Digital Technologies in Finance PDF

Summary

This presentation details digital technologies in finance. It covers the history of ledgers and their evolution into blockchain, introducing key concepts like decentralization, distributed ledgers, and immutability. The presentation also explores different types of blockchains and their applications in various industries including finance and healthcare.

Full Transcript

Trim V Digital Technologies in Finance Amit Kamkhalia LEDGER History of the Ledger and Its Evolution into Blockchain The concept of the ledger has been a foundational element of human civilization, particularly in the realm of com...

Trim V Digital Technologies in Finance Amit Kamkhalia LEDGER History of the Ledger and Its Evolution into Blockchain The concept of the ledger has been a foundational element of human civilization, particularly in the realm of commerce, governance, and social organization. From ancient times to the modern digital age, the ledger has evolved from a simple record-keeping tool to a highly sophisticated digital framework that today powers technologies like blockchain. The transformation of the ledger from a physical record to the core technology underlying cryptocurrencies is not just a story of innovation in accounting but also of trust, transparency, and decentralization. Early History of the Ledger BLOCK CHAIN Introduction to Blockchain Definition & Fundamentals of Blockchain Types of Blockchains How Blockchain Works: Key Concepts Applications of Blockchain Technology Challenges & Future of Blockchain Key Concepts: Decentralization: Unlike traditional centralized systems (e.g., banks), blockchain operates without a central authority. Distributed Ledger: Each participant in the network has a copy of the ledger. Immutability: Once a block is added, it cannot be altered or deleted. Term Definition A decentralized ledger of all transactions across a Blockchain peer-to-peer network. A decentralized interaction model between two Peer-to-Peer parties without the need for intermediaries. The method of protecting information by Cryptography transforming it into an unreadable format. The mechanism that ensures agreement on the Consensus validity of transactions across the network. Self-executing contracts with the terms of the Smart Contract agreement directly written into code. Types of Blockchains Type of Characteristics Examples Blockchain Open to anyone; decentralized and Public permissionless; anyone can read, Bitcoin, Ethereum Blockchain write, or participate in the network. Restricted access; only authorized Private participants can read and write; Hyperledger, Quorum Blockchain typically used by enterprises. Controlled by a group of Consortium organizations rather than a single R3 Corda, Energy Web Blockchain entity; a hybrid of public and Foundation private. Public blockchains are ideal for decentralization and transparency, but they are slower and require more computational resources. Private blockchains are faster but less decentralized, often used in enterprise solutions. Consortium blockchains strike a balance between the two. How Blockchain Works: Key Concepts Transaction Initialization: A transaction is requested by a participant. Validation: The network nodes validate the transaction using consensus algorithms (e.g., Proof of Work or Proof of Stake). Block Creation: Once validated, the transaction is added to a new block along with other transactions. Block Chaining: The new block is added to the existing chain using a cryptographic hash, linking it with previous blocks. Finalization: The transaction is completed, and the Step Explanation A new transaction is initiated 1. by a user (e.g., transferring Transaction cryptocurrency). The transaction is broadcasted 2. to a peer-to-peer network of Broadcast nodes. Visual Network nodes use consensus 3. Representation Validation mechanisms to validate the transaction. : After validation, the 4. Block transaction is added to a new Added block. The new block is chained to 5. Chained the previous block using cryptographic hashing. Once added, the block cannot 6. be changed or deleted, making Immutable the transaction immutable. Consensus Mechanisms To ensure that all participants agree on the state of the blockchain, consensus mechanisms are used: Proof of Work (PoW): Miners compete to solve complex cryptographic puzzles to validate transactions (used in Bitcoin). Proof of Stake (PoS): Validators are chosen based on the number of coins they hold (used in Ethereum 2.0). Delegated Proof of Stake (DPoS): Stakeholders elect a smaller group to validate transactions (used in EOS). Example Mechanism Description Blockchain Requires solving Proof of cryptographic puzzles for Work Bitcoin validation. Energy-intensive (PoW) but highly secure. Validation is done based on Proof of stake in the network, Stake Ethereum 2.0 reducing energy (PoS) consumption. Delegated Validators are elected by the Proof of community to verify EOS, Tron Stake transactions. Blockchain Industry Use Case Example Applications Cross-border payments, digital assets, Ripple (XRP), DeFi of Finance decentralized finance (DeFi). Protocols Blockchain Supply Tracking and verification of goods from source to destination, ensuring IBM Food Trust, Technology Chain transparency. VeChain Blockchain is widely Secure sharing of medical records, adopted in multiple Medicalchain, Healthcare tracking of pharmaceuticals, ensuring sectors. Present a few Guardtime data privacy. significant examples of how blockchain is Voting Transparent, immutable, and secure changing industries Voatz, FollowMyVote Systems electronic voting to reduce fraud. Tokenization of real estate assets, Real Estate streamlined property transfers, and Propy, RealT reduced paperwork. Secure identity verification for Digital individuals, reducing identity theft and Civic, uPort Identity fraud. Creation, buying, and selling of digital NFTs & Art Ethereum, OpenSea art using NFTs (Non-Fungible Tokens). Challenges & Future of Blockchain Challenge Description Solution Blockchains like Bitcoin have limitations in Solutions like sharding and Layer 2 Scalability the number of transactions they can scaling. process per second. Proof of Work-based blockchains are Energy Transition to Proof of Stake (e.g., energy-intensive, raising concerns about Consumption Ethereum 2.0). environmental impact. Regulatory Governments are still unsure how to Collaborative development of global Uncertainty regulate blockchain and cryptocurrencies. standards. Vulnerabilities in smart contracts can lead Security Improved auditing and contract to hacks or exploits (e.g., DAO hack on Concerns verification. Ethereum). Lack of communication between different Development of cross-chain solutions Interoperability blockchain networks. (e.g., Polkadot). Future Blockchain 3.0: New consensus mechanisms (like Proof of Authority) for better scalability. Trends: Interoperability Solutions: Cross-chain communication enabling multiple blockchains to work together. Decentralized Finance (DeFi): The continuous growth of DeFi platforms, enabling decentralized banking services. Tokenization of Assets: Expansion of tokenized assets from real estate to other sectors.

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