Blockchain technology has consistently demonstrated its ability to innovate and revolutionize various business operations across industries over the last few years. With its promising features and transformative impact towards profit maximization, more secured transactions, and risk reduction, the financial sector leads the list of those who have already tapped the implementation of said technology into their transactions.
This actually poses no surprise at all since the application of blockchain technology in finance has already shown potential, even in its infancy. If we take a closer look, blockchain technology could be applied in a wide array of dealings, such as payments and remittances, asset management, trade finance, capital markets, banking, lending, and insurance. In addition to its applicability to financial transactions, the underlying technology may provide intangible benefits to each entity that intends to leverage the power of this revolutionary infrastructure.
Lower Cost of Operations
With its capacity to streamline processes more efficiently compared to traditional systems, both the customers and the financial companies could benefit from the cost-saving solutions that it could offer. Many blockchains are now capable of settling high-value transactions at a cost of $0.01 or even less. For example, financial institutions that use blockchain technology do not have to resort to layers of processes and expensive transfer fees. In a new study by Jupiter Research, it has been found that blockchain deployments could help financial institutions reduce costs by more than 11% per on-chain transaction, allowing them to feasibly save $27 billion on cross-border settlement by the end of 2030. That is a huge amount of no-brainer savings!
Improved Transaction Details
Being a decentralized public ledger that provides an inalterable record of transactions, a more accurate and secure information system, and the presence of smart contracts in its infrastructure, blockchain technology offers financial companies a solution with a more efficient record-keeping scheme and fraud tracking algorithm. Each transaction in the blockchain is stored within each block, along with a unique hash that refers to the previous block. This transparency system exposes malicious and fraudulent transactions, which could reduce the risk exposure for the financial institution and the end-users as well.
Added Transaction Security
As the digital universe is being antagonized by online scammers, it is a great thing that blockchain technology could produce a structure of data with inherent security qualities. Using the principles of consensus, cryptography, and decentralization ensures trust in terms of having safe and efficient transactions. With these, all dealings within the blocks are validated and agreed upon by all involved parties, which guarantees that each transaction is true and correct. Applying these to the traditional financial system will definitely minimize, if not completely eliminate, the fear of fraudulent schemes, which protects the interests of both the sector and its customers.
Process Streamlining and Automation
When Ethereum was launched last July 2015, it introduced the use of “smart contracts,” which are a series of code that self-execute when conditions are met. Its founder, Vitalik Buterin explains how it works as follows: “Contracts are translated into computer language and stored in blocks. The parties to the contracts, which are copied to distributed ledgers, are kept 100 percent anonymous. The code snippet is ready with specific tasks and details (time limit, what goes where, from where to where, etc.). When the time comes, it takes action to fulfill the transaction, and if the necessary conditions are met, the transaction is successfully completed or canceled before completion.” This revolutionary technology paves the way for improved automation to address lengthy, costly, and complex traditional financial methods. The great thing about smart contracts is that even established players in the financial industry have tapped into the more efficient solution it offers. Barclays PLC, for example, has tested the use of smart contracts to trade derivatives such as futures and options. The company applied for the use of blockchain technology in streamlining its KYC process way back in 2018. The involvement of huge players in the use of blockchain definitely adds legitimacy and credibility to its effective utility.
It is safe to say that as of this writing, we are still in the early stages of adaptation and development of blockchain applications in the financial industry. However, the gradual integration of the knowledge into our existing systems is definitely something to watch out for. The ones who will not be able to catch up with the drastic changes and improvements will surely be left behind as the community in this fourth industrial revolution aggressively seeks faster, more efficient, and more automated ways of doing things moving forward.
Ethereum: https://ethereum.org/en/
AltSwitch: www.altswitch.io
Barclays: https://home.barclays/
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Article by: Arjay Mendoza
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