Since its conception over three decades ago, the application of blockchain technology by both private businesses and public institutions has seen tremendous growth.
In August of 2025, reports from Bloomberg indicated that the United States government had implemented blockchain for its gross domestic product (GDP) data. This development represented another initiative by President Trump within the cryptocurrency domain. Concurrently, Google Cloud is reportedly developing its own universal blockchain platform for institutions, aiming to compete with existing services like Stripe and Circle. Moreover, Japan Post Bank has plans to introduce a digital yen by 2026.
This edition of Finextra’s explainer series explores the expansion of blockchain technology, how it operates, and its potential influence on the future of financial services.
The History of Blockchain Technology
The fundamental concepts of blockchain technology were initially presented in a research paper in 1991 by American researchers Stuart Haber and Wakefield Scott Stornetta. Their work highlighted the technology’s ability to provide digital documents with timestamps that were unalterable.
Although the study, titled “How to Timestamp a Digital Document,” established the foundation for blockchain’s development, its widespread adoption was limited until the release of Satoshi Nakamoto’s Bitcoin whitepaper in 2008, which showcased the technology’s first practical application.
Presently, cryptocurrencies leveraging blockchain, such as Bitcoin, have witnessed a surge in investor interest. Forbes estimates the global cryptocurrency market capitalization to be around $3.89 trillion. George Osborn, former UK Chancellor of the Exchequer (currently an advisor at the crypto exchange Coinbase), recently advised the government to take advantage of blockchain’s anticipated market growth or risk falling behind.
Understanding Blockchain’s Functionality
As its name implies, a blockchain is essentially a linked collection of ‘blocks.’ Each block encompasses specific information, ranging from digital securities and transaction logs to account balances and asset provenance details.
Blockchains operate as decentralized public ledgers, available for viewing by anyone. A core characteristic is the inherent difficulty in altering data once it is recorded within a block. To better comprehend this security, it’s vital to explore the components of an individual block.
Every block is made up of three critical elements:
- The specific data being stored.
- The block’s individual hash (a unique, fixed-size digital signature produced from the block’s data using a cryptographic hash function).
- The hash of the preceding block.
The data contained within these blocks varies depending on the specific blockchain. The Bitcoin blockchain, for example, includes transaction details such as the sender’s and recipient’s identity, and the value of the coins transferred.
The unique hash functions as an identifier for each block and its content, like a barcode. Once a block is created, its hash is generated. If the data within a block is modified or corrupted, the hash will consequently change.
The third key element is the hash of the previous block. Alterations to the previous block invariably affect subsequent blocks. This fundamental concept contributes to the security and broad usability of blockchain technology, especially within the payments industry.
The Security of Blockchain Technology
Although robust, the hash system is not fully immune to cyber threats due to the computational speed of contemporary computers.
To penetrate a blockchain, attackers require significant computational power to generate a substantial number of hashes per second. This requires altering a block and recalculating the hashes of all subsequent blocks almost simultaneously. If successful, the attacker can validate the compromised blockchain, providing access to the data.
To mitigate such risks, many blockchain systems incorporate a ‘proof-of-work’ (PoW) mechanism. This system bolsters network security by demanding considerable computational resources from participants (known as miners) to solve complex cryptographic puzzles. This, in effect, slows down the creation of new blocks. For example, the Bitcoin PoW system ensures that adding a new block takes approximately 10 minutes, making unauthorized changes highly challenging as PoW would need to be performed on all subsequent blocks.
Alternate security mechanisms also exist, such as proof-of-stake (PoS), which utilizes randomly selected validators to confirm transactions and generate new blocks.
A further layer of security is derived from blockchain’s distributed nature. Instead of depending on a singular, centralized authority, like conventional currencies, blockchains employ peer-to-peer networks. Each new network participant receives a complete copy of the blockchain, verified by a node (a computer or device connected to a blockchain network which runs the blockchain’s software and performs critical functions like validating transactions, maintaining ledger copies, and enforcing network rules) to ensure data integrity. When a new block is created, it’s broadcast to the entire network, where each node verifies its authenticity. If no tampering is detected, each node integrates the new block into its version of the blockchain. This consensus process promotes heightened security.
In summary, blockchain’s robustness stems from its structure as a distributed ledger, the hash system, and the PoW (or alternative) mechanisms. Successfully hacking a blockchain would necessitate simultaneously updating all block hashes, redoing the PoW, and gaining control of a majority (over 50%) of the peer-to-peer consensus network.
A potential disadvantage of these protection mechanisms is the anonymity they offer. This has led to associations between some cryptocurrencies and illicit activities like black market transactions and money laundering. For example, Russia has reportedly bypassed NATO sanctions utilizing Bitcoin and used other cryptocurrencies to sustain its oil trade with China and India.
Financial Use Cases for Blockchain
Despite any perceived drawbacks and ongoing challenges, several significant financial institutions are already investing in and actively utilizing blockchain technology.
Payments and settlements are prime application areas. Blockchain enables faster and more affordable cross-border transactions by removing intermediaries and enabling real-time, 24/7 settlements. A pertinent example is JPMorgan’s JPM Coin, a stablecoin designed for large-scale payments that permits institutional clients to transfer tokenized dollars on a blockchain for near-instantaneous settlements between accounts.
Another significant application is asset tokenization, which involves transforming real-world assets, such as art, stocks, commodities, and even natural capital, into digital tokens. This enables fractional ownership and, in the case of natural capital, functions as a sustainable security instrument.
Smart contracts also present a notable use case, particularly in trade and supply chain finance. These simple programs can automate payments upon fulfillment of specific conditions, streamlining cumbersome, paper-intensive processes such as letters of credit and bills of lading. All parties gain access to a single, verifiable source of truth, reducing fraud, streamlining reconciliation, and lowering administrative overhead. In late 2024, Brazil’s central bank announced an expansion of its digital currency pilot program into trade finance, collaborating with banks and tech companies to automate settlement of agricultural commodity trades.
Finally, central bank digital currencies (CBDCs) offer a distinct use case. These digital forms of currency, issued and backed by governments, differ from cryptocurrencies by offering a stable, digital equivalent of fiat money. CBDCs have the potential to accelerate retail payments, support monetary policy implementation, and decrease reliance on physical cash. China has already introduced a digital Yuan (e-CNY), while the US and EU are exploring their own CBDCs.
The Future of Blockchain Technology
Realizing these potential applications requires regulators to carefully balance clarity with consumer protection. Effective integration with existing systems will also be critical.
This presents a significant challenge. Over the next 5-10 years, blockchain is expected to gradually integrate into the global financial infrastructure, operating mostly in the background. Hybrid models are likely to be dominant initially, and established banks will need to collaborate more closely with fintech companies to maintain competitiveness and introduce innovative, blockchain-based products to the market.