If you have ever looked into cryptocurrency at any level, then you may have heard the term blockchain being batted around.
This useful piece of technology is now being implemented by banks to give their customers a better online baking experience. Let’s take a look at how the online banking world is being revolutionized by the blockchain.
What is a Blockchain?
As mentioned, the concept of a blockchain first grew up around cryptocurrencies. To be specific, it was the record-keeping technology used to keep track of cryptocurrencies like Bitcoin. It is a decentralized ledger, accessible to everyone, which helps to keep strangers honest and consistent in their online transactions.
It is easiest to imagine the blockchain as a literal chain of blocks to fully understand it. The “blocks” are digital information about transactions while the “chain” is a public database they are stored on.
The blocks are made up of information like the date, time, and amount of the transaction plus a digital signature of the person who made it. If the person was to create a second transaction from the same online store using a blockchain, the new block would have many of the same characteristics but would be different from the first, due to a different “hash code,” the cataloging code blockchains use.
A block can store 1MB of data. That might not seem like very much nowadays, but it is actually enough to store a few thousand transactions.
Why Use Blockchain?
Wait, if a blockchain is accessible to anybody, why is it safe to use? Surely anyone could then log on and take a look at our private data? Not so, blockchains are actually quite secure.
Anyone who has access to the blockchain can make a copy of it to view at any time, meaning that at any given point there might be thousands of copies of one blockchain in operation. For a hacker to manipulate the blockchain, they would simultaneously have to manipulate all existing copies of it, and this is a task well beyond the skills of what online hackers and fraud artists are capable of.
Furthermore, your information is kept safe thanks to that digital signature. You do not have to provide any information to the block except the contextual details of the transaction like the amount given and the date and the only information about you is the digital signature; something which is practically arbitrary.
With this complete lack of geographical context to your transactions (as not even IP addresses are stored on blockchains), the transactions are reduced to near-meaningless lists of data to an outsider. The records exist thanks to the chain, but they will be of little use to anyone.
What Makes Blockchains Secure?
Banks are interested in blockchain technology as it is a secure way to keep financial records. Why is this? For one simple reason; bank records can always be edited but blockchains cannot.
This is because new blocks are always added to the end of the chain, so they are always stored in chronological order. Remember those hash codes? Each block on the chain has a unique hash code, but it also stores the hash code of the block directly above it. If anything is done to change the data stored on one block, this will alter its hash code.
However, this will have to alter the hash code of the block above, which will then alter the code of the one above. Since this can only be done through manual manipulation, it just can’t be done.
Bitcoin’s blockchain is over 580,000 blocks high as of June 2019, and this is only increasing with every passing minute. The computational power needed to edit that blockchain just simply doesn’t exist. Once the block is made, it cannot be edited and the data it stores is secure.
Why are Banks Interested?
Online banks are interested in blockchain technology as it has the chance to change the way they do business majorly. Transactions are currently limited by the actual working hours of the bank, meaning that banking often can’t be done on a Sunday.
The blockchain runs 24 hours a day, 7 days a week, and this could significantly speed up the transaction times banks are facing. Banks are already looking into ways this can be implemented, and perhaps it won’t be long before this becomes common practice.
Taking things digital means decentralizing and giving access to anyone who could use it. Transactions between different countries would not have any fees, and cryptocurrencies also allow those with unstable currencies to trade on a more open field.
With applications for secure data storage spreading far beyond what we can expect from the financial sector, it is obvious that blockchain technology is our next step in safe records and private transactions. The changes it can bring to both the banking sector and our everyday lives will be amazing.
What about convenience?
Converting over to the blockchain is still in its early stages when compared to the track record of traditional banking practices. The idea is nice in principle, but the convenience factor still isn’t there. Many people prefer cash and therefore prefer a traditional physical bank based on proven practices.
Others opt for the online option, taking their time to find the best online banks. Ultimately, cash is becoming less convenient, especially with the rise of cashless businesses. These online banks can offer competitive benefits due to their decreased amount of overhead. Maybe once blockchain conquers the convenience factor, society will be able to make a cultural shift to blockchain banking.
About the Author: Bernadine Racoma is a senior content writer at Day Translations, a human translation services company. After her long stint as an international civil servant and traveling the world for 22 years, she has aggressively pursued her interest in writing and research. Like her poetry, she writes everything from the heart, and she treats each written piece a work of art. She loves dogs! You can find Bernadine Racoma on Facebook and Twitter.