Distributed Ledger and Blockchain: Applications of Technology in Financial Industry

What is Blockchain?

  1. Imagine there is a group of people who often borrow money from each other. Every one of them has own ledger book to keep notes about their transactions.
  2. Some of them from time to time don’t play fair and add fake records to each other’s books to avoid paying back. These fraud events bring much mistrust into the community. Nobody is confident that he or she will successfully get money back.
  3. Let’s imagine that one day a clever bookkeeper decides to overcome this problem presenting an interesting idea to the community. He suggests everyone from the group to keep a copy of a public ledger book that would include all operations between group members instead of keeping individual books where notes can be easily altered.
  4. The bookkeeper suggests that all information about each transaction (a sum of money, a receiver, a lender, etc.) is encrypted with a special mathematical function called hash. Hash looks like a random set of symbols but it contains the transaction information and information about the previous transaction that happened between community members.
  5. When any transaction is carried out all community members are informed.
  6. The community members check all critical information on every operation (like duplications) and if there are no duplications, the operation is considered valid and trustful.
  7. When several deals are confirmed, people consolidate them into blocks. Every block has its own hash and each block hash also contains information about the previous block, similar to the way transactions are connected. Blocks are needed to simplify the process as it’s faster to calculate hash for blocks than to do the same calculations per transaction.
  8. The community confirms each new block as reliable and records the block with its hash into their ledger books.
  9. So why does this help against fraud? Now unfair members of the community have to decrypt and rewrite the whole chain of all transactions in all books in order to alter any record and avoid paying their debts.

Differences and Similarities Between Public and Private Blockchain Networks

  1. It is a decentralized database which provides a real-time access to the historical records for all participants of a peer-to-peer network.
  2. Several confirmations from participants are required to determine a transaction as valid.
  3. All operations between parties are proven by digital signatures and secured by cryptography.
  4. The technology is highly resistant to scam and manipulations
  5. Each blockchain element is time-dependant
  6. The blocks of transactions could be customized with different terms (if-then-else), which allows adding different conditions to the standard mechanism

Public Ledger

Private Ledger

Fintech Applications of Blockchain (excluding Bitcoin)

Identity and Reputation

Payments Market

  • provide reporting and invoicing tools to merchants
  • carry out operations with digital cash using own private blockchain
  • convert payments to local currency and vice versa. (In this case, a provider is responsible for successful money transfer to the counterpart)

Digital Wallet

Accounting, audit, and taxes

Cryptocurrency Exchange

Mining-as-a-Service

Financial Services Infrastructure: Smart Contracting

Final word

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AltexSoft Inc

AltexSoft Inc

Being a Technology & Solution Consulting company, AltexSoft co-builds technology products to help companies accelerate growth.