Technology and Innovation
The Essentials of Blockchain Technology
As part of Bishopsgate Financial’s blockchain programme, we deliver a series of blockchain masterclasses with Dr Stephane Savanah, a Bishopsgate Financial Associate and one of the chief researchers at the forefront of blockchain innovation.
Here, Dr Savanah shares an extract from his course, discussing the essentials of blockchain technology and considerations for its application in banking and finance.
Why is it so critical to understand the fundamentals of blockchain technology?
As a relatively new technology, the benefits and drawbacks of blockchain technology are still unclear to many in the industry.
Though it may be tempting to jump on the bandwagon, doing so without understanding why the blockchain was invented and what it is capable of leaves banks and organisations at risk. A fundamental understanding of the blockchain is required so that organisations can decide both appropriate and inappropriate applications of the technology. To achieve this, we need to go back to the inception of blockchain technology and consider the essential and guiding principles behind its design.
What is the bitcoin blockchain trying to achieve?
At its core, the ultimate goal of the bitcoin blockchain is to act as an electronic version of cash.
In the physical world, cash acts as a peer-to-peer payment system. It doesn’t require an intermediary, such as a credit card company or bank. So, to provide a truly peer-to-peer process, we need to eliminate the requirement for an intermediary, resulting in no central authority.
No central authority means that we need a decentralised solution to prove ownership, which then incurs significant overhead costs. This leads us to the bitcoin protocol, which is founded on a network of self-interested, independent and permissionless nodes. The overhead incurred by this structure is worthwhile for the benefit of a truly trustless electronic cash system. However, blockchain technology in itself is not appropriate for systems whereby trust in a central authority is assumed.
What other benefits does a public blockchain offer?
Beyond being a peer-to-peer payment system, the public blockchain represents a transactional medium on top of which many processes can be built that will inherit its underlying benefits. These benefits include low cost transactional processing, inbuilt cryptographic security, identity management (for both privacy and transparency), and a permanent and immutable ledger.
All of these benefits are provided by a network of self-interested and primarily self-funded nodes that bear the cost of maintaining the blockchain. This significantly reduces the cost for any system that rides on top of the blockchain, thereby inheriting these attributes. It’s important for decision makers to consider the benefits of such attributes and how the blockchain functions, in order to properly assess appropriate applications for the technology
If you’d like to find out more about our one-day Blockchain Masterclass, or to enquire about a bespoke programme of courses for your in-house team, contact us today on +44 (0)207 448 3000 or email firstname.lastname@example.org.