Blockchain technology is a shared and immutable ledger that is secure and transparent. The technology creates a decentralised database that cannot be tampered with and is said to have the potential to revolutionise the way we interact digitally. Blockchain technology is leading in the finance industry promising quick trades and secure transactions, reducing fraud. Ultimately eradicating risks within interconnected international financial systems.
Blockchain is designed to resist hacking and tampering with the help of advanced cryptography, safeguarding transaction systems. Besides keeping a check on trades and transactions, there are many uses of blockchain in finances. As the global financial system is becoming more and more digital, financiers and investors need to learn about blockchain. They must know about earning potentials, and risk factors tech-oriented startups are posing in the traditional banking system.
What is Blockchain?
Blockchain is a digital ledger of transactions that are recorded in a decentralised network. It is a shared digital collection of transactions that don’t have any central authority, which means no one entity or person can control the records and intervene in the data. The blockchain is made up of individual blocks(sets) of data, which are interconnected in chronological order.
These blocks can’t be changed which ensures tamper-proofing and establishing confidence in the network. If somehow, the data of one block is changed so that it will not match the other linked blocks, eventually the tampered data will be discarded. Blockchain manages transactions by securing data in all linked blocks as soon as it takes place. The purpose of blockchain in finances is to reduce costs and improve efficiency.
Also Read – 4 TED Talks That Show How Blockchain Is Changing Business
What are the Benefits of Blockchain in Financial Services?
Blockchain promises more transparent, tamper-proof, and efficient financial services.
Security
As everything is turning digital, online frauds are also on the rise. The intensive activities of users on the Internet have become a breeding ground for fraudsters. Blockchain technology promises to solve this concern. Payments on the blockchain are more secure and traceable than the old-school banking system.
In the traditional banking system, information flows through multiple intermediaries which are prone to the interference of data, which increases the chances of tampering and fraud. The holes in the boat can be filled with the cryptographic algorithms of the blockchain which is secure from hacking and tampering and brings security to the exchange of information.
Transparency
Blockchain’s most important feature is transparency as the user’s transaction activity is recorded in a public ledger. Transparency immediately exposes fraud which leads to a risk-free financial environment for financial institutions. Every block in the link has a copy of data throughout the network. Each time a new transaction takes place, everyone in the network will receive a copy. The system is designed in such a way that it shares the same information with everyone.
Cost-effective
This innovative technology allows investors to get more of their money cutting down costs associated with traditional financial services. Higher fees for financial advisors are a big turnoff for an investor. Blockchain technology eradicates this concern also.
Financial Technology companies are becoming a huge part of the financial industry nowadays. FinTech companies are allowing investors to open a free account and take independent financial decisions. As FinTech companies are playing a stronger role in finances, their relationship with blockchain is also becoming stronger.
What are the Risks that Blockchain and Financial Institutions are Facing?
To transfer money, the consumer has to depend on the bank for the transaction. Banks earn money from transaction fees. The adaptation of blockchain will bypass the need for banks which will eventually eliminate transaction fees and other associated costs. As a result, banks will face a decline in transaction-based revenue.
Blockchain innovation is moving at such a rapid pace that regulatory bodies have not implemented full control over it. Certain policies are creating barriers to the inclusion of blockchain into financial services. Regulatory bodies are monitoring and analysing the benefits and risks of blockchain technology in finance to see how it will impact companies and consumers.
Which Blockchain Investment to Buy?
An investor who wants to get involved in blockchain finance has a few investment avenues.
One way is to buy shares of the companies that are involved with blockchain technology. International Business Machines Corp. (IBM) falls into this category. IBM is associated with the development of blockchain technologies. They are also providing blockchain integration services to the business for scalability, efficiency, and growth.
Another way is the investment in cryptocurrencies. Cryptocurrencies work purely on blockchain technology. MicroStrategy Inc. (MSTR) is a software solution company that holds 105,000+ bitcoins (a type of cryptocurrency) which is valued at more than $5 billion.
Square Inc. (SQ), a payment services company is about to launch a decentralised finance platform focusing on Bitcoin applications.
Investing in these companies allows investors to invest in cryptocurrencies without having direct exposure to them. MicroStrategy is up about 80% while Square is up about 23%.
