The main reason for the emergence of blockchain technology and cryptocurrencies is the result of the perceived shortcomings of the traditional banking system. What kind of shortcomings are we talking about? For example, when making an international money transfer, the payment may take several days. While the bank checks all the necessary information. This is not always convenient, and often does not allow for quick settlements between companies with blockchain development. In addition, banks charge significant fees for such payments.
In addition, banks almost always act as an intermediary in foreign exchange transactions. Thereby increasing the duration of this process, and also charge significant fees. Blockchain allows you to opt out of intermediary services when processing these types of payments.
The main advantages of blockchain
What are the advantages of block technology compared to traditional payment systems? For starters, it’s worth noting that it is decentralized. This term refers to the absence of a central server. Or regulatory body that would be responsible for storing all the data on the network and supporting its operation.
This approach ensures that no user can gain control of the blockchain. And the cost of transferring funds over such a network is much lower compared to bank fees. This makes it ideal for ordinary users. When transferring small amounts and can reduce the costs of large companies for banking services.
Thirdly, the blockchain provides the ability to process transactions much faster. While banks are generally closed on weekends and holidays. The blockchain-based network operates around the clock.
Disadvantages of blockchain
However, the blockchain supply chain is still not perfect. And it has some obvious drawbacks, especially in terms of mass adoption of the technology. To use it, financial institutions essentially have to ditch their current networks and start over. Trying to integrate current payment networks into the blockchain can be so difficult. That no one will even try to go this route.
It is also still unclear if the blockchain will be able to survive outside the cryptocurrency ecosystem. And scale to handle a large number of transactions.
Another disadvantage of blockchain is its high volatility. This makes it an expensive technology. Blockchain differentiation is also a concern. There are currently over 1,400 digital coins in existence. Many of which have their own versions of the blockchain. It is not yet clear which of them will be able to survive and develop in the future. One of them will be preferred by developers and large companies. And which will disappear into oblivion.
How transactions on the blockchain are verified
Verification of transactions on the blockchain is also associated with protection against reuse (double spending) of the same coins. This is why the check is carried out. There are two main ways to validate transactions on the blockchain. They are based on two types of algorithms: proof of work (PoW) and proof of stake (PoS).
Are blockchain transactions anonymous?
Despite popular belief, most transactions are not anonymous in the literal sense of the word. Despite the fact that the user does not need to provide identification documents to transfer funds, the analysis of the blockchain allows tracing the path of any coin. It’s from the moment of its emission between all recipients and senders. However, it is extremely rare to find out exactly who owns a particular address. Often, this applies to organizations that accept payment in digital money and post wallet addresses on their website.
Does blockchain have applications outside the financial industry?
Up to this point, we have looked at block technology as a means to improve the financial services industry. But in fact, it has great potential beyond its borders. It can be used in various fields. It includes as a basis for social networks, in the creation and management of large databases, in logistics, medicine, insurance and many other areas where a reliable way of processing and storing massive amounts of information is required. Therefore, blockchain is more than just a money transfer system.
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