Is Blockchain a traditional bank killer ? – Mohammed MARRAGH
In the wake of technological advancement, the financial industry, banking especially, saw itself taking heavy hits due to the inflexibility of the fund transfer. Investors and businesses alike suffered under several financial crises, the most prominent one being in 2008. Thus, the development of blockchain technology as an answer to ever-changing marketplace’s issues came as a breath of fresh air. In this article, we go over the advantages and disadvantages that blockchain technology brings to its users in terms of supply, network, fees, and security.
The blockchain is a system of ledger records, not so different from the classic accounting book. All transactions have their own entry once released, including data that specifies address codes of the sender, receiver, amount, and time of the transaction. Different networks may provide different information, depending on how the development team constructed the system.
Each transaction may or may not come with own set of fees, as the case is with the Bitcoin. The largest cryptocurrency offers a monetary marketplace where so-called “miner” fees occur as the transaction is sent. These costs would then be awarded to the “miners”, who confirm transactions by solving complex mathematical challenges using their hash power. Hash power is the amount of speed at which a computer solves these mathematical equations.
The supply of coins into the market thus depends either on miners (a decentralized market through Proof of Work — PoW) or on developers if they are sole owners of the production rights (centralized market).
Banking industry faces issues in three main spheres of services. These are high fees, long periods of transfers, and finally, centralization. Since banks act as a middleman between two or more parties when a transaction occurs, costs apply to both sides of the transfer, sender, and receiver of the funds.
Cryptocurrencies offer solutions by omitting a middleman within the transaction process. By sending/receiving digital coins, individuals and businesses would occur little to no fees as banks and insurances do not hold a place within the transfer.
Furthermore, the time of the transaction can last from an hour (bitcoin) to almost instant transfer (Dash and Monero). On the side of centralization, miners and traders control the value through their activities, except in rare cases where developers supply the market (Ripple).
Although coming with several benefits, blockchain solutions do have setbacks. The higher market activity and volume, the harder it will be to locate a block in most coins. Bitcoin experienced this, leading to a drastic rise and fall of its value. Market stability is what marks fiats, a term not applicable for cryptos at this point.
Another set of issues that cryptos have are privacy and decentralization. Due to little information needed, anonymous hackers’ attacks are quite severe, with a famous example being Bitfinex ($72 million lost). Through tracking of ledger addresses, anyone can easily track large accounts and strip them off easily.
Blockchain offers solutions but also comes with its own pack of issues that future development should concentrate to solve. At their current state, it will take time to surpass the current system based on fiats and central banks. With a new generation of tokens appearing in the market, the future looks bright. Still, without stability and secure way of money transfer, blockchain technology will not reach its great potential.
Published at Sat, 15 Feb 2020 15:16:07 +0000