How Blockchain Technology Is Transforming The Financial System
When the Blockchain technology first came into use about a decade ago, not many observers in the world of financial systems were able to predict the far-reaching implications it would have in the financial sector and the way people perform financial transactions around the world. Most prominent is its ability to drive decentralized cryptocurrencies such as bitcoin, thus reducing reliance on the flawed traditional payment methods. Some of the ways in which blockchain technology has improved the financial sector include:
- Blockchain has significantly improved transparency and efficiency of international payments. Several financial institutions around the world now incorporate blockchain technology into their payment systems because tractions on the blockchain can be verified immediately – payments now routinely get processed in a matter of minutes or seconds. And also because of its ability to deliver a secure end-to-end flow of money.
- With blockchain, companies are now able to use smart contracts in place of traditional contracts. Smart contracts are more secure and eliminate the use of middlemen in executing transactions, thus bringing down transaction costs drastically.
Possibilities for Blockchain in the Financial Services Sector
Bitcoin is presently the most recognized means of making use of the blockchain technology and many operators in the industry are coming around to it. Some of the ways blockchain can change the way business transactions are currently being done include:
1. Improving Compliance: All financial services companies have to comply with regulations that dictate that they must be able to identify their customers in a bid to curb financial crimes like money laundering and fraud. With blockchain technology, these regulations known as KYC, short for Know-Your-Customer, can be easily complied with as the identity of every customer will be confirmed independently on the blockchain network. This will help companies minimize cost as well as saving the customer from the stress of undergoing KYC with every company.
2. Improving Payment Methods: By integrating the blockchain into their payment systems, fintech and other financial services companies can now perform operations with even greater security while reducing costs and transaction time significantly. The payment method can now be optimized for end users with more transparency.
3. Improving Fraud Prevention: Unlike traditional financial systems that are centralized, blockchain makes use of a decentralized system. This makes it more difficult for hackers and individuals with negative intentions to alter the system for their own advantage. This is particularly good news for fintech operators who provide online payment systems. Using traditional currency always runs the risk of cyber-attacks but this risk is eliminated with the use of blockchain technology.
4. Improving Insurance: Blockchain technology also has the potential to disrupt the insurance world: from paying for premiums, filing claims and investigating claims, all of these can be done using smart contracts to replace traditional contracts.
The question is not whether blockchain is here to stay, the question is how can we exhaust the possibilities provided by it? From providing greater transparency and security in financial transactions to improving capital optimization, the blockchain technology has shown endless potentials for revolutionizing the way business as we know it today is being run.
