3 min read

Blockchain 101

Blockchain 101

What if your company could have a bank account for a currency that could be used to pay for anything, anywhere in the world, 24/7?  Or an investment account that could safely and effectively buy, sell, and record financial securities worldwide?  With the advent of blockchain technology, these ideas can be a reality.

Like me, you’ve probably heard a lot of buzz lately about blockchain technology, especially as it relates to Bitcoin and other online cryptocurrencies. But the fundamental structure of blockchain, also referred to as open ledger or distributed ledger, gives it the potential to revolutionize many of the things that we do in our daily lives, including those in the banking, finance, and credit worlds.

What is Blockchain?

In basic terms, blockchain is an electronically encrypted, open or “distributed” ledger system that verifies and then permanently records and time stamps transactions or records between two entities. Every record is called a block and contains some sort of data, depending on the purpose of the particular blockchain. All blocks are public and, when created, are distributed to the entire peer-to-peer blockchain network for authentication. This authentication process is called “proof of work.”

Once authenticated by other parties in the network, that block or record is time stamped and added to the chain, becoming a part of the permanent, public record. Each block in the blockchain network has a unique, secret identifier, much like a fingerprint, but created in cryptographic form. This is called a hash. This newly created block contains its unique hash, as well as the hash of the previous block, thus linking or “chaining” it to the history and authenticity of the entire blockchain…all the way back to the very first block, called the “Genesis” block. As a practical example, think of this somewhat like how the abstract for a house goes all the way back to the original piece of land. It’s basically a historical, public chain of records linked together.

How Secure is Blockchain?

Actually, tampering with or changing a block in the blockchain is next to impossible, due to the fact that that block is now a part of a public, peer-to-peer record and would require collusion by the majority of the network members to effect change. If a block is changed, the unique hash or “fingerprint” is also changed, ultimately invalidating all subsequent blocks, as the hashes in the chain would no longer match. Furthermore, the blockchain’s proof of work process slows down the time it takes to authenticate and create a new block, yet alone re-authenticating all the blocks within the chain, making tampering with or fraudulent changes virtually impossible to do, even with today’s advanced computing technology.

Why Blockchain?

Apart from cryptocurrencies like Bitcoin and Ether, which will be addressed in a subsequent Education Center article, blockchain is garnering attention as a future tool for storing and authenticating many different transactions and data. For example, in the banking and finance world, blockchain could serve to record loans, send payments, clear and settle securities exchanges, facilitate the documentation and payment processes with commercial letters of credit, and even serve as a form of customer identity verification and authentication. For now, the potential for blockchain in banking, as in countless other industries, looks very exciting.

Next steps:

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Kevin Tiernan

Kevin Tiernan

VP, Treasury Management/Global Banking Sales Manager (515) 246-3330 Email Kevin

Kevin Tiernan serves as VP, Treasury Management/Global Banking Sales Manager at Bankers Trust. He has nearly 15 years of banking experience in treasury management and retail banking. After earning his bachelor’s degree from Iowa State University, Kevin went on to earn his MBA from the University of Iowa. He also completed the Graduate School of Banking program at University of Wisconsin. Prior to joining Bankers Trust in 2011, Kevin worked at Wells Fargo for four years. Kevin has been recognized for his involvement in the community and career achievements. Most recently, he was recognized in the Business Record’s Forty Under Forty in 2015. He was also recognized as an Up and Coming Banker in 2014 by Community Bankers of Iowa, and he received the Governor’s Volunteer award in 2012. Apart from his position with Bankers Trust, Kevin serves on the board of directors of Balance Autism – an organization that provides care and innovative therapy for those living with autism. In his free time, Kevin likes to travel, attend live music concerts and festivals, and ride his bike on Iowa’s beautiful trails.

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