First, we will look at the current state of financial transactions working without Blockchain.
We have the money. We need some tracking system when we do transactions with others. So here, banks come into the picture. The solution they provide is exactly what Blockchain is trying to improve.
Banks keep track of our transactions to keep our money safe and secure. Banks use a ledger to keep records of transactions. A ledger is a record of transaction information. It includes information about who sent money, who received it, when it happened and how much was sent.
Having a record of all these transactions help banks to do cool stuff. Like they always know who owes money, and how much money exists. They can use this information to ensure trust between people who are making a transaction who might not know each other. This helps them solve known as a double spending problem. Double spending is the term use someone spends the same money more than once. Financial system to work this can’t be possible because a person would be duplicating the money.
Banks can prevent double spending because of the records they keep on their ledger. They know what was sent, and when it happened. This helps them settle any dispute, confusion and theft that might happen.
So that’s one way to go about solving this transaction problem and that’s what we have been done for a very long period of time. But Blockchain thinks there could a different and better way to do this.
Blockchain views the financial system as something that can improve. It started off as replace the bank with a trusted third party. Whether it is working or not we are still finding out. What we do now we will come with the few of the solutions to a few of the problem we are trying to solve.
Is it ideal for a bank to have complete control over this transaction data? Maybe not.
They have all access to everything that we do with our money and they can choose whether or not they want to share it with us. Maybe, it’s better if everyone had access to these records. Instead of having a ledger, maintained by the bank, we could create a shared ledger that everyone has access to.
If this possible, it would allow everyone to complete control over the information. Is there a way to use the shared ledger to establish the same level of security and trust that the bank provide?
Here is another problem that we might be able to solve. Right now, if you want to send money to someone else, banks are not often only the third parties that handle it. Whether you use Paypal or credit card or any other way to send money, you are giving information to them too. Now they need to communicate with the bank and they are also handling your money.
This list of companies grows fast as you try to do more complicated transactions. This can result in delayed transaction times and fees collected by the company’s handling your money. The Blockchain is trying to fix this too.
By creating a shared ledger, the Blockchain makes it possible to bypass these third parties. This can allow to send money more quickly and cut down fees associated with a making a translation.
So those are some of the problems the Blockchain is trying to solve. It’s not like Blockchain is the perfectly figured out solution we are waiting to adopt. Its ideas are still being built, tested and improved.
So hopefully you have a better idea of how some of the problems Blockchain is trying to solve in the financial system. In the future article, we will see how Bitcoin has implemented the Blockchain.