Page 117 - BFSI CHRONICLE 10 th Issue (2nd Annual Issue ) .indd

BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
th
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The five concepts to understand Blockchain the POW method usually requires the user
tech are stated in details and enumerated as to create a block with restrictions on its Hash
follows: code. Since the Hash code is unpredictable, the
miners have to test any possible combination
First Crypto hash - It is a cryptographic before meeting the requirements. Once the
function that transforms any given input data
miner node finds the solution to the PoW
into a fixed length string of numbers. Every problem, they add the block to the chain and
single input of the hash function will produce every other node to check the validity.
a different output and the result is always
deterministic and irreversible. The Blockchain To sum it up, Block chain allows any user
nodes use hash functions to create a unique to create a reliable and immutable system
identifier of any block of transactions. for recording any kind of transaction or
information. There is no need for an external
Second is the Immutable ledger - Since every or internal authority.
block of the chain contains the Hash of the
previous one, it is not possible to modify any The topic of the discussion was steered towards
block without changing the entire chain. Hence Central Bank Digital Currencies which is
the chain works as an immutable ledger. legal tender issued by the Central Banks as a
competition to Cryptocurrencies. The currency
Third is the Peer to Peer ledger–The Blockchain which we use currently is a representative
does not need any external or internal
money, which is essentially debt currency
trust authority. This is possible because the with the underlying liability of the issuer
Blockchain data is distributed among all the and an asset of the holding public. Currency
users. Every user has its own copy of the involves seignorage (the difference between the
transactions and hashed blocks, and they spread intrinsic value and the representative value of
the information of any new transaction to the
the currency that accrues to the issuer). It is the
entire network. Once a block of transactions is same as a fiat currency and is exchangeable one-
validated, it is added to the chain and every to -one with the fiat currency. The transactions
user update their local information.
are recorded in a centralized ledger and the
Fourth is the Consensus protocol - Users need Central Banks retain full control over supply.
to meet an agreement about the validity of the The idea of CBDCs stems from cryptocurrencies
chain before adding more blocks. Every time a and block chain technology but CBDCs are not
node adds a new block, all of the users have to necessarily cryptocurrencies.
validate the block by using a common protocol.
More than 100 countries are exploring CBDCs
Typically, the nodes reach a consensus about at one level or another at this point in time. The
the correctness of a new block by ‘Proof of
Bahamas rolled out a CBDC (Sand dollar) in
Work” or “Proof of Stake” methods.
October 2020. Sweden has completed a technical
Fifth is Mining/ Block Validation - Mining pilot while China has started progress with
refers to the Act of meeting the Proof of Work more than 10 crore users with Digital Rimini.
(POW) requirements for adding a new block Europe also wanted to launch a digital euro by
with pending transactions to the Blockchain. 2025 while the UK Government has launched a
Among the various methods for the mining, ‘bitcoin’ taskforce. CBDCs needs an underlying
system for issuance and distribution to the

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