Top Benefits of Blockchain in Finance

Blockchain helps people create & exchange value across the business ecosystem. This reveals the self-facilitating, infinite capacities of the technology.

Essentially, blockchain removes intermediaries & reduces costs for new businesses to emerge. In fact, the setup removes the need for traditional intermediaries — lawyers, brokers, bankers. 

These intermediaries consume a large portion of the revenue and add friction to business interactions. Thanks to blockchain, now more and more business models are coming up worldwide, each having an exponential capacity to scale. 

How is blockchain disrupting the world of finance?

Over the last five years, many enterprises have started leveraging the power of blockchain to scale growth. 

The technology has made possible the creation of more open, inclusive, and secure business networks; shared operating models and more efficient processes. Here we chart out the main perks of blockchain.

Security

Its distributed consensus-based architecture eliminates single points of failure and reduces the need for data intermediaries. These include transfer agents, messaging system operators and inefficient monopolistic utilities. 

Blockchain also enables implementation of a secure, tamper-proof application code that is resistant to fraud by malicious third parties.  

Trust

Its transparent and immutable ledger makes it easy for various parties in a business network to collaborate, manage data, and reach agreements.

Transparency

It employs mutualized standards, shared processes, and protocols. Thus, it acts as a single-shared source of truth for network participants.

Programmability

It supports the creation and execution of smart contracts. This creates increased trust and efficiency.

High Performance

Its private and hybrid networks are engineered to process hundreds of transactions per second and periodic surges in network activity.

Privacy

It provides market-leading tools for granular data privacy across every layer of the software stack. As such, there is selective sharing of data in business networks. This significantly improves transparency, trust and efficiency while maintaining privacy and confidentiality.

Scalability

It supports interoperability between private and public chains. Blockchain in finance helps every enterprise attain global reach, tremendous resilience, and high integrity of the mainnet.

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Lower costs

To avoid higher fees, more and more investors are moving away from financial advisors; all due to blockchain. In return, the consumers are benefiting from lower costs associated with traditional financial services.

Increased efficiency and speed

Paper-bound processes are time-consuming, prone to human error, and often require third-party intervention. All these processes are streamlined with blockchain. And so, transactions are done faster and more efficiently.

All documentation can be stored on the blockchain along with transaction details, eliminating the need to exchange paper. There’s no need to reconcile multiple ledgers, so clearing and settlement can be much faster.

Automation

Transactions can even be automated with smart contracts. This increases your efficiency and speeds the process even further. Once pre-specified conditions are met, the next step in the transaction or process is automatically triggered. 

Smart contracts reduce human intervention and reliance on third parties to verify that terms of a contract have been met. In insurance, for instance, once a customer has provided all necessary documentation to file a claim, it can automatically be settled and paid.

Issuance of Digital Securities

Blockchain enables digital securities to be issued within shorter periods of time, at lower unit costs, with greater levels of customization. Digital financial instruments can thus be tailored to investor demands.

This expands the market for investors, decreases costs for issuers, and reduces counterparty risk. 

Tamper-Proof Digital Identity

In a few years, blockchain may help us replace the system of using authentication questions and passwords to prove our identity with a digital identity that is safe, secure, & easy to manage.

A digital identity is based on the uniquely random set of numbers assigned to every user on a blockchain network.  So, you will no longer need to prove who you are by recalling some arbitrary piece of information that can potentially be guessed or stolen. 

Characteristics of Self-Sovereign Identity

A digital identity is way more reliable than the present way to validate our identity, which cannot be changed without access to the private key.

Faster Transactions

As blockchain technology has a secured & decentralized nature, it is incredibly difficult – if not impossible – for nefarious parties to tamper with transactions.

Blockchain uses a distributed ledger. So, all data and transactions are identically recorded in several locations. All network participants who have been granted access see the same data at the same time. This ensures full transparency. 

Use Cases of Blockchain in Finance

Banking Industry

All transactions across the blockchain are immutably recorded, and are date and time-stamped. This is why the banking and financial services industry is moving towards an entirely digital landscape. 

In fact, it’s been predicted that the demand for blockchain technology among finance professionals will increase; 66% of banks are expecting to have blockchain solutions in production within the next three years.

With no banking hours coming in the way, blockchain will give us opportunities to process transactions 24/7. This will enable governments, businesses, and consumers to carry out transactions anytime and anywhere.

The chances are that accounting transaction management among companies & related stakeholders like banks will soon become a thing of the past, thanks to blockchain and distributed ledgers. It’ll be a new era in the history of the commercial world’s recordkeeping.

Real Estate

Verification of identities is crucial in the real estate industry. Currently, it takes up to 45 days for a bank to complete the Know Your Customer process for a buyer closing on a house.

Through blockchain, this lengthy verification process is eliminated through smart contracts. These are self-executing contracts written to perform various tasks that include verifying identities and processing loan requests.

There will be full transparency in transaction data, managing property records will become easier, and you can install smart home devices that connect with your lease terms.

Health Industry

The global market size of blockchain in healthcare is estimated to reach USD 231 million by 2022. Besides, the growth rate is expected to be 63% over the next six years.

Just like digital identities, health records can be stored and managed through blockchain technology. It also enables the healthcare providers to securely exchange data with each other. 

The speed of diagnosis will improve and redundancies will decrease while protecting patient privacy. Blockchain can also be used to monitor the supply chain, lower health insurance premiums, improve drug safety, and fight counterfeit medications.

Voting

As compared to the traditional voting method, voting via blockchain is faster, easier, and more secure. It even supports remote voting.

So, you won’t need to go to the polls to cast your vote. Instead, you could log on to your mobile device or computer, verify your identity, & vote.

How Blockchain Technology Works in Elections

As there will be an immutable record of votes, no fraud or tampering will take place. 

Automobile Industry

The automotive industry is experiencing a seismic shift from buying cars to borrowing them. As the years go by, you may be able to pay for your car with cryptocurrency and get money back on the investment through tokenized ownership. 

Moreover, you wouldn’t even have to worry about insurance or monthly payments. Simply download an app, choose your model and pick-up location, and you’re all set. The whole process will be completed in a few minutes. 

You won’t need to get any financing approved by the dealer or talk to a car salesperson. All of it will automatically come through, based on your cryptocurrency wallet.

Tokenization of assets

In the coming years, more and more businesses – big and small – will begin accepting cryptocurrency payments. Thus, the widespread use of blockchain technology will increase even more.

This shift may lead to a widespread tokenization of assets besides cars — perhaps land, artwork, houses, or anything that is valuable.

Quick Processing of Insurance Claims

Property and casualty insurance claims are prone to fraud and claim assessments can extend long periods of time. Blockchain in finance can securely streamline data verification, claims processing, and disbursement, reducing processing time significantly. It allows:

  1. Authenticated documentation and KYC/AML data, reducing the risk of fraud and facilitating claim assessments.
  2. Automated parameterized contracts to pay out upon occurrence of certain risk.
  3. Automated claims processing with the use of smart contracts.
  4. Automated disbursement of insurance payments.
  5. Tokenized reinsurance markets to facilitate policy reinsurance in open marketplaces, stepping away from traditional broker and relationship-based systems.

IoT

Blockchain is poised to transform practices in a number of IoT sectors, including:

The Supply Chain

Tracking the location of goods as they are shipped, and ensuring that they stay within specified conditions.

Asset Tracking

Monitoring assets and machinery to record activity and output as an alternative to cloud solutions.

Easily Ensure Regulatory Compliance

Regulatory compliance has become increasingly important in the commerce and finance space. It is necessary in order to ensure that financial institutions respect laws, rules, and regulations applicable to their activities. 

Currently, it is a huge challenge for firms to keep up with the pace and complexity of regulatory change— particularly when firms operate across borders and are thus exposed to multiple regulatory regimes. 

Blockchain in finance offers these benefits:

  1. Unique governance and compliance attributes programmed into digital assets.
  2. Creation and enforcement of incentive structures to improve network governance.
  3. Streamlined processes that automate data verification and reporting, facilitate regulatory oversight, reduce operational friction, and eliminate errors associated with manual auditing and other activities— all in real-time.

Transportation & logistics

In the past few years, blockchain technology has experienced increased adoption from the transportation & logistics sector and is anticipated to help tackle some of the major inefficiencies that have been persistent in the industry for decades. For logistics companies, blockchain in finance promises to bring transparency to all documents and transactions, increasing efficiency and innovation of supply chains.

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Blockchain Applications in Government

Record Management

The national, state, and local governments are responsible for maintaining individuals’ records such as birth and death dates, marital status, or property transfers. Managing this data is difficult as most of these records only exist in paper form. 

Sometimes, citizens have to physically go to their local government offices to make changes, which is time-consuming. Blockchain in finance simplifies this recordkeeping and makes the data far more secure.

Identity Management

Proponents of blockchain tech for identity management claim that with enough information on the blockchain, people would only need to provide the bare minimum (date of birth, for example) to prove their identities.

Blockchain Technology Market Size Across the World From 2018 to 2025 (In Billion U.S. Dollars)

The global blockchain market is growing at a CAGR of 45% and estimated to reach USD 34 billion by 2026. Meanwhile, Statista forecasts suggest that the coming years will witness a massive growth in global blockchain technology revenues; the market is expected to steer much above 39 billion U.S. dollars in size by 2025.

Source: Statista

Both these figures suggest that the future is ripe for everyone wanting to derive financial benefits from blockchain.  

As blockchain continues to decentralize financial activities, governments across the world are striving to understand and regulate the technology. Of course, those that do so effectively will be able to attract global investment and become frontrunners in the blockchain economy.


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May 16, 2022

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