Blockchain is a large ledger where all transactions are recorded. With the appearance of this technology, many fintech was born, that is, startups that offer their clients innovative financial products and services through ICTs, which are information and communication technologies.
This fintech, especially financial ones, takes advantage of Blockchain for their business. They have also started using regtech (technology regulation) solutions to reduce risks, increase security, protect their data, among other things. But beyond what has emerged with the arrival of blockchains, it is important to know what specific advantages their use offers.
Allows you to make financial transactions safely and reliably
One of the main advantages of Blockchain is that it allows making financial transactions between two participants safely and reliably. Intermediaries no longer participate, but the users themselves have control of their information and the entire transaction. This information is distributed in multiple nodes independent of each other. They register and validate it without having to know the other participants.
It is transparent and, at the same time, private.
With this technology, transactions are more reliable for two reasons: they are transparent and also private. And the fact is that the movements, although they cannot be modified, are integrated into the network as a whole and are public; that is, they can be seen without problems by each party. At the same time, the data from the transactions carried out between the parties are private. The information flow does not exist since the design is based on a chained code block.
The data is impossible to falsify
Another great advantage, which makes it even more reliable, is that it is impossible to falsify once the transaction data has been recorded. They are immutable; that is, they cannot be modified or deleted. This is possible because it works with different forms of data verification. Therefore, the alteration of transactions by third parties is practically impossible. In addition, the database has a history with each of the operations since the creation of the technology.
It is an immediate process.
With banks, you have to wait a while for a transaction to complete. With Blockchain, since there are no intermediaries, the process is immediate. The computer system used for operations works 24 hours a day, every day. Since the information is transmitted and saved automatically, there is no need to wait.
Information is never lost.
Because many nodes participate in its validation, the information is secure. Even if the network went down, the service would never be lost and would continue to function. Why? It only takes one of the nodes to be active. This is achieved thanks to decentralized networks, making it more resistant to malicious attacks since it does not have a central point of failure.
Banks can make mistakes in transactions, but Blockchain cannot. The data recorded on a blockchain is always correct because a network of people constantly checks it. All participants agree upon the information that is recorded, and therefore, there are no errors.
The transaction cost is low.
One of the big problems for banks and foreign exchange platforms like PayPal is the high commissions they charge. These are imposed, and there is nothing that users can do against it if they want to use the service. With Blockchain, users can free themselves from large commissions since exchanging assets with this technology usually has a lower cost.
Since the birth of Bitcoin, the platforms that implement Blockchain and their currency have not stopped growing (Ethereum, Ripple, Litecoin …). Within these implementations, some of the ones that have more relevance are the following:
Bitcoin: it is the "father" of the Blockchain. It is conceived as "the gold" of cryptocurrencies (comparison related to the proportion of gold compared to fiat that existed in the past with "physical" currencies). The main qualities are the following:
- It is based on the sending of transactions between public key hashes (“addresses”). These transactions are not encrypted. Transactions are additionally issued to all participating nodes in the Blockchain.
- Each transaction has an input and an output:
As seen in the output script, “commands” called “opcodes” are used to execute the possible operations. It is a stack-based language, from left to right. This implies that Bitcoin is not Turing complete (preventing loops and conditions). It is made on prop purpose to avoid possible cyberattacks.
- Thanks to this (among other things), Bitcoin has never been hacked in its 9 years of life (not to be confused with the hacking of wallets).
- In transactions, it is necessary to specify an address for the change due to how the protocol is implemented. If I have 1 BTC and I want to transfer 0.4, if I do not indicate what I do with the remaining 0.6, it will be sent to the miner that includes the said transaction in a block as an incentive. That is, a second address for the change (ours) must be included in the transaction.
- The mining nodes will “collect” the transactions (incentivized with BTC) and start executing the PoW as described in previous slides to generate the hash of a block.
- The reward for having uploaded a block to the chain is reflected in the first transaction of one of the subsequent blocks (known as a “coinbase” transaction, generating new BTC).
- The maximum limit of BTC that can be distributed over the network is 21 million (due to the protocol’s characteristics).
- The BTC balance of each direction is made through Unspent Transaction Output (UTXO). The hashes of the transactions that have not spent BTC for an account are accessed in such a way that to check the balance of an address, and it is necessary to go “backward” in these transactions to add or subtract the transferred values. This behavior is defined as “transaction-based.”
- Ethereum is popularly known for the conception of Smart Contracts (programs that run on the Ethereum virtual machine –EVM-) that allow adding functionality beyond the transfer of cryptocurrencies to the Blockchain. The main qualities are the following:
- It currently uses the PoW consensus algorithm but is currently in the process of adapting to PoS. It also supports PoA for private networks.
- Uses LLL, Serpent, and Solidity as programming languages (mainly the latter) for the definition of Smart Contracts.
- These languages are complete Turing, thereby enhancing the development ecosystem on the platform. However, this implies that the system is potentially hackable (in fact, it already has been).
- The hacking was carried out during a process known as “crowdsales” for the Decentralized Autonomous Organization (DAO). In short, an independent company was created through Smart Contracts, and one of the methods facilitated the purchase of tokens (“shares”) of the company by paying with ETH.