Key Takeaways Blockchain is the cryptography technology behind the decentralized currency bitcoin.More financial firms are adopting blockchain technology for improving money flow, reducing transaction costs and expediting settlement time.Recently, NASDAQ used blockchain for issuing private securities and proxy voting.In addition, 40 large banks including Goldman Sachs have tested fixed income trading using blockchain.Since blockchain is the technology behind bitcoin, before we dive into how it could affect the future of investing, it helps to get a solid grasp of bitcoin.You’ve probably already heard of bitcoin, but perhaps brushed it off as hype from years past.Since bitcoin is now the most prevalent form of blockchain technology, it is worth understanding how it works.Bitcoin is a type of digital currency that is created, held and exchanged electronically.In other words, it is a type of money that can be used to place transactions though you can’t physically touch it.Also referred to as a crypto currency, mobile currency, or virtual currency, it was created to enable fast, low-cost and secure online payments without a central bank.

Essentially, it is a peer-to-peer system that doesn’t rely on a third party or government.While bitcoin first surfaced in 2009, still unknown is the identity of its creator who goes by the pseudonym “Satoshi Nakamoto.” Either way, bitcoin gained popularity in 2013 when its value crossed the $1,000 mark in November from under $15 at the beginning of the year.Its time above $1,000 was short lived, however.Interest began to fizzle out as concerns grew over its instability, lack of regulation and limited acceptance among merchants.Many people still have reservations about its security and an absence of transaction insurance.1 What’s interesting is that blockchain, the technology behind bitcoin, is gaining traction.More financial services businesses and Silicon Valley leaders are signaling that they believe the technology has more potential than previously thought.Blockchain technology is not just for bitcoin.A growing number of people believe it could be used for other purposes such as managing trading settlements, improving data management, optimizing internal processes and enhancing security practices.

How does blockchain technology work?In regards to bitcoin, it functions like an enormous public ledger that continuously keeps track of who owns how much bitcoin now and since inception.Data centers around the world known as “miners” keep everything running and earn newly minted bitcoins for authenticating transactions.In other words, there are a bunch of computers dedicated to stringing together “blocks” of transactions.young bitcoin millionaireIf you have fears that one day computers will run the world, you may find blockchain a terrifying thought.bitcoin centre melbourneTo get a grasp of how blockchain functions, it helps to visualize a chain being formed one link at a time.dogecoin value right now

Each link represents a group of transactions and the chain gets longer and longer as more transactions take place.Historical data is also preserved and accessible at any time.Even with a public bitcoin ledger, the identities of bitcoin holders are protected and kept anonymous by blockchain’s unique cryptography.This is one of the reasons bitcoin and other crypto currencies are often used in black market activities.bitcoin faucet strategySome advantages of chaining blocks together in sequence is that it helps prevent multiple parties from spending the same bitcoin and offers protection from any single party altering the system.bitcoin mining hardware nvidiaSince miners have to reach a consensus on the latest version of the blockchain, there’s no need for a middleman such as a central bank to verify or control anything.trao doi bitcoin

If blockchain technology can also be used to significantly improve the flow of money, banking fees could be reduced and the speed at which transactions take place may also see improvement.This decentralization, for instance, could allow banks in different countries to interact directly with each other without having to transfer money through correspondent banks.In addition, some proponents visualize a world in which blockchain would end credit card fees and foreign transaction charges.2 It is also possible that blockchain technology could be applied to other areas; it be applied to sending messages, tracking the ownership of assets, notarizing information, tracking land registries or enforcing contracts.litecoin redfitOther potential uses include creating audit trails for marriage licenses, lawsuits, voting and health records while maintaining privacy.ethereal on linux

While blockchain’s potential may be limited only by our collective imagination, for now, it seems to be gathering the most momentum in financial services and investing.Many large financial firms want to harness blockchain technology to lower costs and speed up capital market transactions and payment systems. successfully used its NASDAQ Linq blockchain ledger technology to complete and record a private securities transaction.ethereum stock price coinbaseIt said blockchain has the potential to reduce trade clearing and settlement for equities from three days to as fast as ten minutes.As a result, systemic and settlement risks could be reduced.3 Bob Greifeld, CEO of NASDAQ called this transaction a “seminal moment” in deploying the blockchain technology, and believes it will jumpstart a process that could “revolutionize” the infrastructure of capital markets.4 In addition, administrative tasks can be streamlined with fewer manual and multi-step processes.

NASDAQ has also been exploring ways to utilize blockchain for proxy voting in Estonia.Estonian residents recently voted in shareholder meetings using blockchain technology.5 Notably, most of Estonia’s banking infrastructure is secured by blockchain, which is believed to have contributed the country’s claim to having the lowest rate of credit card fraud in the euro zone.6 In January 2016, U.K.chief scientific advisor, Sir Mark Walport, asked the government to start using blockchain technology for issuing passports, tax collection and other public services.Not much later, the consulting firm PwC announced it was assembling a team of 15 technology specialists to focus specifically on blockchain technology development.7 In March, 40 major banks tested blockchain technology with fintech firm R3 CEV to trade fixed income securities, with participants including Barclays and Goldman Sachs.8 The ability to securely settle large volumes of trades within minutes or even seconds would be automatic and a significant improvement to current processes.

Things happen fast in the stock market and blockchain technology could accelerate the pace even more.The more knowledge you have, the more you can be more empowered to make informed investing decisions.Get insights and learn about emerging trends in the investing insights area of our blog.Ready to start trading?See why Motif Investing is a new kind of online broker, built around you.Investing in securities involves risks, you should be aware of prior to making an investment decision, including the possible loss of principal.An investment in individual stocks, or a collection of stocks focused on a particular theme or idea, such as a motif, may be subject to increased risk of price fluctuation over more diversified holdings due to adverse developments which can affect a particular industry or sector.Investments in ETFs can include those with a narrow or targeted investment strategy and can be subject to similar sector risks than more broadly diversified investments.Motif makes no representation regarding the suitability of a particular investment or investment strategy.