Blockchain technology is likely to be a key source of future financial market innovation. It allows the creation of immutable records of transactions accessible by all participants in a network. A blockchain database is made up of a number of blocks “chained” together through a reference in each block to the previous block. Each block records one or more transactions, which are essentially changes in the listed owner of assets. New blocks are added to the existing chain through a consensus mechanism in which members of the blockchain network confirm transactions as valid.
While all are in the early stages of development, there are many promising applications of blockchain technology in financial markets. This paper seeks to give the reader an overview of what the technology is, how it works, and some potential applications for and challenges posed by blockchain technology.