What is Blockchain Technology? and How Blockchain can transform the Financial Service Industry?
What is Blockchain Technology?
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on the network, reducing risk and cutting costs for all involved.
Blockchain technology is one of the leading innovations in the finance industry, holding promise to reduce fraud, ensure quick and secure transactions and trades, and ultimately help manage risk within the interconnected global financial system.
Key elements of a blockchain:
All network participants have access to the distributed ledger and its immutable record of transactions. With this shared ledger, transactions are recorded only once, eliminating the duplication of effort that’s typical of traditional business networks.
Immutable records
No participant can change or tamper with a transaction after it’s been recorded to the shared ledger. If a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible.
Smart contracts
To speed transactions, a set of rules — called a smart contract — is stored on the blockchain and executed automatically. A smart contract can define conditions for corporate bond transfers, include terms for travel insurance to be paid and much more.
source: IBM
Read Also: Role of Machine Learning (ML) in Finance
How Blockchain could transform the Financial Service Industry?
Blockchain has the potential to make the financial services industry more transparent, less susceptible to fraud and cheaper for consumers.
Improving transparency. Blockchain can make the financial industry more transparent since users are performing activities on a public ledger. This transparency can expose inefficiencies like fraud, leading to problem-solving that could reduce risk for financial institutions.
Adding security. As consumers become increasingly active online, the digital universe is a breeding ground for scammers. With blockchain technology, this concern could be reduced. Payments and money transfers made on the blockchain are faster and more traceable than in traditional banking.
When information flows through different financial intermediaries, there is a risk of interception of that information, raising the possibility of fraud. This hole in oversight can be filled with blockchain’s cryptographic algorithms that bring security in the exchange of information between parties.
Financial technology companies other businesses that use large amounts of data need blockchain to build data integrity.
Lowering costs. As investors move away from financial advisors to avoid higher fees, blockchain provides an opportunity for consumers to benefit from lower costs associated with traditional financial services.
When it comes to transferring money, consumers have to rely on banks or third parties to process transactions.
But adoption of blockchain could bypass third parties such as banks, which would eliminate fees and other costs associated with these services. As a result, banks may face challenges in volume and transaction-based revenue.
Financial technology companies have become a huge part of the financial services industry, allowing investors to open accounts with digital advisors and make independent financial decisions. As fintech plays a stronger role in global finance, its relationship with blockchain will inevitably become stronger.
This innovation can be good for consumers because investors are getting more for their money and they’re getting a balance between automation of financial services and a lower cost.
source: US News
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