Get help now

Blockchain: An Evolving Technology for Developing Financial Services

Updated September 20, 2022

Download Paper

File format: .pdf, .doc, available for editing

Blockchain: An Evolving Technology for Developing Financial Services essay

Get help to write your own 100% unique essay

Get custom paper

78 writers are online and ready to chat

This essay has been submitted to us by a student. This is not an example of the work written by our writers.

There is a new evolving technology to store and move data across different networks is called Blockchain or distributed ledger technology.

And it was formed because of the new Bitcoin currency. Blockchain the database technology that makes the Bitcoin work, is one of the emerging technologies right now. In Blockchain technology, we see that how digital data is sent, stored and update across different networks. The Blockchain technology is permitting the new method to write and deploy digital applications.

It has the capacity to refine online trust and security. It has even enabled the new type of organization that is without centralized power and hierarchy. The Blockchain technology not only supports the digital money and data storage but also an exchange of value. At a fundamental level, it is not a very complex technology to understand but it can enable complex solutions. For instance, Bitcoin cryptocurrency has eradicated the need of Banks or financial middleman, but it is the foundation of new software generation that distributes codes among peers and enables transactions without the need for complex infrastructure. Currently, all the financial institutions are attracted to this Blockchain technology.

The main features of Blockchain lie in decentralization, safe, effectiveness, and especially flexibility in the financial field (Liu & Li, 2018). Blockchain Technology It was first introduced by Satoshi Nakamoto’s underlying technology cryptocurrency Bitcoin in 2008. This Blockchain technology is a Public ledger in which the Network members post and approve the events before being confirmed the transaction “mined” through which the members have to compete with each other and show some proof-of-work to get the incentive or reward. This reward could be a bitcoin or transaction fee.

The previously mined block’s contents are hashed and confined in the following block so that the past transaction’s details can only be changed by altering every block mined in the transaction. So, it creates a dependable and trustworthy transaction record that can be altered by mining power. It is a transaction database that stores all the record of the transactions ever performed in the past and works on the Bitcoin protocol. It creates a digital ledger of all the transactions and allows all the members to edit the ledger in a secure way. To make any changes in the block all the nodes in the network run algorithms to verify, evaluate and match the information of the transaction with the history of Blockchain. Bitcoin It is a digital currency that is released as an open-source software in 2009.

Bitcoin is a decentralized cryptocurrency that is formed by all the nodes in the system. The chain of bitcoin is created over a period of time and hence associated with each other called Blockchain. Whenever a new transaction is created in the system it gets added to the Blockchain. So, the new transactions are uninterruptedly added to the bitcoin’s public ledger and this method is called Mining. In Bitcoin cryptocurrency, there is no need for third-party trust to verify the transactions (Chuen, 2015). How Bitcoin transaction works When a new Bitcoin is sent, it attaches the public key of the new owner and sign it with the private key of the sender.

The signature of the sender on the message verifies that the message is secure and authentic, and everyone kept the transaction history so that it can be easily verified later. Blockchain technology uses the Internet as a network to connect the participants in the system (Drescher, 2017). The Bitcoin kiosks are machines which are connected to the internet which allow the person to deposit the cash in exchange for the Bitcoin’s paper receipt or moving the money to the public key on Blockchain. Basically, it uses Public key cryptography asymmetric encryption algorithm and concept of private and public keys to encrypt and decrypt data. For example, if the message is encrypted using the public key then we need the private key to decrypt the message likewise if the message is encrypted with sender’s private key then we need the public key to decrypt the message. We can share the public key with anyone, but the private key is the secret key we cannot share it with anyone.

One member can create the pair of both public and private key. Bitcoin does not require the third party as it allocates the ledger publicly that is called Blockchain. The mining process in Bitcoin is done by the Miners that create the new bitcoin and broadcast the transaction over the network. All the Miners in the network compete to solve the cryptographic puzzles and the first one gets the 50 new bitcoins and the corresponding block is then added to the existing chain. The Blockchain bitcoin system is an electronic payment system without a governing organization (Economist, 2018). Public Key Infrastructure It is a system in which public keys are managed.

Public key cryptography requires the parties to have a pair of public and private key. It delivers a record and authentication between the owner and public key and it is based on certificates that verify the ownership of the public key. In addition, the PKI must support some certain functions. For instance, revocation and backup, registration and update of the public key, coping with key compromise and loss and appropriate mechanisms. Conventional Public Key Infrastructure designs are not protected and contain many defects and there is a lot going on to improve the situation of PKI. Whenever a new bitcoin is sent it creates a message of the transaction and attaches the public key of the new owner.

The new transaction is broadcasted over the entire network to let everyone know that the owner of these coins is the owner of the key as well. PKI is usually based on certificate X.509 which delivers the verification of ownership of private key. Recently, many errors in security procedures of CAs demonstrate that security of CAs is subject to operational errors. It’s errors and breaches have resulted in unauthorized certificates being issued. It is considered that Blockchain-based solution can unite the log-based PKI and Wot approaches and resolve the difficulties as compared to conventional systems.

On one hand, blockchain resolves the points of failure of log-based PKI and on the other hand, it lessens the Wot requirements for new certificate holders to prove the trustworthiness. It is the cornerstone of technology which facilitates secure information exchange over the Internet (Yakubov). Advantages of Blockchain based PKI There are many advantages of Blockchain based PKI rather than traditional PKI. First one is the validation of the certificate and its CA certificate chain is very fast and simple.

Second, it resolves the traditional PKI’s longstanding problem by not requiring the use of a service that issues the certificates revocation list. Now, thanks to the Blockchain synchronization among the nodes where modification of certificate will be instantly notified to all the nodes in the network system. Furthermore, it provides more secure internet security and protection against the Man-in-the-middle attacks. Traditionally, MITM is considered a major security risk where hackers can hack the browser’s connection by giving a valid certificate for that domain. So, for web browsers and users, it is very hard to recognize the replacement of a certificate because the real CA has been hacked by the Hacker.

Whereas blockchain-based PKI makes the MITM attacks almost impossible when the CA revokes the public key of a domain on Blockchain then this information is distributed among all the nodes so altering the public key is impossible in Blockchain. Challenges and Conclusion It is also possible to find out some challenges of Blockchain PKI infrastructure which come from the nature of blockchain technology. First of all, Public blockchains are described by considerable development of the blockchain’s size duplicated to all nodes partaking in the framework. Particularly, this is the case for Ethereum and other comparative stages with the help of the smart contracts which are critical for the course of action of effective PKI. For example, the Ethereum chain data size with Fast sync has reached 38.89 GB in December 2017 which was 20.46 GB in September 2017.

Second, the broad instability of cryptocurrencies results in some uncertainty with update costs and certificate loads in the long run and short term. In simple words, the cost of the blockchain operation is directly linked with the cryptocurrencies like Ether. For instance, the price of Ether was 85.43 US dollars in May 2017 and it has reached to the incredible amount of 729.01 US dollars in December 2017 which vividly shows that the cost of blockchain operation has also risen to 8 times in just seven months. It is a very popular question that how a Bitcoin can be hacked? So, there are several ways that it can be hacked but I am going to describe the two ones.

The first involves public and private keys. The public key can be shared freely and poses no risk. However, a private key should only be known to the user. Both the keys are typically stored in an online wallet, but a private key can be stored anywhere, written down, or on cloud-based storage.

If a hacker gains access to it, they have the keys to your kingdom. If you lose your private key, it’s game over. So, protect it well. The second hack exploits bitcoin miners. The bitcoin miners use increasing amounts of computing power to solve a predetermined hash. The first miner to solve the hash is rewarded with newly minted bitcoins.

As time passes, the hash algorithm increases in complexity and requires more computing power, so it becomes less accessible to small players. There have been several successful attempts by hackers to commandeer a miner’s computing power to make the blockchain network believe the winning miner is the hacker. A variation of this hack is the deployment of malware that enables the hacker to use the processing power of private computers, perhaps yours, as part of a mining pool. Criminals have launched a variety of attacks against Bitcoin. As a cryptocurrency, bitcoin and many others are being traded. As a result, several cryptocurrencies have seen their values skyrocket.

Criminals used a distributed denial of service attack to make several bitcoin exchanges unresponsive. By interrupting core exchanges, criminals are altering the dynamics in which trading is taking place. Done right, they use the DDOS attack to profit from the change in currency value. With so many participants now in the Bitcoin and alt-coin ecosystem, we see the emergence of a range of new providers, coin traders, providers for mining tools, and cryptocurrency escrow services. For many, it will be very difficult to recognize legitimate services versus scams. Recent criminal activities have involved mining opportunities that amounted to nothing more than a Ponzi scheme.

In the world of cryptocurrencies, scams abound. In Japan, there was an incident involving a bitcoin exchange called Mt. Gox. At one point, it handled 70% of all global bitcoin transactions.

In 2014, it suspended trading, closed its website, and filed for bankruptcy. They announced $450 million worth of bitcoins were missing. While some were recovered, the loss was attributed to theft directly from the Mt. Gox wallet. Another incident was the first formal exploration of the distributed autonomous organization or DAO. A DAO offers the disruptive notion of an organization without leadership, without hierarchy and without a specific location or headquarters.

In each of these areas, questions remain. From a technology perspective, we’re still in the early days. Performance and scalability are still limitations. Right now, the market is hot and there are billions of dollars of investment. It’s a good sign.

We want it to continue if blockchain is going to be the significant disrupter so many of us predict.

Blockchain: An Evolving Technology for Developing Financial Services essay

Remember. This is just a sample

You can get your custom paper from our expert writers

Get custom paper