It makes perfect sense that Blockchain technology was first introduced as a way to breathe some much-needed fresh air into the financial sector. Originally created at the height of the 2008 global financial crisis as the operational backbone of Bitcoin, its distributed ledger technology is an efficient and secure method to transfer and catalog data.
In short, Blockchain is a public ledger capable of recording any sort of transaction; either by tracking where an item came from, how long it sat around unprocessed, or when it finally left someone else's possession for good.
For this reason alone—the security it provides—Blockchain tech has been welcomed warmly in areas like finance. Given how promising Blockchain is for the financial sector, we’ve decided to dive deeper into the subject and provide you with some key things to know about its use in this industry.
We will start by understanding what Blockchain is and what benefits it can bring to finance companies. Then, we’ll move on to discussing Blockchain use cases across various sub-sectors of the industry and finish up today’s article by briefly touching on Blockchains' impact on regulatory frameworks. Let’s get started.
What is Blockchain?
The newest technology to make waves in the tech community, Blockchain is a digital ledger for recording transactions that are decentralized and secure. Think of it as a database or even just an Excel spreadsheet - except this one is between you and whoever you're doing business with; nobody else can access your data without permission.
In 2009, this technology became known when Bitcoin launched its cryptocurrency. Since then, there has been no sign of slowing down with lots of interest from other businesses in industries such as finance, healthcare, retail, insurance, etc.—even though it's still newish technology.
Moreover, to leverage it, you can find reliable Blockchain development services and full support from IT industry.
The benefits of Blockchain technology come from the following properties:
Distribution: Hundreds of copies of this global ledger exist throughout the network. Each time a new transaction and block are added, every person within the network receives a copy. No single entity controls this data but because the system is designed to give everyone the same information, it ensures accuracy can't be altered without notice.
Immutability: A Blockchain provides an authentic history of transactions recorded chronologically in blocks across its distributed networks. By giving every person a copy of these transparent records (that cannot be erased).
And verifiably true data cannot be manipulated or changed without being detected; doing so would require successfully hacking into hundreds - if not millions - at one time, which is highly improbable.
How Will Blockchain Impact Financial Industry & Services?
Banking is likely the area that will benefit the most from fintech. In fact, research reveals that in 2020 close to 30% of the global Blockchain market revenue was distributed toward banking. So, what type of banking operations can take advantage of Blockchain?
Recordkeeping
One of the primary Blockchain's uses is centered around storing data; it provides a safe way for banks to store all their important information and provide access only to relevant personnel (something they couldn't do before).
Payments
Banks could also improve how they process payments because this technology allows them to transfer funds quickly and at low costs--which means lower transaction fees for customers (and improved customer service!)
Loans
Currently, loans are given out after underlines review the credit history of the person. As you can imagine, this takes time and exposes the institution to some security risks.
However, due to its decentralized nature and encrypted code, people don’t have to worry about their information being released or hacked when applying for a loan. This makes approval go faster than ever before while also keeping customer data safe from leaks.
Financial Inclusion
Blockchain’s low cost gives startups an opportunity to compete with major banks, promoting financial inclusion. Many people are looking for an alternative to banks because of restrictions like minimum balance requirements, limited access, and high banking fees.
With Fintech development services, you can use Blockchain to provide an alternative that uses digital identification and mobile devices, free from the headache of traditional banking.
Accounting & Auditing
It’s already been established that Blockchain has the potential to make all recordkeeping simpler with its distributed base. But it also could have a huge impact on auditing. When going through the process of verifying accounts and finding inconsistencies, the procedure can get tedious and take up a lot of time.
Blockchain simplifies things by placing information in one place. It saves space, updates databases more efficiently, and provides indisputable evidence in real time because of its transparency and accuracy.
Cryptocurrencies
Digital currencies are the newest wave of investments that rely on Blockchain. Digital currencies already exist but it's only recently that companies utilizing Blockchain technology have lowered the barrier to entry and exchanged cryptocurrencies seamlessly as an alternative form of banking.
Using cryptocurrency exchange development company support, you can also create it with ease. But maintaining it can be challenge.
Reduced Fraud
Blockchain maintains a set of records with information about every transaction created on each block, as well as a unique hash that links to the preceding block. Each party within the network gets copies of these records too.
Because of this design, Blockchain is resilient against attacks from malicious agents such as hackers or DDoS attackers. Without fear of cyber attacks, it costs less for everyone to conduct business together, which saves everyone both time and money in their day-to-day life.
Wrapping Up
Blockchain in finance is finding its place among emerging technologies to watch closely. Companies have become interested in leveraging the technology due to security benefits and cost-cutting potential, despite regulatory uncertainty.
If you're considering starting your own financial tech development journey, figuring out how to get started may be a challenge. If you have an experienced team of developers at your disposal - setting goals and beginning work won't be an issue.
But if not...it's best to outsource these project of hire Blockchain developers who specialize in Blockchain innovation.
