Blockchain and web3 have been words flying around recently and they are words that are very hyped. Blockchain has been an interesting system for me and I think it's something you need to familiarize yourself with and that is where the future of money is going into.
What is Blockchain?
Blockchain is simply a chain of blocks(blocks can be digital information and chain is a public database, bringing the two words together forms a BLOCKCHAIN) It's that simple. Going further, blockchain is a decentralized ledger of all transactions across a peer-to-peer network. It not only perform transactions but also ensures anonymity and security of users.
It is a technology that enables Bitcoin and is also applied to many business processes.
Now that you know what Blockchain is, what is the problem it is solving especially the payment riddle in the banking system?
Blockchain and The Banking System
Let's consider an example;
John wants to transfer $2000 to his friend from Nigeria to Kate in London. John went to the bank to pay the $2000 into Kate's account, Kate waited for some hours or days to receive the money.
Now the problem with that process;
- High Transaction Cost: Apart from the stress to go the bank to make payment, the presence of an intermediary(bank) make it very expensive like the charges the bank request.
- There are accounts of internet fraudsters and hackers that hack into the banking system and send funds.
Blockchain solution to those issues;
Scenario: Transaction between John and Kate using a bitcoin network.
John sends the money in BTC to Kate's wallet address which can be equivalent to the account details used in the banking system. Kate receives the money instantly in her wallet which solves the problem of taking some time before Kate receives the money and John didn't have to go through the stress of going to the bank, queue before sending the money.
You can also send money in USDT, ETH etc, that is just an example of using the bitcoin network. Other innovative blockchain networks have been created which is faster and cheaper. Examples are Solana, Polkadot, Ethereum, etc
In the banking system, every bank maintains its ledger and thus the bank needs to update them independently and reconcile periodically. Blockchain on the contrary comprises a single ledger shared among all participants, thus no separate messaging protocol is required.
Blockchain Transaction Process
The transaction process begins with the initiation of a transaction request which can arise from any node in the network, this transaction request is then broadcasted throughout the network and is then inspected by various miners that are part of that network.
Each miner picks up the transaction and runs some computation to validate the transaction, once validated, this transaction gets added to the block and a new block is created which in turn is added to the blockchain.
This is how a new transaction is completed.
Blockchain is important because it brings trust to a peer-to-peer network connection. Banks have been trying to build the trust of a third party over the years but blockchain can operate in a peer-to-peer fashion with zero intervention from third parties.
In my next article on a blockchain, I will state the features of blockchain that makes up the transaction process.
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