Current transaction processing requires trusted intermediaries to store assets, verify the legitimacy and solvency of each party in a transaction, validate each asset being transacted, complete the transfer of ownership of the asset, and record the transaction in a centralized ledger. Once a transaction is initiated, the initiating party has no visibility of each stage of the transaction until final ownership is confirmed.
In a blockchain-enabled transaction, each party has access to a blockchain network. This network is a private or public community of parties that have subscribed to the network and are using blockchain technology.
When a transaction is initiated, it is recorded on each computer in the network and each record has a unique key. Data “miners” in the network compete to validate that the transaction is authentic. The winning miner confirms the authenticity of the transaction and notifies everyone in the network. Everybody’s ledger is updated accordingly, and transactions are grouped into blocks for processing. Each participant holds a complete copy of the chain.
The unique key for each record is an encrypted public key cryptography. This method of cryptography uses two types of keys. The first is a public key of which all parties are aware, and the second is a private key known only to its recipient. Each key is associated with an address on the system. This address is used to send and receive transactions and changes each time. Entities transferring the asset are anonymous, and at the same time completely transparent: anyone can see the addresses involved, but nobody necessarily knows to whom they belong.
This shared, distributed ledger is an anonymous, self-verifying, and completely reliable register of transactions. It is banking without banks.
If you are interested in learning more about blockchain, download our new guide titled “Getting Ahead with Blockchain in Financial Services.”
On-Demand Webinar
Many organizations are finding blockchain to be as confusing as it is promising. We cut through the hype and shared a practical way to get started, including how to determine where it fits within your organization. We covered the following in our on-demand webinar:
- Why adopt the technology?
- What makes a good use case?
- What are some specific industry applications?
- What are the best practices for getting started?
