Invented back in 2008, Cryptocurrencies and their underlying blockchain technology are being praised as the next-big-thing after the creation of the internet. According to a report, blockchain will do to banks what the internet did to media. The emergence of blockchain has brought about a dramatic change in the financial sector and how people carry out financial transactions.
There are various roadblocks in the way presently but it can be said that Blockchain holds the potential to transform the finance and banking sectors by reducing potential costs and labor savings. There are hundreds and thousands of funds are being regularly transferred from one region of the world to the another within each day in the banking and finance sector.
With emerging use cases with each passing day, the blockchain technology has proved to be a game changer with its potential to break more boundaries in the future.
Let’s have a look at how blockchain has impacted financial services and the financial sector as a whole:
As the involvement of money in any situation leads to increased chances of fraudulent activities, blockchain technology has the high potential of eliminating the occurrence of such activities in financial transactions. A centralized database system is vulnerable and highly prone to cyber attacks but blockchain is totally based on a decentralized system as a result, it is tough for a blockchain system to suffer cyber attacks.
Since each transaction is stored in the form of a block with a cryptographic mechanism in the blockchain, there is no chance of failure and corruption. Moreover, all the blocks are linked to each other which helps to track the breach and provides the hacker with no time to make changes in the overall system. With the secure blockchain system in place, the process will be simplified.
Know Your Customer (KYC)
One of the critical policies that all banks and financial institutions strictly concerned about is the Know-Your-Customer Regulation. Under KYC regulation, banks and other financial institutions identify their customers to minimize financial crimes and money laundering activities. With blockchain technology widely adopted, the independent verification of each client by one bank or financial organization would be accessible for other banks to use so that the KYC process doesn’t have to be restarted again. This process saves financial institutions a lot of money and reduces administrative efforts.
More accessible and faster international payments
Blockchain technology can solve a lot of problems regularly faced by banks and financial sectors these days. Few banks enabled the movement of money through the use of blockchain technology and start-ups have also been established to work with banks so that banks can carry out international payments through blockchain. Blockchain promises a wide range of benefits, one of which is a better and secure way to connect and transact with each other without having to deal with zero transparency and unfair barriers that individuals face with traditional methods.
The application of smart contracts can prove particularly important in the banking and finance sector as it allows the automatic execution of commercial transactions and agreements. Smart contracts, when used for financial transactions would have more security than traditional contracts, and since there are no middlemen, transactions costs get reduced to the bare minimum. This will ensure the transaction will be approved only if all the written conditions of the code are met, also the chances of error at the time of execution are dropped drastically.
Despite the strict jurisdictions around the banking sector, the financial institutions have started to realise the potential of blockchain technology seeing it bridging the gap of missing security and transparency in daily transactions. The technology is reshaping the financial sector by providing banks with efficiency, speed, and reduced costs in many of their processes.
The blockchain is potentially the technology that will dominate the banking and financial services in the future, and the reasons are quite evident as stated in this piece of article.