How Is Blockchain Poised to Revolutionize the Financial Service Sector?
Blockchain has generated an incredible amount of discussion in the past few years. Many entrepreneurs and developers are learning how the technology can be used to improving upon existing processes in a number of different sectors, including the finance industry. People are already exploring how blockchain can be used to reduce fraud and make transactions both faster and more secure.
Ultimately, as the global financial systems become more interconnected, blockchain will likely play an extremely important role in managing risk and maintaining transparency. This is because blockchain is specifically designed to resist hacking and promote trust. Anyone working in the finance industry should understand blockchain and the ways in which it may revolutionize this sector.
What Exactly Is Blockchain?
The term blockchain refers to a system of storing data. The blockchain itself consists of blocks of data that get linked together in chronological order. The links between the blocks cannot be changed, which is what provides the element of safety in this technology.
Importantly, blockchain is a decentralized network and a distributed ledger, so there is not central authority or single entity in control. Because it is decentralized, people can access the information from anywhere. Each block of information gets secured as it gets created.
With blockchain, verification of information can happen very quickly, which leads to faster and more efficient transactions. While many people associated blockchain with cryptocurrency, they are different and distinct technologies. Blockchain makes crypto possible, but it also opens up many other opportunities in the finance sector.
How Can Blockchain Improve Financial Services?
Because blockchain creates an immutable record, it has the potential to make the financial services industry much more transparent and thus less susceptible to fraud. Moreover, this is possible without a lot of investment in cybersecurity, so products could ultimately become cheaper for the consumer.
All activities performed on blockchain are public, so it is impossible to hide transactions. With this system, fraud becomes much easier to identify, which empowers financial institutions to deal with these issues immediately. Overall, the amount of risk faced by financial institutions will decrease a great deal. Scammers have become far too ubiquitous in the modern digital world, and blockchain is a great way to add security to financial service transactions.
With traditional banking, information flows through various financial intermediaries and each one presents the risk of interception. Blockchain provides security for the exchange of information and eliminates the need for such intermediaries, which ultimately means much more protection for the consumer.
The blockchain network is distributed so there is never a single source of failure. If one system goes down, several others can provide the same data. Moreover, if one system has a change in data that does not agree with the rest, it gets revised. Hackers would need to reach many systems at the same time to get through blockchain successfully.
Blockchain also offers some benefits for fintech. Many consumers are moving away from traditional financial services in favor of technology-driven ones. Blockchain provides a solution to the security question fintech startups often face and makes it more feasible to streamline processes, which means reducing costs for the consumer.
As more people seek out affordable financial services, fintech will be able to offer them with the help of blockchain. Soon, it may be a race to see with fintech startups can successfully integrate blockchain the fastest and thus reduce operating costs and provide a cheaper, more secure product. The companies that do this first will beat out many of their competitors.
What Are the Downsides of Blockchain in the Finance Industry?
While blockchain has a number of benefits for the consumer, it does come with some downsides for professionals in the finance industry. The primary concern from these individuals is the fact that blockchain could lower or even eliminate the fees associated with financial transactions.
Traditional finances institutions make much of their money from these fees, so there may soon be a revolution in how people interact with their banks on a very fundamental level. For financial transactions to occur, people rely on their banks, but this is not necessarily the case with blockchain. This technology could make it possible to bypass these third parties and thus eliminate the cost of such services.
Another potential issue with blockchain is that the innovations are coming very quickly, and regulation has not yet caught up with it. Thus, companies may be hesitant to incorporate blockchain as future legislation may create problems with how the technology is being used.
Currently, regulators are addressing the pros and cons of blockchain technology for financial institutions and the potential consequences for both consumers and companies. The fear of how this regulation could impact the sector has stifled innovation. Nevertheless, governments across the globe have recognized the power of blockchain and regulation could end up creating a favorable ecosystem. However, betting on this outcome may seem too risky for some entrepreneurs.
