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Blockchain for dummies – a quick guide into the ledger technology

Friday 30 October 2015 | 08:45 AM CET

Robi Dattatreya, Total Solutions: Millions are invested in solutions based on the blockchain concept, which will lead to disruptive solutions

Blockchain is presented as the disruptive technology for the coming years, with Bitcoin as the widest-spread and best-known example of a cryptocurrency based on this technology. Presently, millions of dollars are invested in further developments of the blockchain. 22 leading banks have recently announced plans to back an industry initiative to accelerate the acceptance of "distributed ledger technologies to the global financial markets". Hereafter, I want to explain the blockchain concept.

The concept of the blockchain

At the moment, the ownership of rights is registered by trusted third parties. Money is registered by banks, real estate by the land register, specific contracts by notary public etc. If you want to change ownership, you need to contact the trusted third party, follow the right procedures and the trusted third party will transfer ownership. On the blockchain, the knowledge of ownership is shared with everybody. Everybody has his ‘personal’ register of who owns what. On a regular basis, all ‘personal’ registers are compared to correct errors and ensure agreement about the 'truth'.

When there is a transaction, both the buyer and the seller broadcast the transaction and everybody has to update his ‘personal’ register, after checking if the transaction is broadcast according to the agreed procedures. The last step is for all ‘personal’ registers to be mutually compared again. When there is disagreement about the content, the most common register is accepted as being the 'truth'.

The manipulation, errors or failure of an individual register have no impact. This register will be ignored by the community - the corrupted register has to accept the 'opinion' of the majority, or will be expelled.

Existing database technology

At the present time, a lot of valuable information is stored in the central databases of the trusted parties. The organisation who owns the database controls the data and when the database fails, there is no access to the data. As a result, central databases are heavily protected, both physically and digitally.

There are solutions such as hard disk mirroring, back up sites, back up network connections, back up batteries, physical access control, encrypted data storage, encrypted connections (and others) but all these continuity measures are expensive and may fail once in a while. We have accepted this as the downside of the digital world.

Blockchain, decentral data storage

The blockchain network has a complete opposite approach - in a blockchain network the data is stored on many computers (the so-called 'miners') and every computer is directly in contact (a 'node') with all the other computers in the blockchain network. The information on all these computers is constantly aligned. Everybody owns and no body controls the databases. The information is secured by sharing. In a number of cases the blockchain software is even open-source software. The information is secured in three ways:

1. Your digital signature

2. The information is continuously build on the existing information (growing / changing)

3. The computers in the network need to agree about the truth. When a minority of the computers have different opinion about the truth, they will be overruled.

It is already hard to freeze, decrypt, manipulate and restore the information on one individual computer. It is close to impossible to have all the computers in the network accept the manipulation. This way the information is protected. The more computers share the information, the better the information is protected. Failure of an individual computer(s) has no impact on the availability of the information.

Variations of the blockchain are the public blockchain, where everybody can participate, compared to a private blockchain for admitted participants only, where the logical tests (intelligence) are performed in the blockchain before execution and many more areas, encryption levels, etc.

Many millions are invested in solutions based on the blockchain concept, which will lead to new, challenging and disruptive solutions. The blockchain technology is more secure, more efficient and no central authority is needed to manage the data.

How will that impact me?

Aside to Bitcoin, there are already many blockchain-based solutions that are operational, such as real-time cross border payments, excluding the correspondent banking and swift network. There is also the virtual notary public, which stores contracts, and the censorship resistant (no ‘owner’ of the data) version of Twitter, dubbed twister. The ideas are "unlimited" and can be disruptive for the many "trusted parties"-based business models.

About Robi Dattatreya

Robi Dattatreya is the founder of Total Solutions and has an extensive career in the Financial Sector, on the corporate side, banking side and supplier side. By combining his understanding of client needs, technology and entrepreneurial spirit, de has developed a number of successful initiatives and solutions.

 

About Total Solutions

Total Solutions is specialised in providing solutions to financial market and treasury professionals. For banks, corporate treasury and other financial institutions, Total Solutions selects experienced professionals for temporary and permanent assignment, develops specialised trainings and delivers outplacement services. Total Solutions is the preferred supplier for all leading financial institutions and the largest supplier for the financial markets and treasury segment in the Netherlands.

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