Blockchain technology is changing the world one industry at a time. Known best as the technology that enables the existence of cryptocurrency, it’s transforming commerce across virtually every sector, and accelerating the next fintech revolution.
But what is blockchain exactly and how is it changing how the world does business? In short, blockchain is a shared, indisputable record of transactions and trades, known as the ‘block’, with each block connected to the transactions before and after it, forming an irreversible ‘chain’, which is duplicated and distributed across a peer-to-peer network of computer systems.
How does it work?
How it’s transforming finance?
The beauty of blockchain technology is its ability to create a completely new financial ecosystem, where every transaction is transparent and secure. This win-win scenario has the potential to reinvent many industries as it fundamentally changes how we send, receive, manage, and store our money.
In other words, blockchain decentralises the domain of finance, which has traditionally operated as a centralised system controlled by financial institutions and governments. Blockchain transfers the control and decision-making to a network of users, so that no one has control of the chain, creating a seamless, safer, and less time-consuming way to transact and trade.
What are the benefits?
A closer look at blockchain’s impact in the financial services space:
1) It creates an unchangeable digital ledger
Businesses need data to function, and they need to receive it quickly and accurately. Thanks to its decentralised nature, blockchain provides instant, shared, and completely transparent information stored on an immutable digital ledger that can only be accessed by network members with permission.
Transactions are automatically validated as they are sent to all the nodes in the network for authentication, meaning you can bypass traditional fraud prevention methods, which require multiple parties to validate transactions.
Blockchain is a hugely positive innovation but it faces one common tech challenge: scale. As more people use the internet and trade in cryptocurrency, more and more data is circulated owing to the sheer number of transactions. More transactions require more processing power and attract higher fees.
2) It’s more secure and trustworthy
The immutability of the blockchain means that you can log a complete, unchangeable record of every transaction, which offers significant protection from fraud. The technology provides a trustworthy and secure way for platforms to facilitate funds transfers, making it possible for consumers to use their mobile devices to pay for goods and services without the security risks they would normally face.
For the time being at least, identity verification is performed through intermediaries but with blockchain, KYC takes place as a single digital entry securely distributed across the network, eliminating multiple entries and verifications.
3) It accelerates processes
Traditional processes that involve third parties for authentication cause delays, which leads to lower customer satisfaction. By enabling peer-to-peer transactions, data is shared accurately and timeously, and only to network members who are specifically granted access.
4) It cuts costs
We all know that time is money, so by cutting down on the third parties and time involved in transactions, costs are significantly reduced. According to a study done by McKinsey, using blockchain in the financial sector could reduce the operational cost of international transactions by almost 50 percent.
Although still in its infancy in terms of adoption, blockchain is slowly being leveraged by pioneering fintech companies to essentially redefine the banking process and give users more control over their money. At the same time, they are addressing the problem of financial exclusion, ensuring financial services are more accessible and affordable for all.