Introduction to blockchain

what is blockchain technology

Blockchain, the power of the possible

Imagine a “very large notebook which everyone can read for free and freely, on which everyone can write, but which is impossible to erase and indestructible” *. In essence, it is blockchain: a technology for storing and transmitting information, transparent and secure.

We believe that the possibilities brought by this technology are immense and could revolutionize the way we think and manage our activities.

But how can this promising technology be adopted? What is his level of maturity? Does it involve risks? Can we measure the benefits against the investment it represents?

* Jean-Paul Delahaye, mathematician

Blockchain, a shared and secure chain of information

The blockchain is made up of blocks, each containing the record of all the exchanges made between its users at a given time. These different blocks thus provide the history of all transactions since its creation and allow everyone to check the accuracy of the data exchanged.

56%

of insurance companies say they recognize the importance of blockchain

The blockchain is a distributed ledger: it is the users who own and update the information, without the need for a central authority. This decentralized nature makes it possible to explore a large number of fields of exploitation, beyond digital currencies such as Bitcoin for which it was invented in 2008.

57%

recognize that they do not know how to appropriate this technology

Banks, insurance, real estate, health, energy, transport, online voting… there are many applications. In particular, the financial sector is exploring the possibilities of this technology, the benefits of which are substantial: reduction of costs, errors and time.

6 questions about blockchain

Just as the Internet has revolutionized the way we interact, blockchain technology is leading to a complete rethinking of the management of a transaction and its verification. This technology, on which Bitcoin and other cryptocurrencies are based, has great disruptive potential for many business processes. The point in 6 questions.

What does blockchain mean for financial institutions?

Blockchain technology represents a new generation of software that improves business processes. The financial industry is beginning to realize its potential after decades of investing in in-house software.

This technology makes transactions more reliable and should therefore offer multiple applications in banking, with a very good return on investment.

But putting this technology in place is a challenge: companies can’t put it in place alone. They need to collaborate differently and more actively with their consumers, suppliers, and competitors.

What challenges & opportunities this technology represents for the financial sector?

Financial institutions like banks have long embodied the position of “trusted third parties” validating the authenticity and accuracy of transactions. Blockchain technology makes it possible to overcome this trusted third party.

The opportunities of blockchain lie in the guarantee of agreement on the part of all stakeholders in a transaction. This is made possible by the registration at all stages of its realization of the provenance and ownership of the transaction. It is precisely because the blockchain makes it possible to record and authenticate each step that it could be used to secure and verify any type of transaction, without interaction with a third stakeholder.

However, there are some obstacles to the development of blockchains: there is currently no coordinated and comprehensive regulatory framework around blockchains, which delays their adoption by a number of companies and institutions. In addition, the technology is nascent and has not yet been tested on a large scale.

How is blockchain linked to Bitcoin?

Blockchain technology is what made cryptocurrency, such as Bitcoin, possible. For consumers, cryptocurrencies offer cheaper and faster peer-to-peer payment options than those offered by traditional financial services, without the need to provide personal details.

As cryptocurrencies gain acceptance as a means of payment, price volatility and the opportunity to make speculative investments encourage consumers not to use them as a means of payment, but rather to trade them.

However, cryptocurrencies represent unprecedented potential for consumers to access a global payment system, anywhere, anytime. In this system participation is only limited by access to technology, and not by banking factors (e.g. having an account and credit history.)

What guarantees that the blockchain is tamper-proof?

While cybersecurity represents a central issue for the digital development of companies, the blockchain offers, by virtue of its composition and its operation, security for any transaction.

Each network participant has a full copy of the blockchain ledger. To perform transactions, each user has a private key to initiate the transaction. Adding a new transaction to the ledger is done by users called “minors.” Each of these groups the “pending” transactions into a new block.

This process is used to verify the accuracy of a transaction. In addition, in order to prevent one of these minors from voluntarily taking control of the chain and adding several transactions at a time, the system is self-regulated:

  • A minimum of time is required to add a block (proof of work): to validate a block, each miner must solve a challenge
  • In the event of a “discovery” of blocks at the same time by two miners, the platform then considers the longest chain to be the “legitimate chain”.

What is the disruptive power of blockchain technology?

The technology behind how cryptocurrencies work has the potential to transform a wide range of transactions, beyond traditional payments. Financial services could use blockchain technology wherever digital transaction records are located and for any type of transaction requiring verification by a trusted third party.

This would include, but the list is not exhaustive, the transfer of digital or material goods, intellectual protection, or the verification of the chain of custody of a product.

In a context of growing cyber-crime and stringent regulatory requirements, a fraud-resistant system that protects and authenticates all types of transactions could have a revolutionary impact on the financial industry.

What would be the potential applications of the blockchain?

Trade finance (international trade financing) is a natural candidate for blockchain: indeed, it involves many stakeholders (banks in 2 countries, supplier, buyer, warehouses, etc.) in a long and costly process (e.g. multiple verification, issuance of letters of credit). These different stakeholders could save the documents directly on a single blockchain for more automated processing.

Securities management also involves numerous intermediaries (brokers, clearing house, central depository, depository banks, etc.). For example, the New York Stock Exchange recently unveiled a new system for the private NASDAQ market: it connects institutional investors with companies that are not yet listed on a public market and facilitates the transfer and management of securities of private companies.

With the blockchain, smart contracts are also developing: these are programs that automatically execute the terms of a contract. There are many applications, especially in the field of insurance (for example, confirmation of the claim and automated payment of the insured)

But blockchain technology is being deployed beyond the financial sector: registration of notarial acts, certification of diplomas or even in health. Thus, an e-health company imagined a proof-of-concept that would allow patients to store their medical history securely while creating rules to access it in an emergency.

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