What is Blockchain technology?
Basically, a blockchain is essentially just some kind of distributed ledger – decentralized, shared among a network of computers. Blockchains are recognized primarily for the ability to serve as the backing of cryptocurrency systems by providing a safe and secure record of transactions. Blockchains, however, are not limited to this cryptocurrency use and can be used in any industry to make data immutable-this means that once made, it can’t be altered.
If the blocks can’t be altered, then the point at which a user or programmer inputs data will be the sole trust, this reduces the third parties requiring trust, such as auditors or other people that increase costs and are prone to error.
The Bitcoin blockchain collates information from transactions and writes that information to a 4MB-sized file known as a block; each blockchain has the block size different. Once the block is filled with data, then the block’s data is passed through a cryptographic hash, which creates a hexadecimal number known as the block header hash.
This hash then enters the next block header and gets encrypted along with any other information that is to be found within that block’s header, thereby creating a chain of blocks, hence the name “blockchain.”
A blockchain can simply spread the data of a database among several nodes of a network—computers or devices running software for the blockchain—at different locations. This results in redundancy and data integrity. Suppose that someone attempts to modify some record at one node. Other nodes would prevent it by comparing block hashes. Thus, no single node can alter any information within the chain.
Because of this distribution and the encrypted proof that work was done—the blockchain data, such as transaction history, becomes irreversible Such a record can be some form of list of transactions, but private blockchains could also hold so many other information, like legal contracts, state identifications, or even a company’s inventory.
Most blockchains wouldn’t “store” these items directly; they would likely be sent through a hashing algorithm and represented on the blockchain by a token.
Blockchain technology is significantly disrupting the traditional models in investment banking through decentralized, transparent, and efficient approaches to alternative fundraising channels of the conventional type. Here’s how it shapes the landscape
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ICOs (Initial coins offerings) and STOs (Security token offerings)ICOs: Because of blockchain, startups and projects can collect funds, they issue tokens to investors in return for funding, thus bypassing intermediate financial entities, such as banks, saving costs and allowing access to investors across the globe.
STOs, or security token offerings, are a regulated substitute for ICOs, in which, for example, tokens are again backed by real-world assets such as stocks, bonds, or real estate. It thereby facilitates fractional ownership, liquidity, and easier trading than usual equity fundraising.
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DeFi (Decentralized finance) and Smart ContractsDeFi uses blockchain in creating distributed systems for lending and borrowing among users, cutting out the financial intermediaries, smart contracts facilitate these processes, thereby cutting down on the time, cost of administration, and the likelihood of errors.Smart contracts further allow for such structures as conditional fundraising, IEOs, for instance, where only upon certain conditions, funds can be transferred, thus ensuring higher levels of transparency and trust than investment banks.
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Tokenization of AssetsThe blockchain makes it possible to tokenize real and financial assets-money, stocks, real estate or commodities. Investment banks are currently exploring tokenized securities as a means to enable fractional ownership, allowing for the entrance of classes of assets previously not accessible to small investors to those of large institutional or high net worth investors.Tokenized assets promote liquidity in the private markets through the ability of assets to trade in real-time on blockchain-based exchanges.
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Disintermediation and Cost EfficiencyA traditional model is typically very intermediated, brokers, underwriters, and legal teams increasingly make the whole process expensive, in contrast, blockchain is a decentralized system, where there is direct contact between investors and companies, this will eliminate middlemen, saves on transaction costs and time, and aids in faster fundraising processes.
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Reducing Barriers for Early-Stage VenturesBlockchain enables startups to tap capital from a worldwide pool of investors without some of the traditional barriers that investment banks set. Early-stage ventures, thus, can raise funds directly with a public audience through blockchain platforms rather than depending on venture capitalists or banks.
CONCLUSION:
These models of fundraising transform by decentralizing access to capital, increasing transparency, cost reduction, and investments to more diversified pools of investors. Even though the traditional banks are still significant, blockchain-based innovations, including tokenization, smart contracts, and decentralized finance, are forcing the financial sector toward an increasingly inclusive and efficient future.