Category Archive Blockchain

ByJayanthi

Can Blockchain prevent another economic crash?

Like any other system, the global economy is susceptible to failure at many different points. Unfortunately, due to the interconnectedness of the world, an economic crisis in one country could have disastrous consequences for other countries. This was the case during the United States economic crisis of 2008 in which the stock market crashed.

Economic collapse on any scale usually happens as a result of disparities in the system that can easily be overlooked in the absence of clarity. However, blockchain technology could help avoid a financial crisis due to its transparency, security and decentralized mechanism. Cryptocurrencies such as Bitcoin are powered by this same technology which acts as a ledger for all transactions carried out on a network.

The endless benefits of the technology have attracted countless investors over the years. Now, it is fast becoming an addition to every major corporation, from IBM and Mastercard to Nasdaq. Its properties are also attractive to financial institutions which constitute the industry that is most in need of the benefits it provides.

The financial crisis of 2008 caused by a lack of transparency, greatly impacted various significant financial institutions and economies on a global scale. Blockchain technology affords banks full transparency, allowing them to spot such a crisis from a mile away. This way, they can take the appropriate preventive measures to ensure that it does not happen again. Banking authorities must make an effort to study the technology and better understand how it can be a force for the prevention of the next financial crisis.

What was the 2008 economic crash?

The economic crash of 2008 was the worst economic disaster in the U.S. and the world since the 1929 Great Depression. The crisis caused a great recession after the cost of housing fell by 31.8%, even lower than that of the Great Depression. Although the crash occurred in 2008, the first signs were observed in 2007 when the prices of homes were too high.

home

As a result, homeowners began to default on mortgage payments, leading to a downward economic turn which spread to the U.S. financial sector and eventually affected other countries. At the time, houses became extremely cheap, and homeowners were given loans worth up to 100% of the value of their new homes. Taking advantage of the profitable real estate sector, banks also made investments in subprime areas.

The affected institutions stretched from investment banking corporations to commercial banks, insurance companies, and lenders. The situation was so bad that financial institutions had to lay off their staff. Apart from financial institutions, the crisis affected individuals and businesses that were reliant on credit payments at the time. The economic disaster led to massive suffering on the part of businesses because banks stopped giving loans out. They did not trust anyone to pay back the loans due to the state of the economy.

Shortly after the crisis began, the American auto industry was on the edge of destruction and pleaded for a federal bailout. Unfortunately, banks were in the middle of damage control and bailouts were nearly impossible to get. Globally, share prices plunged, and the recession trickled down to other countries.

By the end of the year, most countries in the world including Germany, Japan, and China had gone into an economic recession as well. According to the National Bureau of Economic Research, the great recession had begun in December 2007, making it the third longest recession in the country since World War II.

In Europe, investors who had been involved with real estate securities in the U.S. took a hard hit. The same could be said for investors in smaller countries. However, China and Japan were able to escape that situation but registered huge losses where export was concerned. Their American and European markets were experiencing a fall in demand due to the recession.

Developing countries that depended on foreign investments for growth capital also lost their markets and investments. Since the largest countries were in a recession, the situation became a hopeless one with no chance of an easy recovery. Two years after the end of the recession, the unemployment failed to fall below 9 percent.

Why are banks looking to use this technology?

Banks are looking to use blockchain technology because its transparency can reduce the issue of financial losses that stem from a lack of it. There are three major ways in which the banks hope to achieve this:

1. Maintaining financial security

When banks have a bird’s eye view of all the financial transactions within an economy, it is easier to find discrepancies and adjust them. Due to the immutability and append-only function of a blockchain, it is easy for banks to keep open records of transactions that can be tracked easily.

Tracking cash flow can help institutions find and mitigate economic threats that may arise due to bad policy and bank operations. Using this technology, the banks can determine whether a financial institution, including shadow banks, requires support or control.

Another way that blockchain technology promotes financial security as a way to prevent an economic crisis is by providing access to information. With this information, these institutions can determine risks and potential points of failure within the system. It can also clarify the effects of various monetary policies and help out in the gathering of statistics for research purposes. Generally, if the banks have more information, then they can perform better and cut the costs associated with running separate systems as opposed to a single blockchain.

2. Preventing fraud

Banks can prevent fraud and bad debtors using smart contracts and digital cryptographic identities. Each institution can create smart contracts between the customers and banks, as well as between the banks and the central bank. This creates an immutable record of the exact terms of the contract and will only execute when the terms are fulfilled. Banks can also avoid loan fraud by using digital identities to find out the loan history of each customer, drastically lowering the chances of bad debt in the process.

The use of a cryptographic ledger ensures that stored information can only be accessed using cryptographic keys which are usually in possession of the owner of that information. A hacker would have to compromise every single system on a network to break such a system. This makes blockchain a secure way to store information.  

3. Eliminating shadow banking

According to the People’s Bank of China, shadow banking falls into three main asset classes–  entrusted loans, trust lending, and banks’ acceptances — which saw a $555 million increase in 2017. Using blockchain technology, banks can eliminate shadow banking since all transactions will be recorded.

Final thoughts:

The financial crisis of 2008 left many nations utterly devastated. The trickle-down affected various sectors even outside the financial sector, resulting in a near collapse of the economy. However, the world moved on from the effects of that event, and most countries have been able to pull themselves out of recession. However, it is essential to take measures that ensure that the crisis is not repeated.

For banks, the best bet may be the use of blockchain technology to securely store data, access information and ensure transparency in the system. Used properly, it can serve as an open system in which all transactions within the economy are recorded. With a clearer view of all banking processes, banks and other financial institutions can successfully prevent another economic crisis.

This article originally appeared on Mintdice.com

Jayanthi Manikandan has an undergraduate degree in Computer Science from India and a Master’s degree in Information systems with a specialization in Information security from Detroit, MI, USA.

She has been passionate about Information security and has several years of experience writing on various technical topics. Additionally, she loves to pen a few personal thoughts here as well! 🙂

ByJayanthi

Introduction to Ethereum

Just like Bitcoin, which is highly known, ‘Ethereum’ is yet another open source implementation of the Blockchain concept. However, the similarity between ‘Ethereum’ and ‘Bitcoin’ ends just there. While ‘Bitcoin’ is a cryptocurrency,  ‘Ethereum’ is a decentralized network for implementing ‘Smart contracts’. Recall, that ‘smart contracts’ are similar to normal contract clauses, but are automatically enforced without any interference from third parties.

The ‘Ethereum’ logo was first used in 2014 and the project was live on 30th July 2015 – so,  it is an absolutely brand new blockchain concept!  The ‘Ethereum’ idea was first conceived by Vitalik Buterin.

Now moving onto the article, the basic idea behind the blockchain technology  is the different nodes agreeing on transactions and having the same copy of the transaction. Instead of all the nodes in a network agreeing on the the coins moving towards and  away from a user(like in a Bitcoin), in a Ethereum network, the nodes have to agree on the smart contract transactions.

So, what can we do with a Ethereum blockchain?

Have an idea for an application? You can get it deployed on the ‘Ethereum’ blockchain. It is no longer a huge chore to build blockchain applications and definitely much more easier to get applications deployed on the Ethereum blockchin.

 You can create your own cryptocurrency, voting ballots, crowdsale or any idea of for a decentralized application without feelings and human emotions entwined in it. For more information about creating your own decentralized applications on the Ethereum blockchain please visit: https://www.ethereum.org/

Ethereum

To conclude, here are a few terms associated with ‘Ethereum’:

  1. Ether – is a form of currency that fuels the Ethereum network. It is specifically called as a “crypto fuel” and not as a cryptocurrency as it is used to pay for the smart contract services.
  2. Ethereum wallet – where will the ‘ethers’ be stored? In a Ethereum wallet of course! The Ethereum wallet is also used to “write, deploy and use smart contracts”
  3.  ‘EVM’ or ‘Ethereum virtual machine’- The EVM almost reminds me of the JVM or the ‘Java virtual machine’. The EVM runs on the Ethereum network and is a Turing  software. Similar to the JVM of the 90s, the EVM simplifies the process of creating applications. 

It should be noted that Ethereum  is another rapidly evolving technology. How the world will react to it and how the governments will react to it is left to be seen. This article is largely for informational purposes only!

Liked this article? Like and Share! 🙂

Jayanthi Manikandan has an undergraduate degree in Computer Science from India and a Master’s degree in Information systems with a specialization in Information security from Detroit, MI, USA.

She has been passionate about Information security and has several years of experience writing on various technical topics. Additionally, she loves to pen a few personal thoughts here as well! 🙂

ByJayanthi

What are Smart Contracts?

‘Smart Contracts’ is a term that is often used in the Blockchain world. ‘Smart Contracts are similar to legal contracts but are encoded in the ‘Blockchain’ . ‘Ethereum’, the public blockchain is the most popular way to create smart contracts.

We encounter physical ‘contracts’ throughout our life. Contracts are present when we start a new job(detailing the job details and the date of salary payments)  , when we buy a new house(detailing our mortgage payments and the corresponding dates , when we buy a new vehicle(detailing loan payments)

Home loans, car loans and most other critical dealings come with contracts. ‘Contracts’ enable the buyer and seller to keep their word. In a home buying scenario, once the buyer completes all his mortgage payments, the loaner company should release the title and deed and all appropriate paperwork to the buyer. There are lengthy clauses which cover every aspect of our business dealings.

An example of a legal statement might be as follows: ‘If the bill is not paid by a certain due date, then add a corresponding late fee or revoke the license’. 

What if this could be automated and enforced without any manual intervention? Is this possible? yes – by means of smart contracts. 

In a ‘smart contract’ the contract itself is coded and it is further stored and monitored by the Blockchain network.  Once a condition is met, the contract executes automatically. This ensures transparency along with elimination of middlemen.

‘Smart Contracts’ are mostly written in the ‘Solidity’ programming language.

This is just a short glimpse into the world of ‘smart contracts’. Join me as I uncover more technical topics about the ‘Blockchain’ world  in subsequent posts…

 

 

smart contracts

Jayanthi Manikandan has an undergraduate degree in Computer Science from India and a Master’s degree in Information systems with a specialization in Information security from Detroit, MI, USA.

She has been passionate about Information security and has several years of experience writing on various technical topics. Additionally, she loves to pen a few personal thoughts here as well! 🙂

ByJayanthi

What is ‘Ripple’?

‘Ripple’ may be a totally unknown term to you or you know exactly what I am talking about – either way ‘Ripple’ is creating ripples!

What is it?

‘Ripple’ is one of the implementations of ‘Blockchain’. As you may recollect, ‘Blockchain’ is the decentralized network where different nodes agree on transactions. Each node has a copy of the transaction and none of the transactions can be deleted or modified in any way. You can read more about Blockchain here. 

Read More

Jayanthi Manikandan has an undergraduate degree in Computer Science from India and a Master’s degree in Information systems with a specialization in Information security from Detroit, MI, USA.

She has been passionate about Information security and has several years of experience writing on various technical topics. Additionally, she loves to pen a few personal thoughts here as well! 🙂

ByJayanthi

Blockchain lingo!

 Blockchain, AI and machine learning are the latest buzzwords in the IT industry. Building a blockchain is also becoming a need for various businesses. Recall, that a “Blockchain” is the distributed shared ledger for recording and storing transactions. Each of the participant in the business network has a copy of the ledger which is updated regularly.

Before building a blockchain, there are a few keywords that have to be mastered and we will discuss them today.

Read More

Jayanthi Manikandan has an undergraduate degree in Computer Science from India and a Master’s degree in Information systems with a specialization in Information security from Detroit, MI, USA.

She has been passionate about Information security and has several years of experience writing on various technical topics. Additionally, she loves to pen a few personal thoughts here as well! 🙂