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FEATURE NAMEBLOCKCHAIN Blockchain - unblocking payments
With its advantages of carrying out tamperproof, decentralised and transparent transactions in a decentralized manner, blockchain has applications across many industries, but its most popular use remains the one it was originally designed for – payments
Lead analyst, IBS Intelligence Devansh Patel
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lockchain has significantly evolved since it came to the fore as the technology architecture behind bitcoin. Blockchain technology is currently powering solutions that are used for varied applications such as trading of surplus energy among utilities, secured decentralised file storage, identity management, and smart supply chains, to name a few. The technology was developed to enable trading of the first and most popular cryptocurrency – the Bitcoin. Many other cryptocurrencies have been introduced since then – such as Ether, Litecoin, and Peercoin – and more are under development.
At its core, blockchain is a distributed digital ledger. Each unit of currency (or a coin) acts as a node in the chain. Every user transaction creates a block, which is added to the chain of previously completed transactions. The ledger is stored in a decentralised manner, and even the process of authentication is computed over multiple computers, thus eliminating the need for a central server, or agency. Since the processing is distributed over a network, it eliminates the possibility of the data being manipulated or hacked, making it “immutable”.
The availability of a network of processing resources allows near real-time processing of transactions, without the need for a centralised infrastructure, delivering high speeds at lower costs. Also, the ledgers are transparent and visible to all participants in the blockchain ecosystem, making all transactions traceable.
Originally, the blockchain was designed as an open network, also known as “permissionless blockchains”, where anyone could start “mining” Bitcoins in exchange for providing computing power to authenticate other transactions. However, such open networks are not very practical to power international payment systems, as they could be used for any purpose, including scams and money laundering; and are difficult to
Spending by banks on Blockchain technology
update protocols, as that would require a consensus of 51% of the network participants.
This led to the evolution of “permissioned” or private blockchains, where users need permission to access, and each participant has been vetted to some extent. Most permissioned blockchains are created and operated by consortia of banks or organisations, who give others permission to use it. These blockchains address some of the risks involved in public blockchains, such as the ability to blacklist misusing participants (such as scammers or terrorists), restricting use for specific purposes as agreed upon by consortia members, and most importantly, the ability to easily update protocols – users who choose not to agree to updated protocols lose their access.
Since permissioned blockchains allow more control and can be adapted to existing and upcoming regulations, they are expected to be the foundation on which banks, regulators, and other players will operate and power a plethora of services including payments, recordkeeping, and possibly even exchanges.
www.ibsintelligence.com | © IBS Intelligence 2017
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