Blockchain technology has the potential to enhance the basic services required in trade finance. It relies on the model of a decentralized and distributed ledger. This is said to be more robust and secure as compared to the proprietary, centralized models that are currently being used in the trade ecosystem.
Blockchain technology helps create a viable and decentralized record of transactions. The distributed ledger allows the replacement of a single master database and maintains the record of all transactions. It is also known as provenance which plays an essential role in trade finance. It allows financial institutions to review the steps of transactions besides it reduces the risk of scams or fraud.
The blockchain network offers a much better means of creating identity than the systems which are being used currently. Blockchain technology provides easy direct transfer of trade assets and it raises confidence in their provenance. It provides unique identities for assets and an unhampered record of their ownership. It is an opportunity for additional services related to finance which are based on the trade of physical goods.
Blockchain Technology and Bitcoin are the same?
First things first, the Blockchain and Bitcoin are not similar. A lot of people assume that blockchain and bitcoin are similar to each other. Well, Blockchain is the technology of Bitcoin and yes, they are associated with each other but they are not the same.
Bitcoin was introduced in 2008. It is said to be an unregulated digital currency that was established by the pseudonymous Satoshi Nakamoto. Blockchain is a ledger that is used to record the data assisting in the new currency. Since there was no bank or government involved to review the transactions, Blockchain came to the rescue. You can consider Bitcoin as the first use case using blockchain technology but the confusion between blockchain and bitcoin often comes to mind as these two concepts came to the public at the same time.
Blockchain and Bitcoin transactions
Ever since blockchain technology was introduced, it has been hypothesized for use as a ledger solution for several other industries that are related to assets apart from currency. These include healthcare, trade finance, and the owner of the purchase order along with the insurance.
Bitcoin is also known as a cryptocurrency. It is the first decentralized digital currency that was launched as an open-source solution that works without a single administrator. Notably, Bitcoin transactions are transferred with the help of a distributed ledger on the shared network which is open, and public. Blockchain maintains the ledger for Bitcoin transactions.
The blockchain technology used for Bitcoin allows recording transactions on a distributed ledger across the network. This technology allows storing the data from the transactions into blocks and each block includes a record of the transactions while each and every block is linked to the previous one. It ends up creating a chain. Also, the information stored on the distributed ledger is fully transparent and permanent. The transaction data can never be changed or removed from the network. It can also be used to solve several inefficiencies in various applications across many industries.
Blockchain is a supreme choice when it comes to digital currency because it can be used to maintain the audit trail of ownership of assets. These may intangible and tangible assets.
Data stored on the blockchain is made public
Well, it would be wrong to say that the data stored on the blockchain is made public because some public blockchains may be open but others are privately accessible only to some specified users. It depends on the use case to determine which type of blockchain is required. There are three types of blockchains and these are:
In public blockchains, an individual is allowed to become a member of the blockchain network so that they can store, send and receive data after downloading the needed software on their device. It allows the users to read and write the data stored on the blockchain because it is accessible to all participants across the world. Notably, a public blockchain is thoroughly decentralized and thus, an individual is permitted to go through the data onto the blockchain by all the connected users.
In a private blockchain, a single organization allows to write, send and receive the data. These blockchains are mostly used within an organization where only a few specific users are permitted to access the data and carry out transactions. The authorized organization can change the rules of a private blockchain. It may also refuse transactions that are based on its rules and regulations.
A consortium blockchain is also known as the permissioned blockchain that can be considered a hybrid model among the low-trust entity offered by public blockchains and the single highly-trusted entity of private blockchains. Unlike public blockchain or private blockchain, the consortium blockchain only enables a limited number of users to participate in the process of consensus.
In blockchain technology, private information is visible to everyone
Most of the time people assume that all their information and data of transactions onto the blockchain are public because the distributed ledger is said to be public but this is not true. However, the visibility depends on various use cases and the technology deployed. Although a company uses blockchain to distribute data, it does not mean that its competitors would be able to see the information related to its suppliers or about what they are buying. Likewise, not even the suppliers are allowed to see the data of other suppliers. Likewise, it is all private and secure where the suppliers only see the data with prior authorization from the buyer.
Only one blockchain
Blockchain is often described as a ledger technology. However, it is not a specific product or a solution. There are several blockchains that are public, permissioned, or private versions. There are several different protocols that are considered blockchains and likewise, they are classified as distributed ledger technologies. Some of its examples are Ethereum, Corda (from R3), Fabric (from IBM), and Ripple.
Smart Contracts are considered legal documents
Some people often take the term Smart Contract in the wrong manner. The term ‘Smart Contracts’ was first introduced by the cryptography researcher, Nick Szabo, back in 1994. It is said to be scripts or software codes that are usually written by developers and later deployed onto the blockchain network. Smart contracts can automatically perform tasks after companies automatically update shipments and receipts. A smart contract is a digital program that helps to automate the execution of business logic and agreements.
It can be used to represent an electronic warehouse receipt, an invoice, a unit of electricity, a unit of currency, a futures contract, and a share of risk, among others. These assets can be created, traded, and even settled by the participants on the blockchain network.
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