How Bitcoin Could Change Finance
Bitcoin is a technology that creates a ledger of transactions on the internet that is:
Like the internet, Bitcoin has no central authority. Instead, it is a shared record of transactions distributed over a vast network of users. It is made up of a series of blocks of data, each of which records a batch of transactions.
The blocks are electronically chained together and locked up with advanced cryptography in order to permanent and public record or every transaction that can’t be altered after it’s created.
If A gives 10 Bitcoin to B, then a transaction record is put into the blockchain to stop A from spending money twice. The Bitcoin blockchain is operated by Bitcoin miners who in fact operate more like Bitcoin librarians.
They organize and secure transactions into the blockchain and earn tiny fractions of Bitcoins for their work. The whole system is protected by advanced cryptography and so far have prove immune to hacking.
So what are the financial uses? The one that has large banks excited is keeping track of trades of bonds or stocks and making sure payments are made properly. At present, this is a complex process that involving banks, traders, exchanges, clearing houses and others.
You take two days to verify the people have sold a share or bond actually own it and then arrange the movement of funds. If blockchain was used to log ownership data, all this work can be done in minutes.
Systems like this could save banks $20 billion dollars a year. Starting in 2020. That’s a big saving if it could be made to work. It’s not only a simpler system, if free up huge funds currently tied up waiting for trades to be processed. It would also reduce risk, there’s lots of other potential uses both in finance and outside it, but there is still a long way to go.
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