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Bitcoin has a history of being unstable. But the technology behind the digital currency is reliable and straightforward.

The blockchain has been keeping tabs of all bitcoin transactions worldwide since 2008. Without the public ledger, virtual currency trades would be floating around in the digital space, completely unaccounted for. The system works so well, that large tech and financial institutions such as IBM, Samsung, Nasdaq and Barclays, have praised the blockchain for its ability to process and organize data.

The Blockchain Explained

The bitcoin technology was created to manage financial transactions in the most direct and transparent way possible. Mike Gault, founder and CEO of Guardtime, explains the mechanics of the system in a recent Re/Code article:

A blockchain is essentially just a record, or ledger, of digital events — one that’s “distributed,” or shared between many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. The bitcoin blockchain contains a certain and verifiable record of every single bitcoin transaction ever made.

In the financial industry, the blockchain can be used to streamline transactions. Transferring funds from one account to another usually takes time. This is because the transaction goes through a clearing house, where it is logged. The lengthy process is very outdated and old.

With rapid implementation of the blockchain, international remittances and payments are efficient. Furthermore, without a middleman, processing fees are greatly reduced. This is just one aspect of the nascent technology that has caught the attention of global banking establishments, including HSBC, Santander and UBS.

Honduras blockchain

Going Beyond Bitcoin

The potential of the blockchain goes well beyond money and finance. A digital ledger is applicable to any process that requires strict data keeping (think patents, energy, billing and even music).

An example of this is the use of the system to deter land title fraud in a country with the highest murder rate in the world. The government of Honduras is one of the first organizations to successfully implement the blockchain outside of the financial space. With the help of Factom, a Texas-based startup, the organization was able to create a decentralized, permanent record that cannot be tampered with.

“In the past, Honduras has struggled with land title fraud,” said Peter Kirby, president of Factom. “The country’s database was basically hacked. So bureaucrats could get in there and they could get themselves beachfront properties.”

Smart contracts

Smart Contracts

Digital ledgers can also be used to speed up the execution of contractual terms. The term smart contract refers to a computer protocol that verifies pre-programmed conditions of an agreement. Like money transfers, parties in a contract will not need a mediator to ensure the terms are fulfilled.

“If you order something online you might not want to pay a merchant immediately until they fulfill their end of the bargain,” highlighted Rapoport. “So you could easily have a contract that looks for FedEx tracking data saying that the package you ordered has been delivered to your address before releasing payment to the sender.”

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