The global pandemic is immensely supporting the trend of digitalizing the whole world. Parallelly, technological development is not ceasing either. In the modern age, financial institutions invest in technological infrastructures like blockchain: to digitalize their actions, increase their efficiency, and ensure security. Moreover, these infrastructure investments help fight money laundering as the transactions can be conveniently monitored.
Specifics of the blockchain technology
After certain individuals set up a blockchain or a database of electronic information, it is designed to allow many users to access and store the data simultaneously and as fast as possible. In order to accomplish such operations, powerful computers and data processing servers are put to use.
The final result of all these operations is a database storing numerous financial transactions. This approach brings a totally new perspective on the banking system. Blockchains are widely known for their prominent features:
- Decentralization – this characteristic is vital to the idea of blockchains. It is also the main feature that differentiates blockchain technology and traditional banking: no intermediaries or higher entities are involved.
- Immutability – once a transaction had been processed, nothing about it can be changed retrospectively. This helps prevent any manipulations.
- Transparency – while it is stated that no one can control the transactions as blockchains are decentralized, it is key to mention that anyone can view them. On the other hand, due to being rather confidential, banking system transactions can be manipulated easily.
- Anonymity – unlike the traditional banking system where all credentials must be known and verified, blockchain technology allows its users to perform transactions anonymously. Each of them receives a unique password that is not be shared.
Without a doubt, blockchains are fascinating from the point of view of technological advancement. Nevertheless, the technology has its vulnerable sides. Once we understand its weaknesses, we could use the blockchain more efficiently. Let’s talk about some of them:
- High energy consumption – some blockchain technologies such as Bitcoin involve the high energy consumption coming from the hard work of solving complex mathematical problems. This problem mainly arises when it comes to public blockchains, not so much with permissioned networks.
- High cost – several underlying expenses come up together with managing blockchain technology. For example, hiring developers and blockchain specialists, paying for licensing, taking care of maintenance costs, and others.
- Interoperability – given the immaturity of the whole concept, there is a problem of ineffective communication between traditional systems and systems that use blockchain technology. Besides, the problem also exists within the sector as multiple types of blockchains function differently.
The market of blockchain technologies is evolving quickly. The problems are being solved gradually which should help enterprises adopt blockchain technology more smoothly.
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