Blockchain services have the potential to disrupt global finance in radical new ways. Instead of substituting the already existing system, it forms an entirely new market and an avenue to bank the unbanked.
Blockchain is forming new financial solutions that scale faster, are cheaper, more secure, and are accessible to everyone around the world. It has reduced the obstacles to accessing financial services, increased security, eliminated middlemen, and increased transparency.
Blockchain Services – Trusted Tamper-Proof Transactions
Blockchain Services has significant potential to transform the finance industry, from improving efficiency and reducing costs to enhancing security and transparency. It is a distributed database that stores information in blocks, with each block containing multiple transactions.
The decentralized nature of Blockchain offers tamper-proof transactions and operates a distributed network of computers that work together to maintain a shared ledger of transactions. Anyone with access to the network can view the entire transaction history, allowing for greater accountability and reducing the risk of fraud or corruption. This transparency can also help to increase trust between parties who are engaging in transactions on the blockchain.
Here are some advantages of Blockchain services:
- Efficiency – Blockchain technology can help to increase efficiency by reducing the need for intermediaries and automating processes through the use of smart contracts.
- Security – Transactions are verified by multiple parties in the network, making it difficult for bad actors to manipulate or corrupt the system.
- Prevent Fraud – The data in the Blockchain is immutable or unchangeable, which means that once it is added to the blockchain, it cannot be changed or erased. This provides a secure and tamper-proof record of all transactions.
- Cost Reduction: With blockchain, intermediaries such as banks, brokers, and other third-party service providers can be eliminated, thereby reducing costs associated with the transaction process.
What is the current state of Global Finance?
The current state of global finance is made up of two characteristics;
- Each transaction goes via an intermediary, such as an investment house or bank.
- Each transaction is processed via several phases of checks and verifications.
There are several flaws present in the present financial system. First are the financial intermediaries that hold a vast central reserve of user data. These data repositories become vulnerable to cyberattacks every minute. Second, there is inefficiency in processing a single transaction with a vast amount of money and time investment.
Further, a lack of accessibility to the current financial system and its benefits for users who can’t fulfill the standards set by financial institutions. Also, the users have to pay a few percent of their wealth to intermediaries with each transaction. These problems have prompted the need for a solution, such as Blockchain services.
The Impact of Blockchain Services on Global Finance
- Cross-border payment – Currently bank uses the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network to transfer or receive international payments. However, this is a lengthy and expensive process that requires nearly 1-5 business days to perform transactions. Blockchain services can provide a faster and better solution by allowing banks to perform direct international payments efficiently and economically.
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- Know Your Customer – Know Your Customer (KYC) is a significant factor used in banking. The average time banks take to complete the KYC process is around 26 days. The information is stored in the bank’s centralized system and is only accessible to them. However, with Blockchain services, the user data is stored in the block and the block can be shared between the banks. The information stored in blocks is immutable and ensures the data is correct.
- Capital Markets – Blockchain services can potentially transform the capital market trading system. The capital market includes a heavy procedure and usually requires a long time to settle the accounts and money. Blockchain can be utilized to increase the efficiency of trade and custody securities services. In case participating companies are working on a common Blockchain platform, the transaction can be performed in real-time with greater efficiency and transparency.
- Financial reporting and compliance – Banks are required to perform reporting, such as audits, tax reports, and other financial reports regularly. Preparing the reports regularly based on regulations is time-consuming and requires manpower. Blockchain can be used to record transactions and track history easily.
| Benefits of the Blockchain Services | |
| Decentralized & Replicated | Blockchain services are decentralized and replicated, which signifies that the full audit trail can be performed by any user or participant. Furthermore, the cryptographic integrity checks incorporated into the system help reduce the need for trust in central hubs. |
| Partition Resistant | Blockchain services are partition-resistant, which means that in case a few nodes fail or are disconnected, the remaining nodes can continue to function. |
| Byzantine Fault Tolerance | Blockchain services are Byzantine Fault Tolerance, which deals with nodes that malfunction or function maliciously. It provides defense against cyber-attacks. |
| Foundation for Smart Contracts | Blockchain services support automatic contracts that reduce transaction costs and make small-value transactions economically viable. |
Opportunities of Blockchain Services in the Finance Industry
- Fiat Money on the Blockchain – The financial system is fundamentally about money, and if fiat money (dollar, euro, and rupee) could be transacted directly on the blockchain, most of the system would be more efficient. There are several ways by which fiat money can be transformed into tokens that reside over the blockchain. For example, the central bank could issue digital money or a trusted institution can issue crypto coins that are fully convertible into fiat money.
- Micropayment and Micro Financial Services – The 2nd level networks that are executing on top of existing cryptocurrencies have made it feasible to perform very low-value payments. If the low payment sustains as the network scales, it will be possible for the 1st time to perform micropayments of 1 US cent or less among users in real-time.
- Pre and Post-trade Processes – Securities trading and settlement could be broken down into three phases; pre-trade authorization, trade execution, and clearing & settlement. Blockchain services can potentially be utilized in the pre and post-trade processes that include fragmented and inefficient legacy systems. Here, the Blockchain can facilitate complete transparency on the cash & securities before and after the trade.
- Customized Investment Management – In the mutual fund market, investors can easily track the popular benchmark index. It gets more challenging for individuals who seek exposure to customized indices or non-linear payoffs. Customized investment products consist of only a million dollars in issuance size but transforming these into smart contracts on the Blockchain can help issuance size to be decreased more.
- Data Registries and Repositories – Modern finance is dependent upon a large number of data registries and repositories that incorporate verified information required for several transactions. Following the Global Financial Crisis, transaction repositories have become a key component in ensuring that regulators have information about the financial system’s risk and interconnectedness. Still, trade repositories are beset with banks and attendant fees, unreliabilities, and delays. Blockchain services could be an effective solution to this problem and can boast an impressive list of users involving large banks.
Final Thoughts
Blockchain services are evidently one of the significant and innovative technologies that have the potential to disrupt financial services. In its initial stage only, the technology has started proving its value by minimizing trading costs, enhancing the auditability of transactions, minimizing fraud risk, increasing transaction settlement speed, and improving the effectiveness of monitoring.
The blockchain revolution will provide access to financial services, which signifies that countries facing underprivileged, non-financial, and economic issues can also easily access services.
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