If you are a bitcoin or cryptocurrency user, you have probably heard of the powerful force behind these ingenious forms of money, blockchain technology. Companies from different sectors are now using this technology to enable a large number of effective digital solutions.
Among the most diverse market sectors, the benefits of adopting blockchain technology are considered to be more prevalent in financial institutions and sectors. But before we delve into the benefits of this technology, let’s take a quick look at what it is.
A quick look at blockchain technology
Blockchain technology is a decentralized and distributed ledger that keeps track of transactions for a digital asset. It works only in digital mode and has no central authority to regulate or supervise the movements of the system.
The blockchain also has many copies of a ledger – or list – of transactions on the network. Due to its distributed characteristic, it allows new transactions to be transmitted to a wide variety of network users. It is so powerful that it can operate and perform its complex operations autonomously.
The blockchain is also immutable, meaning it is practically impossible to change or even delete a transaction. This powerful feature also prevents false information from being included in the transaction.
Compromising a blockchain requires changing all copies of the ledger in all possible locations. Just imagine trying to hack into thousands of computers at the same time. This is also the unique technology behind today’s main cryptocurrency, bitcoin (BTC).
Here are some ways that blockchain technology can transform finance and banking.
1.Reach non-bankers using cryptocurrencies
Although traditional banks are present in almost every part of the world, there is still a huge portion of the population that does not have access to the financial services they offer. This reality is present in some African countries and India, to name but a few.
Blockchain technology solves this problem by enabling financial inclusion with the use of cryptocurrencies such as bitcoin. As cryptocurrencies are digital currencies and accessed by personal computers and smartphones, sending and receiving money becomes a much easier task.
There is no need to face the hassle of applying for a bank account and going through the monotonous and complex processes of traditional financial service providers.
2.Offer more transparency
Blockchain is considered to be one of the best technologies for tracking a transaction trail. Distributed ledger technology (DLT) technology – or the digital system – records the details of asset transactions simultaneously and in multiple places.
The transaction ledger works like the register book of a traditional bank, only in the digital universe. Everyone on the network can see the details and history of transactions, which increases transparency and accountability.
Thanks to this excellent capacity for transparency, the powerful applications of blockchain technology are not limited to the worlds of finance and technology. Its benefits have also reached other sectors, such as philanthropic institutions and non-profit organizations. Thus, donations in bitcoin and other cryptocurrencies are more accessible and traceable.
- Enable safe and reliable payment alternatives
Another great feature of blockchain technology in finance is its ability to offer safe and secure transactions. Traditional payments are usually made by cash, check, or bank transfer, among other methods. While many consider these payment options to be safer, each of them involves risks.
Take, for example, money issued by a national monetary authority. As it is printed, your ballots can be forged. The same goes for checks, which often do not have the corresponding account balance. This is a very common fear of every merchant, the famous bad check.
With blockchain technology, payments are irreversible. Companies can avoid receiving bad checks and problematic electronic payments, as blockchain limits the possible forms of fraud and online scams.
- Facilitate fast and direct international transactions
In addition to the security that blockchain technology offers merchants when completing payments, it also allows for faster and cheaper transactions. Generally, funds are sent or received by commercial banks, money sending centers, credit card processors, and other possible third-party networks.
Each transaction made by any of these service providers usually takes a day or more to be processed and includes several transfer fees. With blockchain, financial transactions have no geographical limitations, as they do not go through traditional means.
The best part of this is that transactions can be completed almost instantly. Since payments do not go through traditional methods, there is no need to worry about holidays, weekends, and business hours. It is possible to send and receive money 24 hours a day, seven days a week in almost any part of the world.
- Enable secure identity and personal data checks
Verifying the identity and personal data of customers is probably one of the most crucial activities that every company and institution needs to carry out accurately. Banks and other financial service providers are responsible for checking and confirming whether or not their customers or service users are involved in fraudulent transactions and activities.
Money laundering is one of these criminal activities and is becoming more and more frequent today. Maintaining solid security measures like these requires a lot of money. But with the power of blockchain in finance, all of that burden imposed on banks and related services can be reduced in costs.
Using blockchain-based systems to perform these operations can avoid the expensive fines imposed by regulatory authorities when banks fail to properly check users who take advantage of the system’s vulnerabilities to commit crimes.
Is it the future of the world economy?
During the last decade, there has been an intense debate in the world about the use of blockchain technology in the economy and its revolutionary importance in terms of ensuring security, protecting user data, and the speed of online transactions. Recently, this debate has gained momentum as companies and institutions in the private and public sectors have advanced in exploring the applications of blockchain technology in other areas of the economy and society.
Therefore, it is to be expected that blockchain technology will contribute shortly to change business models in many sectors, such as health, finance, energy, or public services.
Among other things, blockchain technology can become one of the important technological catalysts of the fourth industrial revolution, which will lead to the so-called 4.0 economy, in which the production process is carried out by “smart factories” within “chains intelligent supply systems ”which are cyber-physical systems connected by the Internet.
Blockchain technology outside the financial universe
The robust digital solutions made possible by blockchain technology are not limited to the universe of banks and financial institutions. With the growing interest outside the financial or technology sector, the gradual adoption of blockchain in various fields has become increasingly evident.
This excellent digital solution can still offer many benefits to the most diverse areas, from health care and supply management to cybersecurity and public administration. It will come as no surprise if we start to see in the coming years the great benefits of blockchain being employed in various sectors around the world.
