There are so many new terms created by the world of financial technology. You have probably heard of the terms blockchain, cryptocurrency, and bitcoin, but what do all of these terms mean?
The terms come with very different meanings. Some of the things that you hear about these specific topics are just hype. Some of it refers to fundamental forces in the financial industry.
Definitions In A Nutshell
First, it is necessary to define the terms before going into the nitty-gritty details of it. Blockchain got established as a concept in financial technology, which allows for the creation of cryptocurrency.
Cryptocurrency is a medium of exchange which is likened to currency but usually transferred through the internet. It is accessible through the US dollar. However, the financial aspect of it is that it uses encryption techniques. These are the schemes that usually control the creation of monetary units.
The system of a blockchain technology uses a decentralized ledger that mixes all transactions across the peer-to-peer network. In using the technology, the participants must confirm the transactions without any need for a central clearing authority holding all of the transactions for approval.
The applications of the blockchain technology include the right that the participants have including the right to settle trades, transfer funds, and many other transactions that usually get done in banking.
Blockchain technology can be used not only for individual transactions, but it may also get used for transactions that improve a business perspective. It is considered as the next generation of business that goes beyond any individual technology as it uses a collaborative technique.
Collaborative technology aims to improve the business process that occurs between and among the companies. This fact means that since the use of remittance centers are going lower, the returns would change as well. The returns may significantly higher returns for each of the dollars investments rather than the kore traditional internal investments.
Today, financial institutions are focused on how they can use blockchain technology to make sure that it would be easier to clear and settle insurance claims.
There are essential characteristics that cryptocurrencies are expected to have, and they are the following:
The system is trustless. Bitcoin is considered as trustless because it is a system that does not rely merely on the trust system.
Every form of currency that we know today is required to have a central authority that is necessary to get trusted. In all of the cases, the central body also becomes the fundamental weakness of the system since it becomes dependent on the needs and the decision of the central authority.
With the use of cryptocurrency, the need for a central agent becomes a thing of the past. Every one of the networks is connected, and they no longer need to trust a single organization.
It is also immutable which means that it can no longer get undone and once the system has accepted a transaction, even if it gets canceled, the transaction already get recorded in the nodes of the network, and it would be hard to move funds or anything like that.
Finally, the system is decentralized. This fact means that no one organization controls the system and the network where it depends on to exist.