So, how does this shared distributed ledger differ from any other form of managing transactions? Most forms of recording, validating, tracking and finalizing transactions within an organization’s business network happen through a centralized process. Asset movements are tracked, for example, within the company – as well as any outside financial institutions – using a central authority, such as a back-office department or third-party clearinghouse. As we’ve seen throughout history, these centralized systems are susceptible to manipulation and fraud. These central departments or authorities aren’t always efficient either, and typically add substantial overhead costs to each transaction.
With blockchain, there is no central authority, so those inefficiencies and costs related to recording, validating, settling and managing transactions are virtually eliminated. The ownership of assets is tracked and certified through a shared network of many institutions. Any transactions are verified on an open and shared ledger for all (authorized) parties to see, cutting down on the possibility of fraud or manipulation. Without the need for a central authority, back-office departments or outside clearinghouses are no longer needed, dramatically decreasing overhead while increasing transparency and security.