Decentralized data retention and management
In other words, unlike existing records, it is not a central authority – such as a central bank – that is responsible for data retention and management, but other users, who are authorised to intervene while informing all those involved.
Trust
Each user can verify any transaction or general change/revision that takes place in the system at any time, a feature which significantly enhances trust among users.
Transparency
Since all transactions are recorded in the ledger and are easily accessible to anyone who wishes to refer to them, this technology is characterized, at least at its base, by transparency.
Security
According to the Bank of Greece (BoG), since algorithms keep data secure and network members can usually see if there is a change in the recorded data, this technology has the potential to make it even harder to commit transaction fraud.
Here’s how it works:
Suppose a financial transaction needs to be carried out. Standard practice is for the execution of money transfers to be ordered to a third party, whether a bank or an online service provider, in order to have credibility. This third party must carry out the transaction for a fee for the money transfer service it provides. Specifically, once the possession of the money is confirmed, third parties undertake to locate the recipient of the payment and deposit the money into their account. This process, apart from being costly, requires time, especially if the transaction involves different banks which may even be located in different countries. Blockchain technology eliminates the intermediary, which means that the transaction can be carried out at no extra cost and in less time. Moreover, the time taken to confirm and settle transactions is dramatically reduced, regardless of the geographical location of the parties involved.
At the same time, if a merchant pays in cash against bills of lading (i.e. Cash Against Documents, payment of the value of the bills of lading by the buyer upon receipt by the bank), this may take from several hours to days to complete the process. In an environment based on blockchain technology, the transaction is processed instantly, without the intervention of third parties.
Like any new technology, blockchain requires research and in-depth knowledge before we use it. Adopting new technology should be done following more comprehensive assessment of the situation and upon weighing its pros and cons.
Sources:
Bank of Greece, https://www.bankofgreece.gr/en/news-and-media/explainers/how-could-new-technology-transform-financial-markets