Blockchain technology is causing a groundbreaking shift in the world, disrupting the banking and financial services market as we have known it.
As per prediction blockchain technology will continue to expand in the finance industry over the next several years. It is going to hit a value of $22.5 billion by 2026.
From smart contracts to the development of distributed consensus-based architecture, blockchain offers great potential to not only challenge established models but also establish new avenues of progress.
In this blog, we shall inspect what is the impact of blockchain in financial services, and what one should know regarding this game-changing technology. Fasten your seatbelt, because this will be a captivating journey!
However, as we get into the details of ‘the impact of blockchain technology on the financial sector’, we must first understand the fundamentals of blockchain and its mechanics.
What is Blockchain?
A blockchain is a shared ledger, enabling the secure and transparent exchange of data and funds between users. Working on a peer-to-peer basis, this distributed database chronologically records events and validates them with the agreement of participants, storing the transactions on a public ledger.
Therefore, blockchain in finance is an ideal choice for keeping tabs on asset transfers, including monetary value, securities, land titles, and beyond.
How Does Blockchain Technology Work?
Blockchain technology is a decentralized database that enables protected and secure transactions. Transactions are validated by network nodes and then stored in an immutable public ledger. Various entities own nodes and can simultaneously operate them to create an exact account of the blockchain.
Blockchains are designed to eliminate middlemen from the process. To uphold the trustworthiness of the data, the network’s components must depend on each other. This makes it harder for any individual party to seize control of the system and tamper with data.
The major advantage of blockchain technology is the possibility of reducing the time and expense connected to international transactions. The exclusion of intermediaries means funds can be exchanged much more swiftly and at cheaper costs than through customary banking systems.
What Are the Impact of Blockchain on Financial Services?
This industry of financial services is recognized as one of the most complex in the world. As there are daily billions of dollars in transactions.
Moreover, this is due to an array of intermediaries to help customers access their funds, invest, and purchase insurance. Unfortunately, the trust needed for this system to run effectively makes it highly vulnerable to fraud and cybercrime.
Fortunately, blockchain in finance could potentially revolutionize the industry, getting rid of these dangers. Not just that, there are several aspects of how blockchain technology impacts the financial sector. Some of them are:
1. Quick & Secure Settlement In Stock Markets
Due to its decentralized structure, meaning it is not governed by a sole entity, blockchains can’t be compromised or altered as traditional databases can. This makes the transactions speedier and more secure.
The reason why many stock exchanges are being done using blockchain technology is to let the users trade and have quick stock settlements. Besides, its application also reduces transaction time and operational costs.
Furthermore, since blockchains are transparent, all those involved with a transaction will know precisely what has happened, from traders trading on exchanges to lenders giving loans to borrowers.
After research, it has been found, that blockchains enable transactions to be settled quickly, at a low cost (~$0.01). Moreover, NASDAQ leverages blockchain tech for private securities; the London Stock Exchange is testing blockchain for security trading in Europe with a group of firms.
2. Asset Management
Based on the reports, the asset management sector has experienced fast-paced growth and is currently on the course of amassing an estimated USD 150 trillion by 2025.
Consequently, the industry has adopted a blockchain-oriented digital system that enables real-time tracking of assets, thus thwarting theft and fraudulent movements, while concurrently amplifying transparency and accuracy in transactions between parties.
As a shining example of what blockchain technology can deliver when it comes to minimizing risks and securing asset exchange excellence, FundsDLT, a blockchain-powered funds circulation platform makes a truly inspiring case.
3. Improved Compliance Processes
The possibilities of blockchain technology are endless, though it has largely been employed in the finance sector to create digital tokens and smart contracts. Examples of such uses are securities trading, property ownership records, and money transfer payments.
The use of smart contracts ensures compliance with the law. Due to their ability to reduce costs while being compliant, they have great potential,” says Hosanagar.
Furthermore, blockchain solutions like KYC-chain furnish banks with a trail to simplify the entire KYC process. This dynamic feature has facilitated providing real-time KYC updates and eliminating the need for duplication of work, thereby boosting trust.
Without a doubt, blockchain technology has already left a substantial mark on the financial services industry. Furthermore, with the widespread application of blockchain, organizations can expect reduced compliance errors, real-time record scrutiny from regulatory bodies, and overall higher transparency among all participants. Thus, taking a help from blockchain development company can be a great idea.
These are a few of the examples of blockchain in financial services that give an idea of how the technology is impacting the industry.
What Are Some Potential Use Cases of Blockchain Technology in Financial Services?
Blockchains are digital records that are authenticated by a community of computers, rather than a single institution or person. While it has so far been mainly employed for creating cryptocurrencies like Bitcoin, it can store any kind of information, such as financial data.
However, there is a broad range of uses for blockchain technology in financial services. These include:
• Securities Trading: By providing an unalterable log of transactions, blockchain can diminish the dangers related to securities trading. In addition, it can hasten the process of releasing new securities and validating the genuineness of existing securities.
• Crowdfunding: Utilizing blockchain can efficiently and securely manage crowdfunding campaigns. This enables supporters to receive their rewards rapidly, with no fraud taking place.
• Cross-border Payments: Blockchain can be employed to help with cross-border payments between banks, without the need for mediators. This lessens the danger of monetary misrepresentation and grants customers quicker access to funds than traditional techniques, for example, wire transfers or cheques.
• E-commerce: Blockchain could be used to form a secure ledger, making sure that no unlawful activity occurs on e-commerce sites. With that, when you hire Blockchain developers to develop an e-commerce website who have a better understanding of blockchain technology can ensure your site is of top-notch quality.
As blockchain technology advances, it is becoming clearer how this ground-breaking platform can affect different sectors. For example, in the finance industry, blockchain has the potential to limit deception and make transactions more transparent.
Moreover, it can facilitate the flow of cross-border payments and asset monitoring. Businesses that don’t equip themselves with the proper know-how now risk missing out on its great potential in the future. Therefore, businesses can consider hiring blockchain developers to help them leverage the potential of this technology.