Blockchain is a transaction system that relies on consensus and complex algorithms to verify cryptocurrency transactions. Blockchain was designed with the primary goal of processing transactions without relying on intermediaries and central banks. As a result, blockchain technology is known for its unparalleled technology and unmatched security. This has made financial institutions consider implementing this technology in their own systems.
In the past few years, financial institutions and banks have abetted on this technology as an alternative option to traditional systems that have been in use for years. The goal of these financial institutions has been to create a financial system that decentralizes operations. By doing this, the involved financial institutions will be able to reduce the fees associated with transactions while also ensuring that there are shorter processing times.
The desire to implement Blockchain in financial institutions has faced various challenges, with the main one being the safety of Blockchain. This can be based on the fact that there have been increased cases of security breaches where cryptocurrency owners have lost bitcoins worth millions. However, an interesting aspect of these cases is that the theft or hack has not occurred due to a breach in the Blockchain system. On the contrary, this has happened due to phishing attempts where Cryptocurrency owners have unknowingly given out their personal information. Therefore, Blockchain remains a safe system, and the following is a breakdown of how it secures financial transactions.
Cryptography Enhances Security
Any transactions that are conducted through the Blockchain platform are secured by Cryptography. Cryptography is an advanced security system that allows blocks of Blockchain to share codes that can only be read by the recipient. Each block in a Blockchain transaction contains a unique and highly encrypted key that can only be verified with a unique public key. It is through these blocks that cryptocurrency transactions are successful. However, if there is any form of alteration in the security system of Blockchain or any other transaction-related data, the designated unique key becomes invalid. The outcome is that the block becomes invalid, and any transactions that were meant to be processed are canceled.
Data Decentralization Streamlines Transactions
What makes Blockchain technology secure is the fact that it is highly decentralized and equally distributed. The Blockchain network has thousands of nodes that are distributed globally. These nodes keep track of the transactions being transacted in the Blockchain system. This ensures that there is no single point of failure that may occur when transactions are being performed. If in an unlikely situation, something goes wrong in one server during a transaction, the other servers and nodes can pick up and complete the transaction. As such, it becomes hard to corrupt transactions, thus safeguarding users. Additionally, if someone is successful in hacking into one part of the Blockchain system, the hack cannot impact other parts of the system. Consequently, if a hacker successfully hacks a single node, being able to breach other nodes with a different set of coding is close to impossible even to accomplished hackers.
These restrictions that are made possible by the Blockchain system restrict users from making any changes to the Blockchain ledger, thus minimizing the probability of a successful hack. Most organizations are currently operating these kinds of Blockchain systems for their internal use since they allow them to control their financial processors.
Consensus Legitimizes Transactions
Blockchain transactions are made possible by the presence of a consensus model which verifies and legitimizes transactions. These consensus models are run through protocols that include proof of authority, proof of stake, and proof of work. This means that no transactions can occur if the consensus model has not been remodeled to accept the transactions. Apart from this, the Blockchain security system has been made more robust by the consensus model. This provides a comprehensive risk management system that relies on cybersecurity frameworks that reduces fraud and fights off cybersecurity attacks. Consensus has also made it possible for companies such as Coin Arbitrage to support the sale and purchase of cryptocurrency in different markets through Blockchain without worrying about the safety of their coins. They rely on crypto arbitrage modeling to simplify cryptocurrency transactions.
Blockchain Records are Indexed for Future Reference
The Blockchain system operates similarly to a ledger in that it records and indexes cryptocurrency transactions. This creates a scannable database that can be accessed when the need arises. The only difference between a Bitcoin transaction and a ledger is that a ledger applies a traditional data recording approach where information is stored in a central server. On the contrary, Blockchain transactions are stored across a vast group of computer networks that regularly check and verify any transaction or information that is passed through the system.
Even though the end-user of a Bitcoin transaction remains anonymous, Blockchain technology is public. This means that all transactions that are transacted through the Blockchain system are accessible for public scrutiny, thus making it hard to cheat or hack the system. Additionally, thanks to the Cryptography security system, it becomes impossible to reverse transactions since the block created cannot be modified. This increases data security and safeguards transactions.
Through Blockchain technology, companies such as Riper have been able to formulate plans specifically designed for farmers. The company understands that farmers who produce perishable food products ought to be paid on time so as to ensure that they have enough funds to produce more products. As such, they has a paying farmers first policy that helps farmers clear existing debts while also safeguarding them from sinking into debt.
Blockchain is undoubtedly a revolutionary system that safeguards transactions and reduces the expenses incurred when using traditional transaction methods that rely on third-party financial institutions. Therefore, as more people start to invest in cryptocurrency, other financial institutions should consider integrating Blockchain into their financial systems.