More and more often we hear the word “blockchain” or “crypto currency” in our everyday life. To understand that Blockchain is much more than the technology behind “crypto currency”, here is a simple metaphor: If you want to shape a piece of wood, plane, grind and file it, chips and dust are generated. The piece of wood is the blockchain and the chips, the waste product of this technology so to speak, are the crypto currencies.
Due to the hype and speculations in the field of crypto currencies, the market screamers are correspondingly loud here, which is why one is quickly tempted to completely forget the technology that is revolutionary. Let me tell you about the advantages of the blockchain, especially in the financial sector.
Current situation in the financial sector
Looking at the current state of the financial sector, you will probably know that the central bank is an institution where other banks in the financial sector can borrow and park money. This central bank, as its name implies, is centrally organized.
Let’s go from the macro level to the micro level and to your wallet: What do you think makes your €10 bill worth €10? Is it the paper and the color? Is it unique and therefore worth 10€? NO! The only thing that makes your bill worth 10 € is trust. From you, from the supermarket cashier, etc.
In what form does this money still exist? Obviously there is money in your account, i.e. Fiat money, which can be seen in your online banking.
What the blockchain enables for the financial sector
In contrast to the easily corruptible and hackable systems, the central administration, the blockchain is completely decentralized. Its storage locations are on every computer connected to it. Once it has been programmed for a specific process, it cannot be changed.
In addition, you do not enter the blockchain as a person, but with a personal ID. For example in contrast to a bank transfer, which bears your name, and exactly titles the name of the receiver, such a transaction is encrypted in the block and by your personal user ID.
The term “block”
A block is ultimately made up of several combined transactions. If the capacity of one block is fully used, the next block begins. To ensure that the correct sequence of blocks is recognized, each block receives a specific key code at the end. A subsequent block then begins with exactly this key code. This makes the sequence comprehensible for everyone.
This coding and security encryption can currently be guaranteed by two different methods: “Proof of Work” and “Proof of Stake”. I will explain these in more detail in another blog article.
Conclusion – Denis Bederov
You can see that the security loops and verification methods are logical. For this very reason, the confidence that crypto currencies enjoy as a small part of this technology is enormous, so many investors have included crypto currencies in their portfolios for risk diversification. Nevertheless, the journey is still a long one and only through complete regulation of this market will blockchain technology including crypto currencies gain a foothold in the financial market.
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