Is Blockchain Going to be the Future of Finance?

On the cutting edge of financial progress lies blockchain, or Distributed Ledger Technology (DLT). This fledgling technology will very likely have a huge impact on the future of the business world. Blockchain is the foundation of the cryptocurrency Bitcoin and has recently seen a sharp increase in funding.

Blockchain is an evolution in electronic accounting and is, basically, a decentralized system of tracking transactions. A “block” is a transaction, each one coded and sealed, forming a chain, accessible by anyone using the network. This new way of organizing transactional data has no central control and is essentially an open book for the other users on the chain. Every single time a transaction is processed, the entire chain updates. The idea is to have full transparency of all the math, thereby keeping processes honest. Each block is coded and sealed or “mined” by users who run computers designed for this specific purpose.

This technology is very new, but already shows some positive impacts.

There is much activity in the finance sector surrounding blockchain, with more than $1.4 billion invested in research over the past 3 years. This technology grew with Bitcoin but many agree that blockchain will be the lasting technology that will widely impact the world of finance. Bitcoin suffers from an uncertain regulatory climate and erratic fluctuations in value. On the other hand, blockchain technology has been considered for functions as large as tax collection.

With all of the many applications and its vast potential, it is easy to see why money is pouring into this new technology. There are still a few obstacles restricting the widespread adoption of blockchain technology. As explained above, the blockchain is replicated on every computer on the transaction network. Before a new block can be added to the chain, the previous block must be completed, and the entire chain must be re-verified. This process must be completed for every transaction, as the transactions must be ordered in a chain. The problem becomes scale and speed.

Current technology is not adequate to do the calculations required quickly. Right now transaction verification takes between three and seven seconds. To us, three seconds is a very short period of time; in computer processing terms, it is an eternity. Projections place target speeds at between four and six milliseconds. This speed will allow for vast decentralized distributed ledgers. The technology is advancing rapidly towards this goal.

Block chain, or distributed ledgers, may sound like science fiction now, but in a few years they will very likely be driving the entire marketplace.