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Home » Blog list » Lost in the World of Blockchain Technology? Here’s What to Know.

Lost in the World of Blockchain Technology? Here’s What to Know.

blockchain, defi


Many admit to being lost in the world of blockchain technology.

Rightly so.

The blockchain concept was pioneered within the context of crypto-currency Bitcoin, but engineers have imagined many other ways for distributed ledger technology to streamline the world. Stock exchanges and big banks, for example, are looking at blockchain-type systems as trading settlement platforms.

-Anthony Scaramucci

Blockchain technology is a burgeoning concept known as decentralized finance, or DeFi. DeFi enjoyed a record summer 2021. Big firms are now casting their attention to decentralized finance, boosting some apps to new heights, this according to a recent article in Coinbase.

It’s shrouded in new technical jargon, acronyms, and models. For the banking industry, it’s hard to understand what it is and the impact this new movement will have. It seems like we just started integrating financial (FinTech) technology into our systems…and now we have something new.

In simple terms, what is it? offers a basic explanation:

The whole point of using a blockchain is to let people — in particular, people who don’t trust one another — share valuable data in a secure, tamperproof way.

— MIT Technology Review

If you’ve got questions, you’re not alone. Over the next few months, I’ll clear up some things and:

  • introduce you to the decentralized finance (DeFi) movement
  • bring clarity around new concepts such as Proof of Stake and SmartContracts
  • define and interpret new jargon into banking terms you’ll understand
  • provide insight into possible impacts to our banking industry

Where Did Decentralized Finance Start?

Decentralized finance, or DeFi for short, refers to a financial system that operates without the need for traditional, centralized intermediaries.

In 1994 Nick Szabo invented a concept known as:

Smart Contractsa set of promises, specified in digital form, including protocols within which the parties perform on these promises.

Szabo also invented the first cryptocurrency known as:

Bit Gold: The underlying concept is to remove trusted third parties from a transaction and to make the transaction itself trusted.

Here’s an example: two businesses in two different countries establish a relationship through a smart contract. Deliveries and payments are conducted without a foreign exchange bank, international lawyer, insurance agent or any otherthird party involvement.

Technology, however, didn’t have the muscle to support Szabo’s dreams for everyday banking purposes.

The Birth of Bitcoin- and Blockchain

In 2008, Bitcoin was born.

Using the alias Satoshi Nakamoto, the developer not only created his virtual cryptocurrency, Bitcoin, but also Blockchain, a public transaction ledger, with the specific purpose of supporting Bitcoin.

The financial and banking world had entered a new galaxy.

What will be impactful to banking is not Bitcoin –
it’s the underlying technology of Blockchain.

What Are the Nuts and Bolts of Blockchain?

Blockchain is a public general ledger protected by cryptography and is the most trusted general ledger in the world.  

But it wasn’t ready for the banking world. Not yet.

Because Satoshi Nakamoto’s blockchain was specifically designed for Bitcoin, it was burdened with a concept known as proof of work, which requires tremendous amounts of computing power from around the world to maintain and verify the blockchain after each transaction.

As a result, it is a very slow process with a mere 4.6 transactions per second compared to Visa or Mastercard that processes a whopping 5,000 transactions per second.

As a result, there’s not much competition from Bitcoin anytime soon. 

But there’s more to be aware of.

Now There’s Ethereum

In 2013, Vitalik Buterin took Nick Szabo’s smart contract concept and created Ethereum, a decentralized, open source blockchain with smart contract functionality.

Ethereum allows anyone to deploy permanent and immutable decentralized applications onto it, with which users can interact. Decentralized finance (DeFi) applications were born in the Ethereum universe.

Today DeFi applications provide a broad array of financial services – without the need for typical financial intermediaries like brokerages, exchanges, or banks – such as allowing cryptocurrency users to borrow against their holdings or lend them out for interest.

Ethereum also allows for the creation and exchange of NFTs, which are non-interchangeable tokens connected to digital works of art or other real-world items and sold as unique digital property.

Proof of Work Vs. Proof of Stake

Unfortunately for Ethereum, it was built on the “proof of work” blockchain technology which limits its transactions to 30 per second, limiting its use in standard banking.

In 2012 Scott Nadal and Sunny King created the concept of Proof-of-Stake which basically maintains integrity in a blockchain, ensuring users of a cryptocurrency can’t mint coins they didn’t earn.

If you want to participate in a PoS blockchain, you must put up valuable collateral such as Bitcoin. It’s much quicker to verify proof of stake than proof of work. In other words, put your money where your mouth is.

For the past few years, Ethereum has been developing Ethereum 2.0, a proof-of-stake platform for smart contracts. Ethereum 2.0 is set to launch in 2022.

It is purported to have transaction speeds at a staggering 100,000 per second.

Now we have an impactful technology to worry about.

In my next article, I’ll focus on the underlying strengths of Decentralized Finance built on Proof of Stake such as Permissionless, Decentralized, Trustless (via Transparency), Transparent, Programmable and Censorship resistance. All powerful and amazing stuff to think about. Stay tuned.

Please note this is a right to use (not to copy or publish) and all other rights are reserved to Gilman Patrick LLC.   

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