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Chaining is a database technology that dates back to the 1980s—think of a chain of transactions like a physical chain, with links added one at a time. Just like a real chain, if you pull one of the previous links out, the whole chain fails. The ‘block’ refers to a block of transactions and a blockchain is therefore a database that you can only ever add to.
In essence, it is a tool for maintaining transparent and distributed ledgers that can verify transactions (including financial ones) with minimal third party involvement. Blockchain is distributed in the sense that the ledger is not held in a central location but rather is spread across a network of computers. It is transparent in the sense that every transaction is made available for all those in the network to see.
Blockchain’s claim to fame is that it solves the problem of trust. If person A wants to send money to person B, how do we know that person A has the necessary funds? Typically, we would need a third party, say a bank, to verify the exchange. But the advantage of blockchain is that it stores an indelible ledger of all previous transactions in a string of ‘blocks’, meaning we know who owns what and who can send what to whom. The Economist describes it as ‘the great chain of being sure about things’.
Blockchain itself will probably not alter fundamentally the way in which international trade is conducted, but it will speed the documentary side of things up and make the process more efficient.
Take a simple ‘free on board’ sale contract of oil under
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Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.
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