The buzzword "blockchain" has been on the tip of the tongues of everyone interested in the world of cryptocurrencies and the high-flying, Bitcoin. As cryptos move to the forefront of culture, more and more financial institutions are embracing the technology behind the popular digital currencies, blockchain.
This week the Australian Securities Exchange will be replacing its existing technology with blockchain to clear and settle trades.
After years of testing, traders hope the new system in place will cut the costs of transactions, make them more secure, and make them significantly faster. Dominic Stevens, ASX Managing Director and CEO, Executive Director of BCom, said that the move to the "distributed ledger technology will put Australia at the forefront of innovation in financial markets."
What is Blockchain?
To keep it simple, Blockchain is a decentralized, digital, public ledger used to verify transactions for cryptocurrencies. Each transaction is a "block" and is added to the leger in chronological order. This technology is currently being used to monitor and verify any transactions made within digital currencies. "By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet," says the Block Geek team. According to the team, by storing blocks of identical information across its network, a blockchain cannot be controlled by any single entity and has no single point of failure.
How Does Blockchain Work?
So, let's create a scenario. You and ten other friends are all part of one financial account. Every time you and one of your friends completes a transaction, it gets added to the entire system as a block, each block is linked together. At any point in time, you and your friends can make a transaction, and these transactions are verified by everyone who is a part of the account. On the flipside, if any of your mates were to do something sketchy in the account, everyone in the system would be alerted, and that transaction would be invalidated.
If everyone were to use blockchain systems for daily transactions across the globe, there would be no need for banks and credit card companies. That is why so many banks are buying into the blockchain hype.
ASX has been collaborating with U.S. startup Digital Asset Holding to perfect their system. "Tens of millions of dollars could be saved by introducing the new technology," says Michael McCarthy, chief market strategist for CMC Markets in Sydney. In turn, this could benefit both investors and traders. If things go well with ASX's new system, other major financial markets will follow. What do you think of blockchain?