The blockchains refer to the global distribution ledger. The main function of blockchains is to facilitate the movement of various assets across the whole world in the fraction of seconds. This total process takes a minimum transaction fee. The value of the assets can be anything. However, the major condition is that the transferable assets must be represented digitally. In the case of blockchains, another major concept is Bitcoin. The technology of blockchains is applicable to all the digital assets transition exchanged on the online basis (Wright and De Filippi 2015). Internet commerce has tie up with the financial institutions as it works as the trusted third party that processes and mediates the electronic transactions. The major role of a trusted third party is to validate, safeguard and preserve various kinds of internet-based transactions. It can be seen that one cannot avoid a certain percentage of fraud in the process of online transactions. This aspect of fraud needs the process of meditation in case of the financial transactions. As a result, high transaction costs are incurred (Pilkington 2015).
At the time of the execution of any transaction over internet, bitcoin applies the process of cryptographic proof between two willing parties. In the process of blockchains, all the transactions are protected with a digital signature. With the help of the ‘private key’, each transaction is sent to the ‘public key’ of the receiver (Crosby et al. 2016). The owner of the crypto currency needs to provide the proof of his/her ownership of the ‘private key’ at the time of spending money with the help of blockchains. With the help of this process, the owner gets the currency in the digital form that verified with the digital signature. Bitcoin has the broadcast of each of this kind of transaction and all the transactions are recorded in the public ledger after the process of verification. It can be seen that the process of blockchains works in five specific processes (Herbert and Litchfield 2015). It is necessary to discuss these five steps or processes to know the functioning process of blockchains. They are as follows:
As per the above discussion, it can be seen that there are five steps or processes in a blockchain transactions. Each steps are described below:
Step 1: Transaction Definition: In this particular process, the sender develops a transaction and the transaction is transmitted with the assistance of network. In the transaction message, certain details of the transaction are recorded; they are the receiver’s public address details, the transaction value and a cryptographic digital signature that works as the prove of the authenticity of the transaction (Mainelli and Smith 2015).
Step 2: Transaction Authentication: In this process, the generated nodes of the network receives the message and after that, the authenticity of the validity of the message is tested with the help of digital signature. Now, the authenticated transaction is taken to the pending transactions.
Step 3: Creation of Block: In this particular process, an updated version of the ledger receives all these pending transactions and this is called a block in one of the networks. These nodes broadcasts the blocks to the networks for validation at a specific interval (Peters and Panayi 2016).
Step 4: Validation of Block: This process is one of the important processes in blockchains. In this process, the network validator nodes receive the proposed block and with the help of an interactive process, they work to validate the transactions. It has been seen that different blockchain networks adopt different kind of validation techniques. The blockchain of Bitcoin uses the validations technique of “proof-of-work”, the blockchain of Ripple uses the validation technique of “Disturbed Consensus”, the blockchain of Ethereum uses the validation technique of ‘proof-of-stake’ and many others. Different validation techniques have their own advantages and disadvantages. However, the main objective of all the validation techniques is to ensure the validity of the transaction and to make the process of fraudulent in blockchain impossible (Ali et al. 2014).
Step 5: Block Chaining: In case all the transactions are validated, all the new blocks are ‘chained’ into the process of blockchai. After this process, the network gets the broadcast of the net current state of the ledger. The total process of the above-discussed five steps takes 3-10 seconds to be completed. In this way the whole process of blockchain works (Mattila 2016).
The above discussion shows the total process of the work of blockchain. From the above analysis, it can be understood that the blockchain technology has some major advantages. However, this technology also has some major disadvantages. The major advantages and disadvantages of the blockchain technology to settle transactions are discussed below:
Disintermediation & Trustless Exchange: One of the major advantages of blockchain method is the absence of any kind of third parties in the process of transaction. In the process of blockchain, two parties are able to make an exchange in the absence of any third parties or intermediaries. This aspect is helpful in the process of reducing the counterparty risk (Klinc et al. 2012).
Empowerment of the Users: In the process of blockchain transactions, the users have absolute control over all the necessary information and transactions. This aspect is helpful in the process of empowerment of the users (Andreeva et al. 2013).
High Quality Data: In the process of blockchain, the used data are consistent, complete, accurate, timely and they are widely available. The users can easily obtain the important data of the transactions. Hence, blockchain helps to maintain the high quality of the data in the transactions (Klinc et al. 2012).
Durability, Reliability and Longevity: Due to the presence of the strong decentralized network, any central point of failure cannot be seen in the method of blockchain. This process helps blockchain to valid the malicious virus attacks (Andreeva et al. 2013).
Integration in the Process: In the process of blockchain, the users are ensured that the total process of blockchain will be executed according to the exact protocol commands without the needs for any their party or intermediaries. This process makes blockchain integrated (Klinc et al. 2012).
Transparent and Immutable: All the parties involved in the process of blockchain can see all the changes made in the method of blockchain. This process increases the transparency of the total process. In addition, all the transactions are immutable, as they cannot be deleted (Andreeva et al. 2013).
Simplification of the Ecosystem: In the process of blockchain, all the transactions are added to a single public ledger. This process reduces the clutter and the multiple ledger complications.
Faster Transactions: While the process of interbank transactions can take days to be cleared, the process of blockchain takes minutes to be completed and they work for 24/7 (Klinc et al. 2012).
Lower Transaction Costs: As there is not any presence of third party or intermediaries and overhead costs, the total process of blockchain takes lower transaction costs (Andreeva et al. 2013).
Nascent technology: Some of the major areas of blockchain that needs speedy resolve are the speed of the transactions, the process of verification, data limits and others. These factors can be obstacles in the process of blockchain are not resolved on a speedy basis (Padhmavathi et al. 2013).
Uncertainty in the Regulatory Status: The method of blockchain faces some major regulatory hurdles regarding the status of the exchanged currencies. The main reason is the regulatory policies of the governments regarding the currencies of the countries (Watanabe et al. 2015).
Energy of Large Consumption: The method of blockchain is attempting to resolve 450 thousand trillion solutions per second so that all the transactions are validated. Hence, this process consume a large amount of energy. In the era of resource scarcity, this is a major disadvantage of blockchain method (Padhmavathi et al. 2013).
Control, Security and Privacy: Some public security concerns are there in the process of blockchain. This is one of the major disadvantages of blockchain. The general public needs to entrust their personal data and information for blockchain method (Watanabe et al. 2015).
Concern of Integration: When the method of blockchain provide solutions to the users, significant amount of changes need to be made in the total process. For this reason, the business organizations need to effectively strategize all of their transactions (Padhmavathi et al. 2013).
Cultural Adoption: One of the major aspects of blockchain is the decentralized process of the network that demands the buy in of the operators and the users. In this case, culture is a crucial aspect (Watanabe et al. 2015).
Initial Cost: Although the method of blockchain offers a high amount of cost saving, the initial cost to set up a blockchain method is very costly (Padhmavathi et al. 2013).
According to the above analysis, it can be seen that the method of blockchain has many advantages along with many disadvantages. From the current scenario, it can be observed that the equity market along with the economy is dependent on the process of blockchain. Hence, it can surely be said that there are certain areas or scenarios that will be largely affected by the disruption of the technology of blockchain. One of the major factors that will be disrupted with the technology of blockchain will be the banking sector. It can be said that the banking sector is largely depends on the blockchain as most of the banking transactions are done with the help of blockchain methods. The process of blockchain is providing a large opportunity to the banking sectors to change its various operations along with the change in the current business model (Trautman 2016).
It can be seen that the bankers all over the world hail the inclusion of the blockchain technology. Most of the banker all over the world is considering the fact that the blockchain technology is one of the major factors to diminish the presence of the intermediaries or third parties in the process of banking transactions; this process will be a useful tool to bring transparency in the total process. Thus, it can be said that the disruption in the blockchain technology will affect the banking industry on a large basis. Another major area that will be affected is the financial business sector. It can be seen that the inclusion of the blockchain method is a helpful tool to massively change the business models of the financial sector. Now-a-days, most of the transactions of the financial transactions are done with the help of the blockchain method. Hence, the disruption in this technology will affect the financial sectors. Another major sector that will be affected with the disruption of blockchain is the share market as most of the transactions of the share market is done with the help of blockchain (Ammous 2016).
As per the current announcement of Australian Securities Exchange (ASX), the new method of blockchain is going to replace the Australian Securities Exchange's CHESS clearing and settlement system. From the above statement, it can be understood that ASX is considering the adoption of blockchain over CHESS method. It can be said that this is a good and effective decision as the blockchain method has many advantages. In Australia, there are many banks that have been connected to the global banks for bringing innovation in the process of banking. For this reason, blockchain is an optimal method as this process is full of innovation. With the help of the method of blockchain, the banks will be able to transfer the funds with lower amount of costs and in this process; they do not have to rely on the central banks (Fanning and Centers 2016). There are numerous reasons that support the method of blockchain over the CHESS method. On the other hand, some of the major drawbacks are there in the CHESS method. In the process of CHESS method, the intermediaries play a crucial part and this reason contributes to the increase in the cost of the transactions. In addition, security issues regarding the data and information is another major concern of the CHESS method, as the users cannot fully rely on this method. All these aspects prove the superiority of the blockchain method over the CHESS method. Hence, it can be conclude that the process of blockchain method is better than the process of CHESS.
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