How does blockchain function, and how does it apply to our current banking systems?
To see how blockchain will reform our banking system, you first need to understand how it functions. In simple terms, you can consider blockchain as a numerical model for handling, securing, and concluding financial exchanges. Normally, banks process huge amounts of these financial exchanges every day. Which is precisely why it will probably be one of the enterprises to change the most from this exceptional innovation.
The blockchain procedure is rather straightforward when it comes to its function. It begins with a request to process a transaction that is usually performed utilizing digital money. When they do, nodes, or “hubs,” start to prepare the exchange. When the transaction is calculated the blockchain verifies it and creates a unique address that is then placed inside a “block’ of information.
Once that information has been created everyone in the node or on the blockchain is informed of the created transaction and whenever information changes within a block everyone is informed and aware of the change.
How will it change the banking system?
Now you might be wondering how till this particular thing change the banking system. Well, the experts have pointed out that such a technology, once implemented in transferring money, will have an impact proportional to how the internet had an impact on the rest of the world once it was created.
The thing about financial transactions done over the bank is that it is centralized, while financial transaction over the blockchain is de-centralized. This means that once you perform any change in your finances the bank is informed, and all information is delivered to the bank. While in the de-centralized method once a transaction is performed everyone is informed about it, but nobody knows that it’s you specifically by name. Instead, you have a digital address from which everyone in the node is informed about the changes on your account.
In this way, there is no single entity that is controlling every aspect of the financial transactions, but instead, everyone is a part of the transaction, making everyone in the system equal.
There are also additional benefits outside privacy, which is basically that it’s more affordable to make transactions and it’s quicker.
Banks have a centralized system but every bank has its inner system. So, if you wanted to send money from one point in the world to another, both banks would have to be in agreement and contact for the transaction to be processed. This usually takes anywhere from a couple of hours to several days. It’s also far more expansive to perform a transaction or transfer of this magnitude if you are using the banks.
If you are using the blockchain technology to process transfers it can take anywhere from a couple of seconds to a couple of minutes for the transaction to get processed, and it only takes a fraction of the price for the exchange.