Blockchain and its Impact on the Financial Sector
Blockchain technology has taken the financial world by storm. This tamper-proof technology, which runs on several devices across a network simultaneously using smart contracts in automating the process of recording and executing transactions, significantly reduces processing costs.
The blockchain is technically a decentralized digital ledger. Each transaction is simultaneously updated as a new “block” across all nodes, providing identical information to participants across the distribution chain simultaneously. Participants can trust their blockchain transactions even in the absence of central authorities as each transaction is required to undergo a validation process before being added. These verified transactions, once recorded, are unchangeable, making it impossible for people to tamper with blockchain data without leaving a trace. Blockchain security is further reinforced by the use of cryptographic keys. Programming blockchain transactions through smart contracts ensures adherence to the regulatory and commercial rules necessary to trigger transactions between nodes.
The possible benefits of using blockchain include:
• The use of a decentralized ledger simplifies retail bank payments, especially international payments as it can verify customer identity across banks by functioning as a decentralized and common mechanism.
• The finance industry previously used intermediaries to meet investor demands for a set of products across the globe, which is effectively eliminated through the distributed ledger concept while enabling cross-border direct trading and settlements, cutting down on costs and delays while increasing data accuracy.
• Blockchain proves highly effective in reducing transaction time and operational costs in stock market transactions. Decentralized trading also renders the proximity to exchange servers irrelevant, reducing the need for market intermediaries and makes the share settlement process more transparent.
• Blockchain is also useful in the insurance industry as it drives fraud-free claims management, transforms digital transformation and enables product innovation.