What is Blockchain? It’s a distributed public ledger, Proof-of-provenance technology, and energy-intensive. But what are its benefits? Here are some of the most important questions to consider. Read on to learn more about this technology and its potential for financial service companies. Listed below are some of the most important benefits of Blockchain:
Distributed public ledger
Blockchain technology is the next generation of record-keeping and has several advantages that have made it a hot topic in recent years. By leveraging advanced algorithms, cryptography, and near-ubiquitous computing power, this new form of ledger is more secure than traditional systems. Ledgers have been around for centuries, recording economic transactions. Initially, records were kept on clay tablets, papyrus, or paper. Today, however, businesses are relying on computer networks to handle more transactions and have a need for more information to record that data. Additionally, traditional ledgers are expensive to maintain, error-prone, and susceptible to manipulation.
The concept of a distributed ledger is nothing new. Many organizations have long maintained databases in multiple locations, storing information in separate software systems that are periodically brought together into a single database. In a distributed ledger, different parts of the organization may have their own copies of data, but can contribute to the centralized ledger as required. The centralized ledger can be more vulnerable to cyber attacks, as it has one point of failure.
Proof-of-provenance
The provenance of a product is critical to many industries. Blockchain technology can help ensure this. The Provenance Blockchain Foundation recently launched a public blockchain that is permissionless, decentralized, and open source. It will provide a ledger, registry, and exchange for multiple financial assets. This blockchain replaces an earlier permissioned blockchain. However, it is unclear how it will benefit different industries. There are many ways to use this technology in financial services.
One application of blockchain technology is in the pharmaceutical industry. Provenance can help in reducing costs and ensuring proper supply chain tracking. The provenance of a medicine does not only depend on its authenticity, but also its ability to keep the product at the right temperature. This is critical because medicines lose their efficacy if they are not kept at a certain temperature. A blockchain can provide the provenance of a product, including the temperature, time, and personnel involved.
Energy-intensive
An article published by Qatar University and authored by Jon Truby, explores the environmental impacts of Blockchain, their value, and the potential for policy responses. The article provides a brief description of Blockchain technology, highlights the energy footprint of cryptocurrency transactions, and discusses potential policy options for limiting Blockchain’s carbon footprint. The paper also covers multiple jurisdictions. The conclusion is that blockchain is a potentially powerful tool for making the energy transition.
The energy consumption of blockchain can be measured using two metrics: the average cost of mining bitcoin and the average cost of electricity for miners. Bitcoin miners are estimated to cost approximately $0.05 per kilowatt-hour to operate. The EIA reports that energy consumption from mining Bitcoin will increase tenfold in five years. This means that the Bitcoin network will use the energy equivalent of Washington State each year. This is a significant burden on our energy system and requires additional policy changes.
Enables same-day, low-cost, cross-border payments
The Blockchain can help banks and other financial institutions make same-day, low-cost cross-border payments. By implementing a distributed ledger, such as the Ethereum network, financial institutions can easily transfer funds worldwide. This technology is also able to solve multiple challenges associated with the international payments system. The number of intermediaries across multiple regions and countries makes the entire process more complex. As a result, banks and other financial institutions are increasingly turning to blockchain-based technology to make these transactions as convenient as possible.
The cross-border payments industry is a rapidly growing sector, driven by the needs of consumers, who increasingly want to transfer money with as little friction as possible. Today, most international transactions involve numerous intermediaries, costs, and time. The World Bank estimates that cross-border payments cost an average of seven percent of the total value of the transaction. The industry is responding to this demand by implementing new faster payment initiatives. But while these initiatives are promising, there are also new challenges that must be overcome.
Removes middleman
The main benefit of Blockchain is its ability to remove the middleman from the transaction. Traditionally, transactions have involved middlemen to create trust between parties and add cost, complexity, and potential for error. Blockchain can remove these middlemen by providing a transparent, secure, and error-free digital record of transactions. This enables companies and individuals to conduct business directly and easily. As a result, it is gaining significant attention from business leaders and the media.
In contrast, the traditional financial sector has historically relied on middlemen. These individuals perform vital processes, such as currency conversion and verification, which have been costly. These third parties are paid for these services, and they are often classified as “service fees” or “remittance charges.”