Since its ideation over 30 years ago, blockchain’s use by the private and public sector has grown exponentially.
In August 2025, Bloomberg reported that the United States had put its
gross domestic product (GDP) data on blockchain, marking yet
another foray by President Trump into the world of crypto. Google Cloud, meanwhile, is said to be developing its own universal
blockchain for institutions, to rival Stripe and Circle. And, by 2026, Japan Post Bank aims to launch a
tokenised yen.
In this instalment of Finextra’s Explainer series, we look at the rise of blockchain technology, how it works, and what it means for the future of financial services.
What is the history of blockchain?
The principles of blockchain technology were first outlined in a 1991 paper by American researchers Stuart Haber and Wakefield Scott Stornetta, who recognised its potential to timestamp digital documents so that they could not be backdated.
Though the paper, “How to Timestamp a Digital Document”, laid the groundwork for blockchain’s development, the technology itself was not widely adopted until Satoshi Nakamoto's 2008 Bitcoin whitepaper provided the first real-world application.
Today, blockchain-powered cryptocurrencies, like Bitcoin, have exploded in investor popularity, with Forbes placing the global crypto market cap at
$3.89 trillion. George Osborn, ex-chancellor of the UK (now holding an advisory role at crypto exchange firm, Coinbase) recently
urged the government to capitalise on blockchain’s next market surge, or be “left behind.”
How does blockchain work?
As the name suggests, a blockchain is comprised of a chain of ‘blocks’, with each unit containing information, like digital securities, transaction records, account balances, or other data pertaining to asset provenance and identity.
Blockchains essentially function as distributed ledgers, which are open to anyone. Their defining property, however, is that once data has been recorded inside the blocks, it becomes nigh-on impossible to change. To understand how this is achieved, we must
first consider the makeup of a block.
Each block contains three key elements:
- The data being stored
- The hash of the block itself (which is a unique, fixed-length digital fingerprint, created from the block's data using a cryptographic hash function) and
- The hash of the previous block
The data being stored within these blocks depends on the type blockchain in question. The Bitcoin blockchain, for example, stores the details of a transaction, such as the identity of the sender and receiver, as well as the value of the coins being transferred.
The unique hash number, meanwhile, serves to identify a specific block and its contents – like a barcode. Once a block is created, its hash is rendered. If data inside a block is altered or tampered with, so too is its hash.
The third element of a block is the hash of the previous block in the chain. Once again, if the previous block is tampered with in any way, these changes will necessarily be reflected in subsequent blocks. This basic principle is what makes blockchain
technology so secure – and so useful to payments providers.
How secure is blockchain?
Given the speed of modern computers, the hash system is not invulnerable to cyberattack.
To break open a blockchain, hackers must use powerful computers to calculate hundreds of thousands of hashes per second. Essentially, they tamper with a block and recalculate the hashes of every other block in the chain, instantaneously. This validates the
blockchain and gives the cybercriminal access to the data.
In order to reduce this vulnerability, many blockchain systems now adopt a mechanism known as proof-of-work (PoW), which secures the network by requiring participants (known as miners) to expend significant computational power to solve complex cryptographic
puzzles. This essentially slows down the creation of new blocks. In the case of Bitcoin, for example, the PoW mechanism ensures it takes around 10 minutes to add a new block to the chain. This makes tampering with a Bitcoin block extremely challenging, because
PoW processes would have to be conducted for all remaining blocks.
Other security mechanisms for cryptocurrencies do exist, such as proof-of-stake (PoS), which uses randomly selected validators to confirm transactions and create new blocks.
The final element of blockchain’s security comes from the fact that it is
distributed. Rather than relying on a single, centralised entity to manage the system – as is the case with fiat currencies – blockchains use peer-to-peer networks. When an individual joins the network, they receive a full copy of the blockchain. The 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) verifies that everything is in order. So, when
a new block is created, the block is sent to everyone on the network, and each node verifies the block to ensure it has not been tampered with. If all checks out, each node adds the block to their own blockchain. This is the process of consensus, which ensures
a high level of security.
To summarise, the robustness of blockchain’s security comes from its function as a distributed ledger, the hash system, as well as the PoW mechanism. As such, hacking a blockchain system would necessitate instantly updating the hash numbers of every block
in the chain, re-doing the PoW, and seizing control of over 50% of the peer-to-peer consensus network.
The downside to these protection mechanisms, however, is the user anonymity. This is why some cryptocurrencies have been associated with criminal activity, black market transactions and money laundering. Russia, for instance, has effectively
circumvented Nato’s sanctions with Bitcoin and has leaned on other cryptocurrencies to
prolong its oil trade flows with China and India.
What are blockchain’s financial use cases?
Despite the reservations and challenges that surround blockchain technology, it is already being invested in – and utilised – by a number of large financial institutions.
Payments and settlements are a key application area, with blockchain enabling faster and cheaper cross-border payments by eliminating intermediaries and unlocking real-time, 24/7 settlement. An example of this is
JPMorgan’s JPM Coin – a stablecoin designed for wholesale payments; enabling institutional clients to transfer tokenised dollars on a blockchain network, for instant settlements between accounts.
Another popular application is asset tokenisation, whereby real-world assets – such as art, stocks, commodities, and even
natural capital – are turned into digital tokens. This enables fractional ownership and, in the case of natural capital, serves as a sustainable security.
Smart contracts are a key use case too, especially in the world of trade and supply chain finance. These simple programmes can automate payments when certain conditions are met – thus streamlining cumbersome, paper-based processes like letters of credit
and bills of lading. This ensures all parties have access to a single source of truth – reducing fraud, reconciliation, and administrative costs. At the end of 2024, Brazil’s central bank announced that it would expand its digital currency pilot to
trade finance, having collaborated with a group of banks and technology companies to automate the settlement of agricultural commodity trades.
Last but not least are central bank digital currencies (CBDCs). This form of digital cash, issued by central banks, is unlike cryptocurrency in that it is backed by governments – and aims to provide a stable, digital version of fiat. CBDCs could unlock faster
retail payments, help to enforce monetary policy, and reduce our reliance on physical cash. Already, China has created a
digital Yuan (e-CNY), while the US and the EU are exploring their own CBDCs.
The future of blockchain
If these use cases are to be realised, regulators will have to ensure the right balance is struck between clarity and end-user protections. Integration with legacy systems will also have to be managed closely.
This is no mean feat. In the next 5-10 years, blockchain will become part of the global financial infrastructure, albeit behind the scenes. Hybrid models will dominate at first, and incumbent banks will have to increasingly collaborate with fintechs to stay
competitive and deliver innovative, blockchain-based products to the market.