Last Updated: 21 Oct 2020 | 5 min read
If you don’t know much about blockchain, then simply look at it as a distributed data that maintains a shared list of records. These records are the blocks, and every encrypted block of code consists of the history of every block that appeared before it with timestamped transaction data. By connecting those blocks, you get a blockchain. Here you will learn how it can change the world of finance.
The worldwide financial system moves trillions of dollars every day and serves billions of individuals. However, it’s a system riddled with problems. It comes with added costs via fees and delays that further create friction through superfluous and arduous paperwork. As a result, fraud and crime remain intact. According to experts, almost 45% of all financial intermediaries, including stock exchanges, payment networks, and money transfer services have to endure economic crimes every year. This number is around 17% for the entire economy and only 20% and 27% for technology sectors and professional services. Understandably, regulatory expenses keep on escalating, and they remain one of the most crucial concerns for bankers. All these things contribute to the cost that the consumers have to put up with.
From the information provided above, you may feel compelled to know the reason behind the inefficiency of the financial system. Well, the most significant problem is that it’s antiquated. Today, the financial world is nothing more than a hodge-podge of industrial technologies and paper-based processes covered in so-called “digital” wrapping paper. Additionally, the centralized nature of the financial system makes it resistant to change and vulnerable to system failures and attacks. Finally, it’s somewhat exclusionary. It denies access to the most fundamental financial tools to billions of people. Bankers always try to dodge the creative destruction events that are messy but critical to economic progress and vitality. However, blockchain development and consulting agencies came up with a solution.
Now, blockchain development and consulting have been around for some time already. Why are financial institutions not accepting it? Does it have something to do with the blockchain development cost? After all, almost everything boils down to money, in the end. In this instance, however, embracing blockchain wholeheartedly, can lead to the following disruptions.
(1) Reduction in cross-border transaction fees: Indeed, it’s not as simple a matter as the blockchain development cost. By implementing it, there will be a massive reduction in the expenses of cross-border transaction fees. It will have significant political and institutional implications for the un-banked populations in unstable economies.
(2) Identity management: Identity management happens to be one of the most compelling use cases for blockchain in the world of finance. It will be challenging for banking institutions to know the requirements of their customers because things will become more stringent. After all, regulators will try to combat money laundering and other illegal financial activities. The underlying protocols of blockchain support more robust identity management by both consumers and the financial institutions they rely on.
(3) Smart contracts: Smart contracts enforced by blockchain technology will streamline the settlement and titling processes for financial transactions that incorporate the exchanging of goods and services.
(4) Scalability: Despite being promising, blockchain development Services often lack scalability. At this moment, banking institutions won’t be able to conduct more than seven transactions per second if they utilize blockchain. It’s the most significant risk factor and barrier in launching blockchain protocols in the financial technology sector.
As you can see, blockchain development services accompany specific disruptive situations. Nevertheless, there are advantages to employing blockchain in the financial field. Here are a few of them.
(1) Faster clearing and settlement: With blockchain, it will be easier for the financial industry to clear and settle transactions. It means that every bank will be able to lend money faster than before. It can also reduce the amount of human labour associated with transactions.
(2) Identity verification: By implementing blockchain, banking institutions will find it easier to identify clients based on permissions set up using this technology. It will be easier and more cost-efficient for individuals to do transactions within one network and a financial institution once they start using blockchain.
(3) Additional benefits: There are a few extra benefits of blockchain. For instance, it augments transparency, security, and cost savings. The savings in terms of identity management can be immense.
Blockchain will reduce delays, conflicts, and confusion in multiple aspects of financial services. Furthermore, blockchain represents a new form of trustworthiness. The Australian Securities Exchange is already using a blockchain-based system to handle its post-trade clearing and settlements systems. Other financial institutions, such as JP Morgan Chase, Goldman Sachs, and Bank of America actively involved themselves in blockchain technology for their operational activities. It can transmute the financial services sector by reducing potential costs and improving labour savings.
Almost 24% of financial executives from all over the world are conversant with blockchain technology. About 77% of financial technology industries will adopt blockchain in their production system by 2020. Concisely, blockchain is nothing less than a boon for the financial services sector as it seeks to fill the gap that exists between regulators, financial institutions, and consumers. It even brings a caveat of an initial upfront investment with itself that will be useful in bringing these agencies on a common platform where every player operates in tandem with each other.