To many, the word “blockchain” is enough to make their eyes glaze over with confusion, or perhaps mutterings about a bubble. It’s fair to say that while knowledge of this new technology is becoming slightly more mainstream, powered by the value of Bitcoin, the innovations that result have yet to fully be adopted by the public at large.
If you are somewhat confused by blockchains and the potential they offer, then you’re going to want to read on. Blockchains may just be the future of the world as we know it– but you don’t have to be a speculator or adventure capitalist to make the most of what this technology has to offer. In fact, the promise of blockchains doesn’t just impact big financial institutions or tech impresarios– blockchains have the potential to make a huge difference to your specific personal finances.
Firstly, what is a blockchain?
A blockchain is essentially a way of processing transactions that removes the middleman. It is best illustrated using an example of a person wanting to buy something from another person online. At the present time, this transaction would proceed as follows:
- The Buyer has an account with a Bank.
- The Seller also has a bank account.
- The Buyer makes a payment to the Seller.
- The transaction is processed by the Bank.
- The Seller then receives the funds and withdraws them to their Bank.
There are essentially three parties involved in a transaction:
- The Buyer
- The Bank
- The Seller
The bank acts as a means of verifying and confirming that that transaction has taken place; the Bank removes the money from one account, deposits it in another, and holds information that confirms the fund switch. Only the Bank, the middleman, has access to the details about both sides of the transaction.
What blockchains do is remove the need for the third party in the transaction; in this case, they remove the need for the bank.
- The Buyer sends funds via a blockchain to the Seller.
- The Seller receives the funds and can then do with those funds whatever they choose.
This transaction is verified by the blockchain, in an open ledger, where everyone can see what transactions have been processed. That information is not held by the bank, but by anyone with access to the blockchain.
Why are blockchains beneficial?
By removing a middleman, transactions are easier, more transparent, and — and this is the first point that will impact your personal finances — free from charges.
In the above scenario, the Bank can levy a charge for processing that payment and acting as the middleman– that’s how they make money, of course. With a blockchain, the method of verification cannot be subject to a middleman’s fee, because there is no middleman.
If you have ever had to pay a fee to send money, use a bank account, use a debit card, or anything related to financial transactions, blockchains are a way to prevent that from ever needing to happen in future. The blockchain works as a network to confirm the transaction, ensuring no single institution or person holds all of the data regarding that transaction– and that means no one can levy a fee for the usage.
Why would people send money so… non-securely?
There are two answers to this questions:
- Users do not send the money non-securely. All transactions are encrypted; that’s where the “crypto” in “cryptocurrencies” comes from.
- Users do not send money. They send tokens or coins (the terminology varies) that are representative of money. Bitcoin is an example of a token.
Can blockchains only be used for making financial transactions?
Absolutely not. The same technology — group verification of transactions rather than individual third-party verifications — can be used for a variety of different applications.
The second area where blockchain technology stands to improve your finances is in real estate. Not only do blockchains allow for easier real estate purchases; as I-House and IHT Coin have demonstrated, they also allow for multiple users to invest in property as a group. This means that if you have been unable to conventionally invest in real estate due to high purchase prices, blockchains could help – they represent a method of investing in property without having to cover the entire price.
Given that real estate is considered a great bet for investment, the fact that blockchains can make real estate investment more accessible can only be considered a positive.
The last way that blockchain technology is set to improve your finances is simple: it will make signing contracts far easier than it currently is. No more printing off a contract, signing it, scanning it, and emailing it– blockchains can power smart contracts that allow you to manage your financial affairs in a simpler, clearer way. This saves money, effort, and not least, a whole lot of time that would previously have been spent just waiting around for someone else to do their job.
Hopefully you found the above primer on how blockchains can improve your finances beneficial!