The financial world is changing. The biggest names in financial technology are trying to solve problems that have stumped the biggest names in finance for years. They’re working on ways to make money easier to come by, save it faster, and invest it more effectively. But the biggest changes are still to come.
That’s right, we’ve found the next big thing in finance. It’s called “blockchain”, and it’s going to change how we think about money. Today, we’ll learn what blockchain is, where it came from, and why it could potentially revolutionize the financial services industry. We’ll also look at where it’s been and where it’s going next.
What is blockchain? The short answer is “a digital recording system”. But that doesn’t really do it justice. To truly understand what blockchain is, you have to understand where it came from.
The blockchain is a digital recording system that was first used to record transactions in cryptocurrency. Cryptocurrency is digital money that can be used to buy and sell goods and services without the intervention of a bank or other third party. The most famous cryptocurrency is probably Bitcoin, which was launched in 2009 and is now the most valuable cryptocurrency in the world by a considerable margin. But there are hundreds of other cryptocurrencies, and more are launched every week.
The invention of the blockchain is often credited to a person or a group known as Satoshi Nakamoto, though the exact identity of this person or group remains shrouded in mystery. What is known is that Nakamoto conceived of a way to record transactions in digital form, rather than recording them on a central database like a traditional financial institution. Nakamoto’s invention was the first “blockchain”. Other digital currency pioneers, like Nick Szabo, later built on Nakamoto’s work to create the first cryptocurrency, Bitcoin.
Digital currency is only as powerful as the digital infrastructure that supports it. That’s why cryptocurrency is so important. It’s the first widely-adopted digital currency, and it has given rise to a whole new generation of digital currencies, applications, and businesses that would never have existed if cryptocurrency hadn’t been invented. The invention of the blockchain has revolutionized the way we think about digital infrastructure.
The blockchain is a digital ledger that records transactions across many different “blocks”. Each block contains a record of information, just like a traditional database. But instead of the traditional “record, data, update, record” model used by most databases, the blockchain is “record, data, update, record, data”. The first block in the blockchain contains an arbitrary set of data, called a “hash”.The first blockchain was designed to record transactions in cryptocurrency. But blockchain technology has since been adapted for other uses. Today, blockchain is used to record virtually anything of value. Financial transactions are one area where blockchain is being massively adopted.
Today, over 50% of Bitcoin transactions and 20% of Ethereum transactions are financial transactions. But that’s just the beginning. Today, more than $1 billion worth of financial transactions are recorded every day on the Bitcoin blockchain. That number is growing rapidly. The Ethereum blockchain, a rival to Bitcoin, is currently used to record about $3 billion of financial transactions every day.
Every time you buy something online, send money to friends or family, make a purchase with your credit card, or make a payment with your bank, that transaction is recorded in a blockchain. But that’s just the beginning. Blockchain is also being used to track virtually everything else of value, from property titles to votes to shipping containers. It’s even being used to track physical objects, like fine art and luxury cars.
Today, a handful of the biggest names in financial technology are working on ways to use the blockchain to solve some of the biggest problems in finance. They’re trying to make it easier to come by money, save it faster, and invest it more effectively. But the biggest changes are still to come. That’s right, we’ve found the next big thing in finance.
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