Blockchain technology can no longer be ignored. It’s set to disrupt our lives and change the way we do business. In fact, its effects will be so profound that in seven years, ten per cent of global GDP “will be stored on blockchains or blockchain-related technology”, a World Economic Forum report predicts. From healthcare and real estate to life sciences and advertising, many sectors are bracing for the inevitable digital revolution. A Gowling WLG report highlights that, among other industries, banking and finance are poised to benefit the most from blockchain.
Blockchain is being used to solve the decades-old problems of the financial industry. Hefty transaction fees, complex money transfer processes, and financial fraud are some of those issues. In addition to this, blockchain tech can save money for ordinary customers as well as banks. For example, the consulting firm Accenture claims that blockchain could “save investment banks as much as $12 billion a year”. So, it’s no wonder that many banking giants are investing in this technology.
For those investments to be successful, though, several obstacles should be cleared first. For instance, much of today’s application of blockchain in finance isn’t approved by financial regulators. Second, blockchain companies have to find a way to comply with strict privacy laws. And third, this technology must become faster to handle a large number of transactions. Only by solving these issues can blockchain deliver the benefits everyone hopes for.
Blockchain Technology Transforming Banking & Finance Like Real King of Currency!
How is blockchain technology transforming the banking and finance industry even with governments clamping down on its growth? We discover and detailed some positives you can pick from.
A cheaper way to send, receive, and raise money
For years, people were forced to pay large transaction fees to banks, especially for international transfers. This proved to be a huge source of revenue. For example,fees from international transfers comprised around ten per cent of the Spanish bank Santander‘s revenue in 2016. Financial institutions are essentially charging money for validating transactions. But blockchain can do this for a lot less money. As a decentralised ledger of cryptographically secured transactions, it enables people to send and receive money without the need for third-party verification. Besides, blockchain could also make the complex network of intermediaries that facilitate the money transfer obsolete.
But a cheaper way of sending and receiving money isn’t the only benefit blockchain offers. It could also help companies raise money much easier. One way to do it is by an initial coin offering (ICO) in which a company looking to create a new app or service sells tokens in exchange for cryptocurrency like Bitcoin or Ethereum. If the project is successful, the value of the tokens rises and investors profit. This way, startups avoid the complicated procedures of listing on the traditional stock market. What’s more, blockchain could be used to offer alternative lending services with clients’ credit score securely recorded. But the benefits of this tech in banking and finance extend far beyond money transfers.
The identity of clients and fraud detection
Knowing their customers is so important for banks that they spend hundreds of millions of dollars to verify identities and conduct due diligence. They’re obliged to act so as to prevent money laundering and fraud. Darryn Jones, the vice president of business development at the Greater Phoenix Economic Council, thinks that blockchain could be a solution as its “underlying protocols support more robust identity management by both consumers and the financial institutions they participate in.” In addition to this, well-protected personal data could prevent hackers from stealing people’s money and causing mayhem.
Meanwhile, cryptocurrencies such as Bitcoin that popularized blockchain caused mayhem in their own way. Their wild value swings made financial institutions cautious of using cryptocurrencies. However, one way in which banks intend to use them is by offering Bitcoin futures contracts pending regulatory approval. But for now, cryptocurrencies are set to remain only an alternative payment system. Many challenges must be solved before currencies such as the US dollar are dethroned.
Challenges on the road ahead
One of those challenges is the fact that the application of blockchain in the financial sector is mostly unregulated. Working on projects and hoping for eventual approval isn’t sustainable long-term practice. Also, blockchain transactions are notoriously slow. As Jones explains,
“Transactions on a blockchain platform are currently limited to seven transactions per second. This will be the most significant risk factor and barrier to entry for the deployment of blockchain protocols in the fintech sector — as it pertains to global payments and other high-volume transactions.”
And finally, privacy laws are increasingly important as the EU enacted its strict GDPR regulation on data protection. It’s still unclear how blockchain can implement these rules, having in mind the borderless nature of its transactions.
A different perspective on the future
While many blockchain projects are still in the testing phase, this technology is poised to disrupt the banking and financial sector. It may very well make the bank branch of the past never come back, as futurist Richard van Hooijdonk says in his “The Future of Finance” lecture. Blockchain not only offers savings and easier money transfers, but also better protection of data. At the same time, many challenges, including the lack of a regulatory framework, need be sorted out. And although we’re years away from the full deployment of blockchain in the financial sector, some things have already changed. Blockchain offers a new perspective and has “led us to look at certain industries in a very different way,” DafengGuo, aco-founder of the blockchain company EOS Asia, concludes.
In your own word, how is blockchain technology transforming other industries such as healthcare, agriculture etc? If you have clue, let’s talk about them in the comment section.
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