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Blockchain has been somewhat of a star player in the finance sector, bringing in rave reviews. Great expectations have been placed on this evolution of distributed ledger technology (DLT), which has been greatly discussed and debated.
It is a well-known fact that blockchain tech makes for easy and quick transactions, and therefore it’s the underlying engine of essentially all cryptocurrencies, but it is more than just that. It isn’t just transforming payments, but mainstream banking and financial services also increasingly rely more and more on this technology.
Ever since the changes it underwent in 2017, it has captured the attention of media, investors, entrepreneurs and executives. There are many blockchain upgrades that are always taking place, which shows that this technology is here to stay and in constant progress right before our very eyes.
What Is Blockchain?
Most people barely know the surface of the world of blockchain. Some perhaps don’t even know that this technology exists. So what is blockchain?
Blockchain technology enables a trusted and reliable transfer of crypto assets (or any other tradable asset for that matter) between trading partners and records each transaction in a virtual ledger; each record is called a “block.”
If so, blockchain is a secure ledger that carries a list of transactions that have taken place. The two main advantages of this technology are the fact that it is distributed and immutable.
Blockchain technology is distributed, which means that multiple copies of the ledger are available. This may be publicly distributed, and is published and copied in multiple places, while any new transaction is broadcast to the entire network. This ledger cannot be manipulated or controlled, as any changes in an individual record will not have any effect on the actual transactions. It is extremely hard to alter or delete records, making the network practically immutable.
So what effect does it have on financial and banking institutions? While many are not aware of the technical details, it is important to know what influence it has on the economic side of the world.
You can read more extensively what blockchain technology is here.
Cross Border Transactions via Blockchain Platforms
After the digital revolution, even though the banking sector did transform to a large extent, it still had no solution for cross border payments. The architecture in use involves a number of intermediaries and provides low exchange rates in addition to extra charges. This is due to the use of secured private databases with crucial information.
Blockchain technology enables institutions in the finance sector to link to each other. With banks already using blockchains for remittances and to minimize exposure to cryptocurrency, blockchain-based transfers allow banks to save both time and money while also providing consumers with various benefits, like no third party charges and excellent exchange rates.
This exchange between banks is now based on the proof-of-trust model with smart contracts that could facilitate quick transfers. This has already been tried out by Singapore’s Central Bank and the Bank of Canada, which lays the foundation of cross border payments using blockchain technology.
Blockchain technology gave rise to something seemingly impossible 20 years ago: digital assets. Gone are the times when anything digital could be copied. virtual currency did something new, and uncopyable digital code then came into existence. With its ability to prevent double spending and counterfeiting, cryptocurrency gained new momentum.
Now, even with large organizations looking to develop into digital assets, it is a wide network with a number of investors. With several inexpensive methods of transfer and a lot of services to choose from, digital assets have become an important constituent of portfolios for many people. With blockchain technology taking steps to reduce fraud and bring in financial inclusion, digital assets might very well be the future of finance.
Easier Regulatory Reporting and Compliance with Blockchain
Blcokchain served as a fully-accessible and extremely transparent system of record, allowing regulators to check compliance with ease. Since they can be coded to authorize transactions that comply reporting, they can adhere to anti money laundering regulations with considerable ease.
In addition, there are new regulations demanding that know your customer (KYC) and other requirements be fulfilled, which means that blockchain will meet all these regulatory requirements.
Fast Clearing and Settlements
With most transactions between financial institutions requiring at least three working days, blockchain technology allows the entire trade lifecycle – execution, clearing, and settlement – to take place in the trade stage. The crypto keys and digital ownership that they hold control over result in lower post-trade latency and a lower risk for both parties involved. This ensures that all payments of the corresponding products and services are cleared as soon as possible.
Blockchain Reduces Fraud
Blockchain technology is resistant to hacking, DDoS, and other cyber attacks that commonly result in fraud. In addition, it allows banks to identify malicious individuals through blockchain-based IDs. This considerably reduces the cost of doing business and saves a lot of money in the long run for both banks as well as investors.
This also allows for a decrease in financial crime, leading to more economic stability, which is certainly good for everyone. Blockchain-based security measures are quite effective for this purpose. In addition, manipulation must be done on multiple records around the world, which is an almost impossible task.
This ensures that the records are not tampered, rendering them immune to cyber attacks. Even in the case of an attack, it is easy to identify and revert, thereby making the recovery process smoother.
Accounting and Auditing with Blockchain
Since blockchain databases are a record of their own transaction history, they have context. This is why they act as a self-contained system that provides easy auditing and accounting with complete transparency involved.
Since everything is publicly available, data cannot be misplaced or otherwise hidden, leading to complete honesty and trustworthiness. This holds profound implications for accounting and auditing for many organizations, and it makes the process easier and more straightforward for both parties involved. It also prevents any malpractice for the purpose of sheer profit that may prove to be unethical.
More Financial Inclusion
Low costs and startup cultures allow blockchain technology to compete at a global scale, which truly defines financial inclusion. It allows those who avoid bank accounts due to high fees and minimum balance requirements to follow their ambitions. They do not require physical assets; just a proof of trust, which is what the entire ledger works on, is sufficient. Blockchain-based digital IDs can go a long way in validating one’s identity, and many problems regarding a lack of access can be solved using blockchain technology along with a regular mobile device.
In addition, it provides financial services in areas without access to proper banking institutions, which is a boon for more than a billion people across the world. This ensures that customers are not restricted by their geographic location and ensures that financial inclusion is not far off. With complete transparency and honesty, blockchain technology can transform the economic landscape of many nations.
Details of Transactions on the Blockchain Network
Banks and financial bodies can make use of blockchain technology for more than money transfers. They can keep great track of transactions, which may be useful in many scenarios. Ledgers are hard to tamper with, especially when there are so many copies. This ensures that the details of ledgers are maintained, making them a trustworthy source of information.
In addition, smart contracts allow the automation of many activities that would otherwise serve as an extra cost, since they can continuously monitor when buyers make payments and when sellers deliver and can handle a huge variety of problems. They also commit minimal blunders if programmed right. Being completely indifferent and ultimately fair, they have to comply to the strictest of rules and make sure that they always have updated ledgers with every detail available at all times.
E-Games and Sports Betting
Betting is a crucial part of the finance industry in many regions, and blockchain is bringing about big changes in this field. It scans for the best odds, maintains records, and utilizes the power of smart contracts to give you the best bet for your money. This makes blockchain tech invaluable in the betting industry for betters everywhere.
Automatic Update of the Blockchain Network
Since everyone has the same version of the virtual ledger, it removes the need to constantly check if the ledger is updated. It also ensures automatic updating and makes sure that no malpractice is done. The sheer volume of ledgers stored all around the world is an assurance that nothing could possibly manipulate the values.
It is no secret that blockchain technology is bringing about significant changes to many industries, and banking and finance are no different. With a number of developments being made in blockchain technology every day, we can expect to see more of such revolutions over time.
They do not merely change slight areas, but essentially transform the way we banks operate. With cross border payments and concepts that form a foundation for clients, like privacy, transparency, and trust, blockchain could very well be the pillars of finance. It has been making waves in finance and banking for sure, and this change is certainly constant.