How Blockchain is changing the world of Finance

How Blockchain is changing the world of Finance

What is Blockchain?

Blockchain is a digital collection of transactions that are tracked and recorded in a decentralized network. It is a distributed ledger, which means there is no central authority of the network, or no one person or entity in control with the ability to corrupt the network. The blockchain comprises individual blocks of data, each containing a record of information, that are linked together in chronological order. These links cannot be changed, which is what instills confidence in the network.

This revolutionary technology manages transactions of information by securing them as they occur. The purpose of blockchain is to lower the cost of transactions and make them more efficient and faster.

The technology has many applications that can be integrated into different industries, providing investors with many opportunities. For starters, it’s one of the technological underpinnings of cryptocurrencies like Bitcoin.

Uses of Blockchain in the world of Finance

1. Asset managementThe traditional approach to asset management is slow and complicated since it involves numerous intermediaries. Blockchain tackles this downside by enabling stakeholders to manage their digitized assets directly, with no external assistance. It is achieved as all necessary data is stored on the ledger and is instantly accessible on request.Besides, thanks to smart contracts, recurrent asset management operations such as compliance and regulatory reporting can be automated. Thus, they can be performed within fixed time limits and strictly following the rules, excluding human error. It is especially useful for international companies that must comply with different jurisdictions.
2. Payments and fund transfersTraditionally, payments and fund transfers are executed by middlemen, which causes extra expenses. It is also quite long — up to 2 days for a domestic operation and 2-7 days for international ones. In the meantime, payments made on blockchain are peer-to-peer operations, meaning instantaneous settlement and no extra spendings. Another advantage of making payments on blockchain is the ability to choose from tokenized fiat, stable coin, or cryptocurrency.
3. Data and document managementAll financial operations require identity verification to prevent fraudulent activity. To perform this, numerous documents have to be collected and certified. Moreover, papers usually go through several mediators, such as bank officers or notaries. Stored on blockchain, documents are easily accessible whenever required. This ensures that all financial operations, from regular payments to loans and mortgages, are executed much faster. Along with this , blockchain in finance document management ensures that databases built on blockchain can be effortlessly submitted to regulatory agencies for audit and compliance control.

The future of blockchain in finance

We now see how blockchain actively revamps the finance industry, successfully combating obsolete elements such as numerous middlemen, long settlement time, and inefficient document management. Instead, the technology brings multiple benefits across different financial domains, from asset management to trade finance. Since the industry discovers more impactful blockchain in finance use cases, we will see an increase of interest towards the technology from leading banks and financial companies. Although the use of blockchain in financial services can significantly enhance the industry, you should not forget about its pitfalls. For example, this technology still lacks proper regulation and legislation, which complicates transactions in certain countries. Also, the blockchain-based data verification process requires further development and explicit standards.

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