Blockchain technology The Bank of England's recent report on payment technologies and digital currencies regarded the blockchain technology that allows digital currencies a ‘genuine technological innovation ‘that could have far reaching implications for the financial industry. blockchain technology So what is the block chain and why are y'all getting excited? The block chain is an online decentralised public ledger of all digital transactions that have taken place. It's digital currency's exact carbon copy of a high street bank's ledger that records transactions between two parties. Just like our modern banking system couldn't function without the means to record the exchanges of fiat currency between individuals, so too could an electronic network not function without the trust that comes from the ability to accurately record the exchange of digital currency between parties. It's decentralised in the sense that, unlike a normal bank which is the only holder of an electronic master ledger of its account holder's savings the block chain ledger is shared among all members of the network and isn't susceptible to the terms and conditions of any particular financial institution or country. So what? Exactly why is this preferable to our current banking system? A decentralised monetary network ensures that, by sitting outside the evermore connected current financial infrastructure one can mitigate the risks of being element of it when things go wrong. The 3 main risks of a centralised monetary system that have been highlighted consequently of the 2008 financial crisis are credit, liquidity and operational failure. In the US alone since 2008 there has been 504 bank failures due to insolvency, there being 157 in 2010 alone. Typically such a collapse doesn't jeopardize account holder's savings due to federal/national backing and insurance for the initial few hundred thousand dollars/pounds, the bank’s assets usually being absorbed by another financial institution however the impact of the collapse could cause uncertainty and short-term issues with accessing funds. Since a decentralised system just like the Bitcoin network isn't influenced by a bank to facilitate the transfer of funds between 2 parties but alternatively utilizes its countless amounts of users to authorise transactions it is more resilient to such failures, it having as numerous backups as you can find members of the network to make certain transactions remain authorised in case of one member of the network ‘collapsing'(see below). bitcoin software A bank will not need to fail however to effect on savers, operational I.T. failures such as for instance those who recently stopped RBS and Lloyds ‘customers accessing their accounts for weeks can effect on one's capability to withdraw savings, these being a results of a 30-40 year old legacy I.T. infrastructure that is groaning under any risk of strain of keeping up with the growth of customer spending and deficiencies in investment in general. A decentralised system isn't reliant on this type of infrastructure, it instead being based on the combined processing power of its countless amounts of users which ensures the ability to scale up as necessary, a problem in any part of the system not causing the network to grind to a halt.
Liquidity is one last real risk of centralised systems, in 2001 Argentine banks froze accounts and introduced capital controls consequently of their debt crisis, Spanish banks in 2012 changed their small print allowing them to block withdrawals over a quantity and Cypriot banks briefly froze customer accounts and used around 10% of individual's savings to greatly help pay off the National Debt. As Jacob Kirkegaard, an economist at the Peterson Institute for International Economics told the New York Times on the Cyrpiot example, "What the deal reflects is that being an unsecured as well as secured depositor in euro area banks is not as safe because it used to be." In a decentralised system payment takes place without a bank facilitating and authorising the transaction, payments only being validated by the network where you can find sufficient funds, there being no third party to avoid a transaction, misappropriate it or devalue the total amount one holds. http://www.blockchainsoftware.com.au/