Blockchain and transfers

Cryptocurrencies operate on blockchain technology, or blockchain. This is a method of organising and storing data. They are collected in blocks that connect to each other and together form a virtual chain. This chain constitutes a database, which, however, differs from traditional databases in many respects.

First of all, the data that the blockchain collects is irreversible. They cannot therefore be deleted or modified. Here, it protects users against fraud; on the other hand, in the event of a mistakenly executed transfer, it can no longer be undone.

Furthermore, the transaction data are not stored on one central server. They are located in a network consisting of thousands of computers. The data is therefore distributed and decentralised. This makes it possible for a user to access it at any time. Secondly, there is no danger of hardware failure or cyber attack - the data is safe.

It is also important to bear in mind that the system is built in such a way that it provides users with transparency and transparency of records. This guarantees the anonymity of transactions and the confidentiality of transactions. There are also no intermediaries and the user is protected against double payment. This is because resources cannot be spent twice for the same purpose.

At the same time, this means that transfers made via blockchain are not supervised by any central institutions. The operation of blockchains is completely independent of them. We are talking about banks or national governments. This also makes cryptocurrencies work independently of currency fluctuations or inflation.

What does this look like in practice? When a user enters into a transaction on the network, the information about the transaction goes to the blockchain, specifically to the block. Transactions such as trading, buying or selling currencies, including digital currencies, can be transmitted in this way. One block contains information about a certain number of transactions. When a limit is reached, another block is created, and then another - thus forming a chain. The data placed in the blocks are encoded using cryptography and mathematical algorithms. They can be viewed by all users of the network. Are you interested in modern technology? Perhaps online education will prove to be the solution for you. It gives you the chance to deepen your knowledge. The Webinar Universe platform offers a number of online courses on a range of topics - you are sure to find something to suit you.

Cryptocurrencies and banks

The approach of financial institutions to cryptocurrencies varies. Not long ago, it was rumoured that English banks were blocking cryptocurrency transactions. In many of them, it is also impossible to open an account if the client is involved in trading virtual currencies. This is primarily due to the lack of regulations that govern cryptocurrency trading. Without this, financial institutions are guided by the Anti-Money Laundering Act and refuse to handle transactions of this kind on the basis of this law.

Often, however, the blocking of transactions affects entrepreneurs who are in the cryptocurrency business and run, for example, an exchange office. On the other hand, however, more and more banks are recognising the behaviour of customers who invest in cryptocurrencies and see profit in this niche. It is also worth noting that many US exchange companies hold part of their reserves in bitcoin, the most popular cryptocurrency of all time. Trading in stablecoins, a virtual currency based on fiat currency, usually the US dollar, is also on the rise.

The attitude of banks towards cryptocurrencies depends largely on regulation. In the United States, the Office of the Comptroller of the Currency published an interpretation related to virtual currency in 2020. Under it, banks can provide custodial services for cryptocurrencies and hold reserves for institutional clients that issue stablecoins. Another interpretation, which came in 2021, allowed banks to use stablecoins in payment operations.

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Technology in banking

In England, HSBC Holdings is the first financial institution to implement a commercial solution based on blockchain technology. They are intended to facilitate the transmission of physical documents with electronic equivalents, sent through the iPKO online service.

These documents, thanks to blockchain, have confirmation of authenticity, integrity, i.e. the certainty of no changes to the content. The service, called Persistent Carrier, uses blockchain technology to, among other things, search the web to confirm the characteristics of a given document, i.e. its authenticity, among other things.

The number of applications of blockchain technology in the banking sector is constantly growing. One of the most popular is the use of blockchain for international payments, as it significantly reduces the time of operations and the costs. The transaction takes place without intermediaries and the processing time can be reduced from several days to several minutes.

Legal transactions?

In England, transactions carried out with cryptocurrencies, trading in them, are completely legal operations from the point of view of tax law. The same is true for digging cryptocurrencies.

According to the AML/CFT Act, virtual currencies are classified as property values. This means that they are subject to the same rules as other funds deposited in bank accounts or traded.

However, it must be remembered that the profit from virtual currencies must be accounted for at the end of the tax year. It is therefore necessary to pay tax and file the relevant PIT return. However, cryptocurrencies are only taxable once they are exchanged for real money.

Cryptocurrencies and blockchain technology have been popular for years. They are used by traders, investors, but the technology is increasingly penetrating the world of banking - and beyond. Blockchain has many advantages; it allows transactions to be carried out faster and cheaper, and it guarantees security and the immutability of data, which helps avoid fraud.