Today, we live in a world where a new wave of technological transformation occurs on a regular basis. Each day, we are exposed to new buzzwords and a plethora of news. Additionally, cryptocurrency or blockchain is a buzzword in the business world.
Blockchain is well known for its critical function in cryptocurrency systems such as bitcoin, in ensuring the security and decentralization of transaction records. Cryptocurrency has been around for more than a decade. However, countless controversies and discussions continue to swirl around cryptocurrency. Some say it is a new-age currency, while others refer to it as a hoax. Nonetheless, one thing is certain: We cannot afford to be indifferent to this movement.
An Overview of Blockchain Technology
As the name suggests, it creates a chain of blocks where each block contains a transaction ledger and the link of the subsequent transaction. This explanation might remind you of the data structure of a traditional “linked list.” However, blockchain has a more complex system, where a child block will be chained with a parent block hash while supporting the benefits of linked lists like the flexibility of dynamic data structures.
A major differentiating factor for the blockchain lies in its distributed architecture. The blockchain creates an extensive network of peer-to-peer nodes that store the transaction ledger in the form of a block in multiple data systems. These data systems can be decentralized across various data centers, which creates the chain of transactions on each of the data systems when a single transaction is initiated.
Limitations of the Current Banking System
As we all know, current financial sectors across the globe work on centralized data platforms. Moreover, any of the transactions between two entities are managed by a central entity, which could be like the Federal bank in the U.S. This leads to the limitations of the system, like limited working hours for interbank transactions. Although countries such as India have enabled interbank transactions (RTGS) 24×7 for all 365 days to overcome the limitation, and yet, it is difficult to implement in several different states due to infrastructure or operational issues.
Similarly, international transactions are managed by a single entity, SWIFT. This gives the power in the hands of a few people to manage the international economy by way of sanctions. These situations were seen during the recent Ukraine-Russia crisis. These sanctions lead to the deflation of the local currency and high inflation in the local market, which worst affects the normal citizens of the state.
Moreover, when we have a centralized ecosystem for the banks, it leads to a lack of transparency and balance sheet manipulation. In particular, these malpractices in the banking system can lead to a nationwide or worldwide economic crisis, particularly in some extreme cases like Lehman Brothers’ fall.
