It removes the need for trust. Why is that a good thing? Trust is expensive, scarce and slow. In this lesson, we’ll explain why.
Trust is something we value in today’s world, but many people and most businesses do not trust one another. This is the reason why many financial transactions, or transfers of value cannot be completed without the mediation of a third party.
Take a look at the example of an illustration of the path of a wire transfer through traditional banking below: If there is uncertainty between individuals and distrust between central banks, a “correspondent bank” is required to mediate for the transaction. This is just one process that because of a lack of trust, results in additional processing time and increased costs.
International wire transfers often occur between banks that do not have an established financial relationship. When agreements are not in place between the bank sending a wire and the one receiving it, a correspondent bank must act as an intermediary. For example, a bank in San Francisco that has received instructions to wire funds to a bank in Japan cannot wire funds directly without a working relationship with the receiving bank. This results in time lost, and extensive processing fees.
Bitcoin Changes Everything
This all changed in January 2009. Bitcoin was introduced and had brought with it the power of Blockchain. There was no longer a need for trust in digital transactions, and decentralization in the industry was born.
A blockchain is a data record that may exist on every computer that is connected to a network, even yours. It is decentralized - meaning that the power over it is not in the hands of any centralized person or group. Anyone who has a computer can view the blockchain, and monitor all transactions on it!