The role of blockchain in finance is becoming more apparent and needed. The sector as a whole is gaining many advantages from using blockchain day to day. Here we will talk about how blockchain will change finance on a wider scale.
Banks have been testing blockchain technology for some time now. 2018 has seen discussion move beyond the initial excitement of ‘blockchain will fix everything’ to a clearer and more considered view of its most appropriate use cases.
Blockchain has the potential to provide a universal distributed system that can be used by several retail banks to drive efficiency and bring systems together, allowing improved quality of service and opening up options for new products and services, according to GlobalData.
Quicker transaction times
Blockchain offers advantages over conventional banking, such as quicker transactions. Conventional ways of banking are known to consume a lot of time as third parties are always needed. However, blockchain can do in a matter of seconds the things that would normally take banks three days to complete.
Because of the way data is stored within a blockchain, there is no need for a central organisation to be involved. This makes it easier to transfer data and money while reducing the risk of fraud. The benefits of blockchain are such that it has been predicted that “10% of GDP will be stored in blockchain technology by 2025”, according to the World Economic Forum.
Blockchain has also reduced transaction costs in the finance sector. Because blockchain technology makes transactions so much quicker, it renders third parties and their charges unnecessary. This means businesses involved in multi-nation transactions will benefit. This will also have a major impact on the institutional and political implications for unbanked populations.
Cross-border payments are one of the hottest issues in blockchain banking. There are nearly two billion people in the world without access to a bank account. This shows that the current banking system is flawed and restricted for underdeveloped nations. By applying blockchain to banking, it can potentially decentralise the entire process to get rid of intermediaries, who are responsible for the payment transfer delays.
One of the most high-profile examples of this is Ripple, which is taking on the daunting task of completely replacing SWIFT, an international banking network that currently dominates payment order transfers. Instead, Ripple is partnering with TransferGo, an international payment platform, to test its XRP-powered xRapid network (a component of RippleNet), lowering the cost and liquidity for their global payments. TransferGo CEO Daumantas Dvilinskas confirmed that they are using the technology to “establish real-time communication between us and our banking partners in India” and to make international payments immediately.
Immutability and trust
Another defining feature of blockchain technology within finance is the immutability of the data it contains. Once that data is recorded and validated by the whole network, it can no longer be changed.
The underlying implication of the immutability of records kept on a blockchain is that those records are trustworthy on their own. No central bank or regulatory agency needs to stand by them. Unlike people, data can be trusted. For organisations that deal in trust, this feature alone justifies their foray into blockchain.
The transparency and traceability of blockchain technology can also improve the effectiveness of loyalty and rewards schemes as part of performance management systems. After all, employee sentiment and use will only improve if rewards are actually delivered and companies and their employees can agree on whether a certain transaction has taken place.
Blockchain has a massive role in keeping the banking and finance sector free of fraud. Because of the involvement of money, the chances of fraud are massively increased. More than 40% of financial bodies are susceptible to heavy money loss due to economic crimes annually. This happens because the current banking systems use a centralised database for their money management. These databases are prone to cyber-attacks. Once the hacker gets in, it is easy for them to take any money they want.
However, blockchain stops this. Because blockchain is built on a decentralised database, it is a non-corruptible system. This means it is incredibly difficult to get in and hack because each transaction is stored with a cryptographic mechanism.