Multiple industries are evolving faster than ever with the help of innovative platforms and technologies. The banking sector is no exception to this. With blockchain-based platforms such as Ripple, banks can quickly process global asset transfers more securely. Blockchain technology is changing the way we manage global asset transfers.
What is blockchain technology?
When most people think of blockchain technology, they think of Bitcoin and other digital currencies. However, the blockchain has many more potential uses than just cryptocurrencies. For many people, the prospect of transferring money worldwide is a daunting one. Fees can be high, and the process can be slow and complicated. But what if there was a way to transfer global assets quickly and easily without having to worry about expensive fees or delays? Thanks to blockchain technology, that’s now possible.
Blockchain technology is a decentralized database that allows for secure, transparent, and immutable transactions. It maintains an ever-growing list of data records protected from tampering and amendment. Computers in a peer-to-peer network keep the database. Each computer in the distributed system maintains a copy of the ledger to avoid a single point of failure.
How blockchain works
To grasp how blockchain technology works, it’s crucial to comprehend blockchain. A blockchain is a constantly growing list of cryptocurrency transactions kept on the internet. It’s constantly evolving as new “finished” blocks are added. It is additionally used in other industries such as health care, governments, and asset transfer to name a few.
Individual transactions and blocks are the two types of records on every blockchain ledger. The first block is constructed using the block’s timestamp to generate a string known as a hash, which contains data concerning transactions that occurred within a specific time frame.
One can use the previous block’s hash to compute the hashes for the following blocks. However, before a new block adds to the chain, the system validates its validity by consensus, ensuring that most network nodes agree that the new block’s hash was correctly calculated. That ensures that all copies of the distributed ledger are in sync.
The challenges facing global asset transfers
Global asset transfers face several difficulties, including hefty costs, sluggish processing times, and a lack of transparency. Indeed, it is the last of these issues that prevent wide adoption. Many individuals and businesses are hesitant to transfer substantial amounts of money across borders due to a lack of faith in an unknown party.
Legacy systems make organizations slow to react to ever-changing investor requirements and increasing regulatory pressure. It is a time-consuming and complicated procedure today, with numerous intermediaries involved. Institutional issuance is a costly and time-consuming process that requires several parties.
The need for increased regulatory and compliance reporting has grown significantly due to the accelerating pace of financial innovation. Companies have historically relied on monthly or quarterly manual audits that are time-consuming and prone to human error, fraud, and manipulation. Furthermore, multinational corporations find it difficult to adhere to changing legislation in various jurisdictions.
The conventional approach to fund subscriptions and asset lifecycle management is based on complicated, manual, paper-based processes that involve a handful of intermediaries. Fractured fund administration can increase costs, high subscription fees, and poor investor experiences.
The settlement and clearing processes might take up to three business days from the transaction date, going through numerous intermediaries with separate systems. It causes delays in payment among stakeholders as well as cash flow difficulties.
How blockchain technology aids global asset transfer
Fortunately, a new asset class is on the rise to alter everything. Cryptocurrency enables users to make near-zero-cost fast international transfers owing to its connection with internet production capacity. Community members employ cryptocurrencies on trading platforms with their international counterparts rather than restricted by legacy banking systems.
The asset management industry may profit from distributed ledger technology (DLT), such as blockchain, which can change the world of finance. It can cut expenses while increasing operational efficiency and transparency and allowing for a variety of innovative financial investments. There are several methods for a blockchain to assist in the transparency and resilience of transaction data.
- Enables open collaboration: Blockchain is a system that combines everything. It includes the technology and processes of third-party providers and internal systems, revolving around a single source of truth for asset management activity. That makes it easier to add new partners because the blockchain manages all transactions.
- Aids in transparency: Because transactions on a blockchain are permanent, this provides accurate and unchangeable records for asset managers to utilize, ensuring the transactions. This allows asset managers to securely and fluidly share critical information such as asset history with relevant service providers and partners.
- Operational efficiency: The nodes must verify every block with a consensus reached by utilizing proof-of-work. As a result, it prevents incorrect data. Blockchain helps investment banking by automating back-office operations and regulatory compliance, resulting in faster transaction settlement times while improving transaction security and lowering fraud.
Developers build up decentralized organizations daily to assist with the global asset transfer transition. KwikTrust is one such example, intending to become the worldwide standard for managing and transferring assets in the digital world. It’s a next-generation e-validation system, as well as the headquarters of the SuperNFT.
The system uses a blockchain to store the files’ self-certification and third-party verification and connect to the originator’s identity. It creates an unalterable record of activity that can be minted into a SuperNFT to produce a transferable asset.
Ownership of non-fungible tokens also opens up new revenue streams for content creators. Simon Read believes that, “By linking the owner’s validated identity to the asset, people will be able to trust higher value assets to NFTs. This will open up the NFT market.”
Conclusion
Despite the numerous benefits that blockchain technology offers to the financial sector, it has been slow to catch on. One of the reasons for this is a lack of market understanding of the technology.
As a result, blockchain technology is yet to be embraced by the market. Although blockchain enables the three pillars of the financial market – transparency, speed, and security – future blockchain applications will undoubtedly emerge. This technology is here to stay.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.