When you transact through banks, one issue that you will constantly have to struggle with is the time it takes for a financial transaction to settle so that you can access your capital. This delay is due to the role intermediaries play in the verification of identity and transference of funds.
Since most of these complicated procedures in clearing houses happens behind the scenes, there is no transparency. Additionally, besides delays, there are fees for the transaction, which limit how much money you will receive.
Delays and fees are inherent in the traditional banking system. However, there is a solution: the blockchain.
When transactions are stored in the blockchain, it eliminates complications and clearinghouses. This saves time and money. And it reduces errors.
Managing your personal finances will be easier with the blockchain. You will have more control over your financial future when you can save and invest without friction.
Although digital currency is still in its nascent stage, banks have already started experimenting with developing proof-of-concepts around blockchain transactions.
As digital technology gains increasing cultural adoption, everything will work quicker and easier. There will be automated execution of contracts and immediate payments. Complicated procurement, negotiation, and verification procedures will be simplified.
The reason digital currency works so effectively in removing bureaucracy is that it is supported by blockchain technology.
How the Blockchain Works
The blockchain uses a peer-to-peer network of computers to enjoy lower costs, increased transparency, greater security, and faster settlement. After you send a payment to someone, your transactions will be broadcast through the network, traveling from one node (computer) to another.
One way to understand the blockchain is to think of it as composed of four components that work in perfect harmony to facilitate secured transaction stored in the distributed ledger.
These components are a distributed shared ledger, a network consensus, smart contracts, and security.
The distributed shared ledger is a chronological record of all transactions. It is a book-of-shared records that are shared across the P2P network.
The network consensus is an agreement between participants in a network to verify transactions. In other words, verification is based on consensus.
Smart contracts use business logic (the rules) that are embedded in a ledger to trigger when payment can be distributed because all the conditions of the contract have been met.
Security is based on cryptography, which is one of the primary advantages of the blockchain. Cryptography, rather than human oversight, ensures that all transactions are secure, authentic, and verifiable.
One example of the blockchain at work is the XYO Network, blockchain’s first Proof of Location network.