Despite concerns from central governments and authorities, the finance sector is increasingly excited about how blockchain technology (the basis of Bitcoin) will revolutionize how it operates.
Just as Airbnb disrupted the hotels and corporate accommodation providers and Uber changed the face of the taxi industry, blockchain is transforming banking, finance, and currency.
A new more integrated global economy is emerging as those who were previously restricted by poverty or law gain access, while powerful financial institutions are turning to digital assets and peer-to-peer transactions and management, for increased efficiency and security.
Let’s take a closer look at how finance has already been revolutionized and what the future holds …
1) Speed and Efficiency
According to the Harvard Business Review, just as the internet made the dissemination of media faster and more efficient, blockchain technology will do the same for banking and finance. The majority of financial organizations are expected to use blockchain for international money transfers in the coming years.
A large international financial transaction between banks and other financial institutions can take days to be fully cleared as it travels through traditional systems and accounts. Using blockchain technology it can take seconds.
Paper trading clearing and settlement usually takes three days after a trade is made, this takes seconds with blockchain.
In essence, it cuts out the middlemen.
2) Less Expensive
By cutting out the middleman and reducing the need for large infrastructure, blockchain is also less expensive. Current banking has a myriad of fees as transactions cross national borders and travel through different services. Even individuals face the likes of Paypal and credit card fees and currency conversion fees.
A lot of this has to do with security, identification, and other what we might call ‘paperwork.’
“Blockchain systems could be far cheaper than existing platforms because they remove an entire layer of overhead dedicated to confirming authenticity,” notes a report by PWC.
According to research by Santander, it’s believed that using the blockchain could lower the banking industry’s infrastructure costs by up to $20 billion per year!
3) Regulatory Compliance
Every time a bank okays a transaction over $10,000 it must report the information to the Financial Crimes Enforcement Network, who log it in their anti-money laundering database. This is just one example of regulatory compliance that slows down the financial system and requires bulky infrastructure.
Blockchain technology has the ability to function as a transparent de-centralized log of any and all transactions, that can be coded specifically with such regulatory compliance in mind.
4) Easy Auditing and Accounting
There are also huge implications for accounting and auditing because the P2P blockchain database is built from its own transaction history. It is an autonomous and self-contained recording system.
5) New Customers
The economy will benefit greatly from a range of new customers, particularly those in developing and oppressive nations who haven’t traditionally had access to bank accounts, finance or the global economy.
As long as they can find an internet connection, a small market trader in Uganda can carry out free and secure business via Bitcoin and the blockchain, tap into global markets, and potentially even access loans and other financial products that they would otherwise be restricted form.
Even if the state wanted to prevent this, there is little they could do to enforce so, because the system is anonymous and there is no central control.
From personal $5,000 loans to corporate finance in millions, lending through the Blockchain. “The main advantage of blockchain over existing processes is its ability to speed up and simplify complex transactions by making changes and updates immediately visible to all parties,” says the Financial Times.
7) Digital Assets
Bitcoin and the blockchain created a unique class of digital asset that cannot be copied, something the music industry could have done with back in the mid-90s when pirating songs took off. This can be applied to currencies (i.e., Bitcoin), contracts, and a range of other assets.
Fake currency is still a huge problem within the traditional economy.
8) Smart Contracts
A very exciting aspect of blockchain technology is its ability to facilitate contracts (called smart contracts), which have been popularized by Ethereum. It can execute agreements and underlying transactions and enforce all obligations are met, automatically and without the need for middlemen and escrow—an added expense.
From the first banks and paper money to the invention of credit cards, there’s no telling what the future holds. But, right now, the blockchain is the next big step for the finance sector.