Introduced back in 2008, Blockchain Technology and Cryptocurrencies are in the headlines as the next-big-thing after the creation of the internet. It is being said that Blockchain will do to banks what the internet does to media. The emergence of Blockchain has dramatically changed the financial sector and how people carry out financial transactions.
Though there are various obstructions in the way, Blockchain holds the potential to transform the finance and banking sectors. There are hundreds and thousands of funds being regularly transferred from one region of the world to the another within each day in the banking and finance sector. Blockchain will reduce potential costs and labor savings.
With emerging use cases with each passing day, the blockchain technology has proved to be a game-changer with its potential to break more boundaries in the future.
Let’s have a look at how blockchain has impacted financial services and the financial sector as a whole.
FRAUD REDUCTION
As the involvement of money in any situation leads to increased chances of fraudulent activities, blockchain technology has the high potential of eliminating the occurrence of such activities in financial transactions. A centralized database system is vulnerable and highly prone to cyber-attacks but the blockchain is totally based on a decentralized system and as a result, it is tough for a blockchain system to undergo cyber-attacks.
Since each transaction is stored in the form of a block with a cryptographic mechanism in the blockchain, there is no chance of failure and corruption. Moreover, all the blocks are linked to each other which helps to track the breach and provides the hacker with no time to make changes in the overall system. The process will be simplified with the secure Blockchain system in place.
KNOW YOUR CUSTOMER (KYC)
One of the critical policies that all banks and financial institutions strictly concerned about is the Know-Your-Customer Regulation. Under KYC regulation, banks and other financial institutions identify their customers to minimize financial crimes and money laundering activities.
With blockchain technology widely adopted, the independent verification of each client by one bank or financial organization would be accessible for other banks to use so that the KYC process doesn’t have to be restarted again.
This process saves financial institutions a lot of money and reduces administrative efforts.
MORE ACCESSIBLE AND FASTER INTERNATIONAL PAYMENTS
Blockchain technology solves a lot of problems faced by banks and financial sectors these days on a regular basis. Several banks have enabled the movement of money through the use of Blockchain technology. Start-ups have also been established to collaborate with banks so that banks can execute international payments through blockchain.
Blockchain promises a wide range of benefits, one of which is a better and secure way to connect and transact with each other without having to deal with zero transparency and unfair barriers that individuals face with traditional methods.
SMART CONTRACTS
The application of smart contracts can prove particularly important in the banking and finance sector as it allows the automatic execution of commercial transactions and agreements. Smart contracts, when used for financial transactions, would have more security than traditional contracts, and since there are no middlemen, transactions costs get reduced to the bare minimum. This will ensure the transaction will be approved only if all the written conditions of the code are met, also the chances of error at the time of execution are dropped drastically.
CONCLUSION
Despite the strict jurisdictions around the banking sector, the financial institutions have started to realize the potential of blockchain technology, seeing it bridging the gap of missing security and transparency in daily transactions. The technology is reshaping the financial sector by providing banks with efficiency, speed, and reduced costs in many of their processes.
The blockchain is potentially the technology that will dominate the banking and financial services in the future, and the reasons are quite evident as stated in this article.