Advances of blockchain in the banking and finance industry
Blockchain is predicted to be the next big thing in the business sector. Many businesses are now found to aggressively pursue the concept, thus investing billions of money in blockchain projects. Given this case, blockchain is not a mystery to any business anymore. An analysis of the financial sector in regard to the phenomenon shows that 69% of the institutions within this industry are experimenting it with the numbers rising (Hacioglu, 2019). The aim of this paper is to outline how blockchain is reshaping financial management to a new whole level.
One of the ways in which blockchain has changed the banking and finance industry is through enhancing simplified cross-border payments. The virtual transfer of money has always consumed both time and cost. However, the introduction of the concept of blockchain has helped in speeding up the process, and at the same time, helped in reducing the costs. The concept of blockchain utilizes ewallet methodology in carrying out transactions overseas. Most of the available e-wallet transfers are instant and some are not associated with any transaction costs.
Apart from that, the use of blockchain in the banking and finance industry has helped in the reduction of fraud and crime. There has been a reduction in fraud to a greater extent after the introduction of blockchain. It should be noted that most of the banking institutions utilize a single database, and this makes them more vulnerable to fraud. The use of a single database makes it easier for the attackers to breach the system with ease. Therefore, with the introduction of the concept of blockchain, the databases are now subdivided into multiple ledgers, with individual transactions being linked to a single block, thus making it difficult for the attackers to hack the whole database (Kashyap, 2019). Generally, the use of blockchain in the banking and finance industry has helped in minimizing the crimes that are evident online in the present day.
The other advancement that the blockchain can be attributed to in the banking and finance industry is less reliance on cash. There has been increased digitization in the industry, making people use paperless cash. The increased usage in the blockchain technology today is expected to see the central banks substitute their individually regulated notes and coins for blockchain-based digital currencies. For instance, the Central Bank of Norway as well as the Bank of England are now making moves towards the discontinuous use of cash and notes completely.
Easier and cost-effective payments is the other notable advancement that is evident in the blockchain. There has been a remarkable improvement in the payment process. With the utilization of the concept of blockchain, financial institutions are now experiencing higher securities and lower costs in payment processing between themselves and even to their clients alike (Chuen, 2017). Previously, there were many intermediaries in transaction processing, which made it expensive to transact. However, the blockchain concept has helped in the elimination of such.
Seamless identity management has also been evident and this is after the utilization of the blockchain technology concept. In this case, parties to a transaction can choose the manner in which they will introduce themselves and who should be informed. Such persons still have to register their legit identity but can make changes to it thereafter while carrying out transactions. This kind of change courtesy of blockchain is significant in the banking and finance industry as the identity of the user is safe in a digital network, creating seamless access.
Last but not least, the other change that the blockchain technology has made in the banking and finance industry is in regard to the removal of intermediaries with smart contracts. Many financial institutions have integrated their various contracts and projects with blockchain technology. Given this case, business organizations are able to directly deal with clients and contractors. The use of smart contracts allows users to perform various functions such as exchanging money, sharing documents, and selling realities (Bashir, 2018). Besides, with the use of smart contracts, one does not need to employ the use of intermediary services such as notaries, agents, or even brokers in carrying out the various transaction. This, in the long run, has the effect of cost reduction in transactions and increased trust as the client will be getting direct contact from the service provider, hence minimizing doubts of being overcharged by the middlemen.
References
Bashir, I. (2018). Mastering blockchain: Distributed ledger technology, decentralization
and smart contracts explained.
Chuen, D. L. (2017). Handbook of Blockchain. Place of publication not identified:
Elsevier Science.
Hacioglu, U. (2019). Blockchain Economics and Financial Market Innovation:
Financial Innovations in the Digital Age.
Kashyap, R. (2019). CXO HANDBOOK TO BLOCKCHAIN. Place of publication not
identified: LULU COM.