Usually, people think that blockchain is cryptocurrency. However, crypto is just a potential application of blockchain and represents one among many misconceptions about this technology. Precisely, to make you understand what blockchain means, let’s first break down what blockchain actually is.
Blockchain is a database, which allows businesses to store data in a distributed way. There are various copies of a blockchain stored in numerous locations, and no single party is deliberated as the owner of the blockchain. The information contained in a blockchain cannot be altered, instead only added to. In actual fact, applying blockchain to start-ups’ operations tends to be simpler as compared to what people actually realize. Ironically, it is also a lot more transformative. This is not a technology that is growing slowly or limited to niche industries. However, blockchain is used in all industries, whether technology, finance, manufacturing, as well as the banking industry. Keeping in mind all of blockchain’s uses, it is a solution that is poised to change business as we know it.
How can you use blockchain for your Financial Industry
The financial industry has been deeply impacted by the rise of blockchain technology. Precisely, money transfer has also been impacted by the implementation of blockchain in the financial sector. In the case of money transfer through a blockchain transaction, it takes minutes and sometimes mere seconds and costs a few pennies depending on the primary blockchain used, with no limits to the size of the transaction. However, the legacy system for doing the transaction takes days and weeks to get it approved by the banking authorities and involves substantial fees for every transaction.
Let’s take an example of a retail user. If he sends money home, then it may involve processing fees that are a form of tax, ranging up to 30% of the total value depending on the currency and country of origin and destination if he uses a legacy system. However, blockchain technology saves a lot of transaction fees and paperwork.
How Blockchain Technology will Transform the Financial Service Industry
Blockchain technology offers various solutions for customers in deposits, banking, payments, and money transfer through an intuitive platform.
- Creating Silos for Data Sources:Because companies share a blockchain, they have access to the exact same information. In this way, the blockchain acts as a single source of truth that each company can rely on to develop a shared understanding and eliminate the kinds of errors and inefficiencies that arise from having disparate data. Think of how much time and money the average company spends entering, verifying, and reconciling data. Blockchain has the potential to eliminate much of this work while improving it at the same time.
- Asset management:In the same way that blockchain extends visibility into supply chains, it makes managing assets much more seamless. Consider all the IT networks you handle, whether they are related to third-party providers or part of your internal systems. Blockchain can ensure participation and collaboration across these disparate networks simply because they provide one source of truth, something a single app or platform can’t achieve. Blockchain technology makes transactions easy by simplifying the transactions made in the industry by providing an automated lifecycle where all parties in the transaction would have access to the exact same data about a trade. This leads to infrastructural cost reduction, faster processing cycles, effective transparency and data management, minimal reconciliation, and removal of intermediaries and brokers
- Powering Payment Processing:Even significant companies struggle to manage payment processing, so this is a particular struggle for start-up banking and financial companies, particularly when international payments get involved. Blockchain removes the major hurdles by automating much of the process and creating a record that all parties can trust. It cuts payment intermediaries from the equation so payers and payees can interact directly, access payments immediately, and lower transaction fees.
- Broader Supply Chain: Digital transformation of the trade finance and supply chain are exciting opportunities for blockchain and smart contracts. Smart contracts are simply programs that are stored on a blockchain and run when predetermined conditions are met. Precisely, the existing supply chain is slow, complex, and distributed and executing the smart contract on the blockchain to transfer money can make the supply chain faster and broader, along with creating trusted networks and cutting the cost of the middleman.
Blockchain is a fundamental solution that can be used by the financial and banking sectors to solve the several common and consequential issues they face. The points mentioned above will help you to understand how blockchain can transform the banking sector.