ethereum, enables users inter alia to set up ‘smart contracts’. Among the most recent, though less media-hyped platforms is a French startup called Stratumn, whose PAAS offers blockchain-based services to companies and developers.
Lastly, what about the individual members of the blockchain community themselves, who do not develop and implement the technology but need to make use of it? The large number of these users helps to ensure the integrity of the technology. However the fact that they are interdependent mean they are actually acting as their own intermediaries.