-The financial sector has been adapting the latest technologies to smooth out its processes like collaboration with third-party payment services, net banking, etc. However, experts say that the adoption of blockchain technology in the finance world can entirely shift the manner in which financial institutions handle transactions today. The blockchain finance sector can enable new business models, resolve significant issues, and offer renewed value propositions along with robust safety and transparency.
This article explores the factor that makes blockchain a disruptive technology for the finance industry and a few areas that it will influence the most.
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Table of contents
- Why is blockchain known to be disruptive for the finance sector?
- Decentralization
- Distributed ledger technology
- Immutable records
- Finance areas where blockchain is causing most disruptions
- Cross border payments
- Share trading
- Syndicated Lending
- Clearing and settlement
- Syndicated Lending
- Digital Identity Verification
- Closing Thoughts
Why is blockchain known to be disruptive for the finance sector?
As per the blockchain professional, the unique built-in structure and characteristics of blockchain make it a disruptive technology for various industries especially, the finance sector. Let us explore some of them one by one:
Decentralization
Blockchain networks operate over a peer-to-peer mechanism. With decentralization, blockchain performs similar tasks like a financial institution for its users but without involving any central controlling power. It eliminates the need for a mediator and allows the user to control their assets. Furthermore, it effectively stores all data within the blocks that any member can access.
Every block on the blockchain has specific timestamps, and the network links them together permanently, containing previous and recent transactions. This way blocks and completely eliminates the need for users to take permission of any third party to access financial services.
Distributed ledger technology
It is another important property of blockchain technology as it permits users to share digital assets among multiple parties at once. This way, it maintains transparency within the community which eventually builds trust among members.
Further, DLT allows the network to distribute a copy of every data to different computers within the network. This system enables different members to validate the data as a consensus mechanism. Hence blockchain eradicates a single point of failure framework.
Immutable records
By nature, the design of the blockchain framework resists any kind of data modification by anyone. Hence once the network is all set with its initial protocol to perform block validation, not a single entity can tamper the data within blocks.
Furthermore, if the system needs to alter some data within a block, then it will need to follow a consensus mechanism where the majority of the network has to agree with the validity of updated data.
To better understand how blockchain properties can disrupt the financial sector, you can opt for blockchain courses for financial professionals available on the web.
Finance areas where blockchain is causing most disruptions
Cross border payments
The existing payment system for cross-border transactions is both expensive and time-consuming. Basically, it comprises the expenses of mediators and other charges of respective financial institutions.
As we know that block-chain eradicates the need for mediators ‘ involvement, the block-chain transaction costs are much cheaper. Also, due to the absence of third-party approvals, the transaction process speeds up the desired convenience for the users.
You can also benefit significantly by utilizing blockchain technology for buying and selling shares and stocks. As share trading comprises numerous third-party involvement, including brokers, CSDs, CCPs, and exchanges, the entire process gets very lengthy.
With decentralization, block-chain facilities share trading over computer networks across the world. Further, by removing the interference of middlemen in the share trading proceedings, the technology quickly performs the settlement process with high accuracy.
In addition to this, block-chain trading transactions decrease data repetition and improve performance.
Clearing and settlement
The existing worldwide cash settlement process for defined income, derivative products, and equity in multiple currencies is time-consuming, expensive, and complex. Also, it involves numerous external parties, making the settlement process extend for several days.
Again by eliminating the requirement of an unnecessarily large number of parties, blockchain enables instant settlements.
Syndicated Lending
Blockchain technology can be a total game-changer in the area of syndicated lending. Due to the need for approval by various entities in the traditional lending process, such loans take up an unnecessary number of days for approval. Also, it is compulsory to fulfill AML and KYC requirements in conventional systems that can be daunting for applicants.
Here block-chain uses smart contracts to process syndicated loans. Hence, if both parties meet the specific qualifications of smart contracts, then only a lending process will proceed. Interestingly both parties can borrow huge amounts of money without even needing to know the identity of one another. The only thing that should match between two parties is the predefined rules of a smart contract.
Digital Identity Verification
As we know, existing online financial transactions need a lot of steps for processing the payment, such as in-person verification, authorization, and so on. Moreover, individuals need to follow the same procedure for every single service. But with blockchain, you can use identity verification multiple times to leverage different financial services.
So these are some of the areas in which blockchain is making disruptive changes. However, if you want to have in-depth knowledge of the relationship between finance and blockchain, you can take robust courses on blockchain for finance professionals.
Closing Thoughts
Due to the continuous development in the finance and banking ecosystem, we can deem that the future of this sector will be completely different from now.
With the introduction of blockchain technology in the finance sector, we are already experiencing multiple advancements in financial services. One of the best advantages of utilizing blockchain in the finance sector is the elimination of middlemen and third parties. This is so because it remarkably reduces the settlement duration and expenses.
So if you want to gain expertise in blockchain, then you should check out the BLOCKCHAIN COUNCIL.
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