Imagine a digital ledger shared by hundreds of entities, each with its own copy. Any new information added to it appears for everyone to see. More importantly, changing old information is not easy, because any change must be consistent with the other copies.

It may seem complicated at first, but this is simply the essence of blockchain.

This technology is no longer limited to cryptocurrency. It is beginning to make its way into areas such as payments, trade, and transaction verification, and some companies and institutions are already using it. So how does it work? And why might we see more of it in the financial sector in the coming years?

Simply put, what is blockchain?

Blockchain is a way of storing information and recording transactions in a shared digital ledger.

Instead of having a single ledger held by one person or company, copies of the ledger are stored on several devices across the network.

When a new transaction takes place, such as transferring money from one person to another, the network verifies that it is valid, then records it along with a group of other transactions in a block.

That block is then linked to the one before it, and another block follows.

This forms a chain of:

Block ← Block ← Block ← Block

That is where the name Blockchain comes from: a "chain of blocks."

So, why can't anyone change the data?

Because transactions are not stored in just one place, and each block is linked to the one before it in a way that makes changing an old record difficult and exposes any attempt to tamper with it.

But that does not mean blockchain is impossible to hack or that every type works the same way. The basic idea is that the network's design makes the ledger harder to alter than a traditional database controlled by a single party.

And what does it have to do with cryptocurrency?

This is where people began associating Blockchain with Bitcoin.

When Bitcoin emerged, one of its core ideas was to use blockchain to record currency transfers without needing a bank to record every transaction.

But blockchain itself is not a currency.

For example:

Bitcoin = a digital currency

Blockchain = the technology that can be used to record its transactions

That is when people began to realize the technology could be used for things other than currencies.

What can it do besides handle currencies?

Imagine a business transaction between a company in Saudi Arabia and a company in another country.

There are contracts, invoices, shipping, banks, payments, and several parties who need to know what happened and when.

Instead of each party keeping a separate record and trying to reconcile its information with the others, Blockchain can be used as a shared ledger that allows authorized parties to track information and transactions.

This is one reason banks and financial institutions have taken an interest in the technology.

In Saudi Arabia, the idea did not remain a theoretical experiment. In 2020, the Saudi Central Bank used Blockchain technology for liquidity transfers in the banking sector. Saudi Arabia and the UAE also took part in Aber, a project testing the use of distributed ledger technology for payments between the two countries.

So, will blockchain eliminate banks?

Not necessarily.

And here's an idea worth considering:

Blockchain is not a replacement for banks; it may become one of the technologies they use.

It could work behind the scenes to record payments, settle transactions, track assets, or even create digital assets that represent real-world assets.

Customers may not even know that Blockchain is working behind the transaction they made.

That may be the most exciting thing about it.

Just as we use the internet for everything today without thinking about how data moves between servers, Blockchain may eventually become part of the financial infrastructure operating behind the screen.

And then the question will not be: Are we using Blockchain?

But rather:

How much of our money and transactions could be running on it without us even noticing?