It’s all over the headlines: Bitcoin, cryptocurrency, digital currency, ethereum, blockchain technology…you name it. There are hundreds of variations out there and now there could even be some derivatives in the works but it all stems from this technology that we refer to as “Blockchain Technology”. So what is it?
Goldman Sachs is calling the technology, one that has the potential to redefine how transactions are handled. Another big bank, JPMorgan announced that it had launched a trial project with a blockchain startup lead by Blythe Masters, a former executive.
Masters’ company, Asset Holdings, secured funds from several banks including Goldman, Citi, ICAP, and others. So again this begs the question, “What Is Blockchain?”
If you’re wondering, you’re obviously not alone. What you need to understand about blockchain is that its the technology behind bitcoin and other cryptocurrencies. It can actually simplify the way processes work. Is it exciting? Well, in short, no but what is can allow for the future of transaction is to many investors.
Essentially a blockchain is like a ledger (think Excel Spreadsheet). But the difference is in the inputs. These come from many different parties and can only be changed when there’s an agreement among the group. This helps with issues of security and that means, theoretically, there would be no need for a central authority to approve transactions.
When blockchain transactions take place, smart contracts automatically execute themselves. Smart contracts allow for logic to be programmed on top of the blockchain transaction. When a transaction occurs, the smart contract effortlessly initiates the contract. Some experts in the industry feel that smart contracts could be the next “FinTech” hype sector.
This could create a large amount of opportunity for Wall Street banks and that’s most likely why they’ve become interested in the technology
Looking for some blockchain definitions? Here’s a brief list to get you started:
NODES: This is a participant in the ledger. A node would be a transactor such as a bank or asset manager when it comes to financial transactions.
CONSENSUS: This refers to the situation where all NODES agree on the validity of a transaction. This is obviously important when it comes to ensuring security of a ledger.
BITCOIN: This is a version of digital currency managed by a ledger with the same name.
CRYPTOGRAPHY: In blockchain, cryptographic puzzles are utilized to identify and verify transactions
MINING: This is specific to Bitcoin blockchains. Minders are computer servers that end up solving cryptographic equations, which keep the blockchain going forward. In Bitcoin, for example, miners are rewarded with Bitcoin for their effort.
SMART CONTRACTS: Discussed above, these allow for logic to be programmed on top of the blockchain transaction. When a transaction takes place, the smart contract seamlessly executes the contract. AN example would be derivative contacts or the additional info needed for customs in a Bill of Sale.