Blockchain has grown immensely over the last few years because of its layers that rewire the Internet and threaten to sidestep older legacy structures. Studies have shown that in 2022 worldwide spending on Blockchain will reach $11.7 billion, and it has been estimated that it will accumulate $20 billion in revenue by 2024.
Trust resides at the core fabric of the Blockchain, which has the unique ability to remove intermediaries or their current operating models potentially. This revolutionary technology enables transactions to be simultaneously and securely maintained utilizing public or private ledger.
The present financial system is very crucial, and that complexity creates risks. A new decentralized Blockchain financial system made possible with Crypto could be much simpler by removing the layers of intermediation. This could help increase cooperation between banks and engrave trust and integrity at the core of the new Blockchain financial system. So it is not wrong saying that Blockchain is changing the finance system.
But how Blockchain is changing the finance system is the question that blows every person’s mind. Because financial inclusion is increasing worldwide due to the new blockchain financial systems. New digital currencies will help those individuals who are currently excluded from the new financial system, enabling greater competition and lower barriers to entry.
This will have a great impact on the financial system in many ways. To look in more detail, let’s dig deep and find out how Blockchain will change the finance world. Below are some of the areas that will be provided by the Blockchain to the financial system.
Impact of Blockchain to the Financial System
1. Authenticating Value & Identity
Today identity verification and trust is done by intermediaries and incumbents. Blockchain will shift or eliminate the trust element to the core fabric of the network. The KYC ( Know Your Customer/sometimes Know Your Client) of your client will work as a single digital entry and cryptographically secured and distributed across the network by eliminating duplicate entries and verifications.
Key stakeholders that would be affected with these innovative solutions are investment banking, retail banking, wholesale banking, asset managers, payment networks, leading marketplaces, equity crowdfunding, and auditors.
2. Asset Management
Old trade processes within asset management can be slow, cumbersome, manual and filled with the risk when reconciling and matching- and also getting more crucial with cross border transactions and for non-standard investment products, like loans.
Each [arty in the trade lifecycle (for example. intermediaries, broker dealers, custodians, clearing and settlement teams.) keeps their own copy of the same record of a transaction, building significant inefficiencies and room for error.
Blockchain will streamline and simplify this entire process, providing an automated trade lifecycle where every party in the transaction will have access to the exact same data about a trade.
And this would lead to substantial infrastructure cost savings, faster processing cycles, effective data management and transparency, minimal reconciliation, and the potential removal and intermediaries altogether.
3. Insurance
Fraudulent claims, manual processes, fragmented data sources, policies for one user in legacy underwriting models are some of the biggest challenges experienced in the insurance sector that almost every second person is facing in today’s life. All these challenges are causing low customer satisfaction.
Building policies as a smart contract on the Blockchain is an ideal use case for insurance. Because it offers transparency, full control, and traceability for each claim and could lead to automatic pay-outs.
Blockchain would also enhance risk modeling for the sector, break down the existing silos and significantly reduce fraudulent claims by capturing the origin and ownership of homes, cars, paintings, and other assets to be insured.
4. Supply Chain
The digital transformation of the supply chain and trade finance is one of the most unique and exciting opportunities for smart contracts and Blockchain. Although existing supply chains are slow, complex, distributed, and involve many parties worldwide, they usually don’t even trust each other (but the need for trusted third parties such as clearinghouses and banks to mediate.)
Automatically executing Smart Contracts on the Blockchain to transfer titles to goods and money eliminates the need for banks to offer products such as letters of credit, drastically reduces costs by cutting out the middlemen and their fees and builds a trusted network of assured authenticity and origin of the products being supplied.
5. Payments
You might have noticed that it still takes days or more to transfer money to another country. The global payments sector is gigantic, slow, costly, error-prone and not wholly traceable. It desperately needs enhancement, and Blockchain is the best for that as it provides solutions here.
You might have heard that Santander (A Renowned Bank in Spain) has become one of the first banks to apply Blockchain to a newly released payments app, enabling customers to make international payments 24 hours a day.
Blockchain has allowed banks to provide real-time prices whilst reducing operational costs, fraud, and human errors. Blockchain has a transformational role in the way that helps banking sectors to achieve their goals, better serve customers, and add value by creating more choice and convenience.
6. Compliance
Financial institutions worldwide are responsible for complying and reporting on a number from their local regulator. Knowing about the KYC of your customer is a primary requirement of the financial sector. But the process can be incredibly time taking and lack the automated customer identification technology and integration needed by teams to do their work efficiently.
Blockchain technology provides a single digital source of ID information allowing for the seamless exchange of documents between banks and external agencies. This comes with the result of automated account opening, reduced resources and cost, whilst maintaining the privacy of the data that is required legally.
7. Audit
Today’s financial accounting systems are based on a double-entry system. Double-entry bookkeeping needs the reliability and trust of outsiders, independent public auditors to verify the company’s financial information. Each audit is costly, which binds the company accountants for an extended period.
Blockchain as a source of trust is beneficial in today’s modern accounting structures. Using a digital fingerprint that is immutably time-stamped and tamper-proof, the transaction is recorded in the Blockchain, as it will remove the need for external auditors. Blockchain technology will bring trust and transparency so the network can become the auditors and the watchdog to ensure financial integrity.
What Benefits Blockchain Give To Finance System
1. Security
Ethereum in Blockchain enables the implementation of secure application code designed to be tamper-proof against fraud and malicious making it virtually impossible to manipulate or hack.
2. Trust
The immutable and transparent ledger of Blockchain makes it easy for different parties in a business network to collaborate, reach agreements, and manage data.
3. Transparency
Blockchain employs mutualized standards, shared processes, and protocols, pretending as a single shared source of truth for network participants.
4. Privacy
It provides market-leading tools for granular data privacy across every layer of the software stack that enables selective sharing of data in business networks.
5. Programmability
Blockchain supports the creation and execution of Smart Contracts- tamper-proof, deterministic software that automates business logic by creating efficiency and trust.
6. High Performance
The private and hybrid networks of Blockchain are engineered to sustain hundreds of transactions per second and periodic surges in network activity.
Final Words
Blockchain technology is rapidly spreading its roots in the finance sector. It is pretty evident for people asking questions about how Blockchain is changing finance systems to know about its financial benefits. Because the technology has drastically changed the financial sector as it provides reliability and security to users in many ways. It offers secure payments, adopts an agile approach, delivers value, and prepares customers for inevitable secure payment along the way.
There is no doubt that Blockchain is the best and only way to secure transactions, but still, many rooms need to be opened in this technology. So if you are seeking to know more about it or looking for help with Blockchain development you can have a word with our experts. At Nascenture, we employ certified experts that have vast experience and knowledge to guide you in every manner.
