Financial institutions already have already been grasped by the concepts of bitcoins and cryptocurrencies. There is no secret that these concepts work on the blockchain technology, which can be defined as a digital, distributed transaction ledger with indistinguishable copies maintained on each of the network’s members’ mainframes. All those who are involved can review the entries and record new ones which are safeguarded by the innovative technology. Transactions are assembled in blocks, documented one after the other in a chain of blocks or also as we know the blockchain. The links between these blocks and their content are protected by cryptography, so preceding transactions cannot be damaged or forged. This signifies that the ledger and the transaction network are confidentially safeguarded without a central authority.
There are numerous advantages to applying the innovative blockchain technology in the FinTech sector:
Assisting in Cross-border Payments
One knows that the transfer and processing of cross-border payments are expensive and also tedious. However, with the advent of blockchain technology, the process has been able to speed up and made straightforward while also decreasing the costs significantly to process these payments.
Impacting Share Trading & Smarter Contracts
Using blockchain technology share trading will become more accurate, and the process of settlement will also be shortened. This is and will be impacting the share trading industry immensely. Alongside, one of the most capable applications of blockchain technology is the implementation of a smart contract. These smart contracts will enable execution of commercial transactions and agreements routinely. This code can be programmed to generate contracts or implement financial transactions once a definite set of conditions are achieved. It will also put into effect the obligations of all parties in an agreement without the added expenditure of a middleman.
Enhancing Online Identity Management
Once identity management is transferred to blockchain technology, users will be able to opt how to recognize themselves and whom to pass this information. The users still need to register their identity on the blockchain and once after the same the users can re-use that identification for other services. Blockchain technology will enable financial institutions to individually authenticate users so that other organizations would not have to follow the same process.
Drop in Fraud
It has been estimated that almost 45 percent of financial mediums like money transfers and stock exchanges suffer from economic crisis every year. The new-kid-on-the-block, blockchain technology can remove fraud hence the technology is gaining interest. Almost every banking sector is vulnerable to cyber attacks owing to them being centralized and governed, and at any point in time, a hacker can contravene into a system and get complete access. The blockchain system includes batches of individual transactions with a link to the previous block. Blockchain technology will assist in removing the current cons taking place online resulting in the safekeeping of sales.
The payment sector can significantly profit from blockchain technology, just as the financial industry has. The current payment techniques cost users processing fees along with high fees charged by e-commerce platforms on any sale made by the user which can start from around 2–3 percent of the total purchase of any transaction. Request Network and ECoinmerce aim to produce a blockchain network using fast and private sales for any e-commerce model.
One of the challenges that the finance industry faces today is that of data storage. One can easily see that the financial industry stores a lot of valuable data including the identities of the customers and their personal financial information. This data can be hacked and utilized by the online hackers efficiently hence blockchain technology can put to rest such attacks and data breaches.