The first use of Blockchain technology was cryptocurrency-positioned as a dormant rival to fiat currencies controlled by the government and central banks. Nonetheless, one of Blockchain’s many potential applications is to provide the underlying technology that allows a viable alternative digital currency. The distributed, p2p, cryptographically encrypted software was called’ the Internet of Value,’ a complement to the current’ Internet of Data’ which underpinned the Internet age’s first period. While ‘ value ‘ is not fundamentally merely economic value, it is definitely one field that Blockchain technology is anticipated to greatly transform in the years to come.
The roles undertaken by financial services companies have been encryption, identity clearing, settlement, and record-keeping. And for providing that service, they were handsomely rewarded. However, the digital ledger system of Blockchain now has the potential to diminish or negate the need for banks to payment processing systems for financial services companies. Another way to refer to Blockchain is as a’ natural value medium.’ Through money to company shares or to the intellectual property properties, it can be tailored to any type of asset. These can be stored, transferred, transacted, shared and handled without having to create’ trust’ by powerful intermediaries.
So, what the ways Blockchain Tech is changing or can be expected to change the future of finance?
How Blockchain is Changing Banking?
The scope within the banking and finance for distributed Blockchain applications could be seen as both a risk and an opportunity for the sector. As Deloitte points out in a recent report on Blockchain in financial services, banks are under pressure to reduce costs and increase profits.
Administrative and market stresses, as well as the threat of non-bank fintech start-ups, make it more difficult for the banking industry to maintain profitability than ever before. Blockchain-based systems integration could substantially help them achieve operational efficiencies and reduce overheads.
- Payment/Transfer: Standard payment and exchange are heavily dependent on counterparties. There is an ‘at least’ six-step process including a host of financial services companies if you pay for something in a shop with a debit or credit card. It is similarly complex to transfer money from one bank account to another. Apps based on blockchain will reduce the demand for all these delegates and make payment, clearance, and settlement an operation between a merchant and your bank account.
- Identity: The identity of customers and counterparties is one of the most onerous positions banks have to deal with. Regulators keep banks accountable for ensuring that their customers do not use their services for money laundering or other criminal activities. Doing so is costly and fines are handed out for failing to do even more effectively. A great deal of work is currently going on around Blockchain-based consumer identity systems, which have the potential to significantly reduce this burden on banks.
- Personal Data & Financial History: Blockchain-based technology also has great potential to unify all personal information and financial history of a customer through different financial institutions in a safe and efficient way. Many bank customers could use a Blockchain-based electronic briefcase to feed all of their financial transactions. We would have control over their own information and financial history and provide access as required or needed to banks or other financial services. Complex credit profile checks based on the collection of personal information by third parties would become obsolete and procedures such as applying for a loan would become much quicker and easier.
How is Blockchain Changing Money & Business
What Blockchain is trying to do is cut as much fat as possible from financial and other business systems. Companies performing the role of middlemen will look over their shoulders in various transactions between counterparties. Blockchain’s ability will already be in the Mastercard diagram above about financial intermediaries of this kind. The days of money transfers to a relative overseas costing 10%, or e-payment wallets sucking up a substantial percentage of transactions in and out of them are nearly over. If half a chance is provided, Blockchain will greatly democratize finance in the years to come.