If you’re a bitcoin or cryptocurrency user, you’ve probably heard about the powerful mind behind these ingenious forms of money—blockchain technology. Businesses and corporations from different industries are now using this technology to enable a great deal of effective digital solutions.
Among the many industries today, the benefits of adopting blockchain technology are seen to be most prevalent in financial sectors and institutions. But before digging deeper into the benefits of this technology, let’s first have a quick look at what it is.
A quick review of blockchain technology
Blockchain technology is a decentralized, distributed ledger that keeps track of a digital asset’s transactions. It works solely digitally and doesn’t have any central authority that regulates and supervises all the system’s movements.
Blockchain also has a lot of copies of a ledger, or list, of transactions in the network. Its distributed feature enables new transactions to be transmitted to a wide range of network users. It’s so powerful that it can work and proceed with its complex operations all by itself!
It’s also immutable, which means it’s nearly impossible to alter or even delete a transaction. With this powerful feature, adding up false information in the transaction is also unattainable.
Compromising a blockchain will require you to change every copy of the ledger in all possible locations. Just imagine attempting to hack thousands of computers all at the same time—even thinking about it can give you a headache.
It’s also the unique technology behind today’s leading cryptocurrency, known as bitcoin (BTC). To discuss this further, here are some of the ways on how blockchain technology can change finance and banking.
1. Reaching the unbanked population through cryptocurrencies
While traditional banks are present in almost every place in the world, there’s still a vast percentage of the population that has no access to the financial services they offer. These jurisdictions include some African countries and India, to name a few.
Blockchain technology fixes this problem by enabling financial inclusion through the use of cryptocurrencies like bitcoin. Since cryptos are digital currencies and are accessed through personal computers and smartphones, sending and receiving money is no longer challenging.
There is no need to brave the hassle of applying for a bank account and going through the tedious processes of traditional financial service providers’ complex operations.
2. Providing higher levels of transparency
Blockchain is known as one of the best technologies for following a trail of transactions. The distributed ledger technology (DLT), or the digital system, records the asset’s transaction details simultaneously in multiple places.
The transaction ledger works like the traditional bank’s record book, but digitally. Everyone in the network can view the transaction details and history, which boosts transparency and accountability.
With this excellent transparency feature, the powerful uses of blockchain technology aren’t limited to the finance and technology space. Its benefits have also reached other industries and sectors, including charities and non-profit organizations. With this, donations in bitcoin and other cryptocurrencies are more accessible and traceable.
3. Enabling secure and reliable payment options
Another great feature of blockchain technology in finance is its ability to provide safe and secure transactions. Typically, payments are handed over through cash, checks, and wire transfers among others. While most people consider these payment options to be the safest ones, each of them is still prone to possible risks.
Let’s take government-issued money, for example. Since it’s printed, fiat money or cash can be faked. The same goes for checks, which are sometimes used for payment without balance. This is also known as every merchant’s fear—bouncing checks.
With blockchain technology, payments are irreversible. Businesses can avoid receiving unfunded checks and encountering faulty electronic payments as it limits the occurrence of possible forms of online frauds and scams.
4. Facilitating speedy and direct cross-border transactions
Apart from the confidence that blockchain technology gives to merchants when completing payments, it also facilitates faster and cheaper transactions. Usually, sending or receiving payments is made through commercial banks, money remittance centers, credit card processing companies, and other possible third-party networks.
Each transaction through any of these service providers often takes a day or more to be processed and usually comes with varying transfer fees. With blockchain, financial transactions aren’t limited by geographical boundaries since they won’t go through traditional means.
The best part is that transactions can be completed in nearly an instant! Since payments don’t go through traditional payment methods, there’s no need to worry about holidays, weekends, and business hours. It’s possible to send and receive money 24/7 from almost any part of the world.
5. Enabling safe identity or personal data verifications
Verifying the customer’s identity and personal details is probably one of the most crucial jobs that every business and institution has to accomplish accurately. Banks and other financial service providers are responsible for checking and confirming whether or not any of their customers or service users are engaged in fraudulent transactions and activities.
These malicious activities include money laundering, which is becoming more and more prevalent today. Maintaining these kinds of strong security measures requires loads of money. But with the power of blockchain in finance, this overwhelming burden carried by banks and related services can be minimized at cheaper costs.
Utilizing blockchain-based systems in running such operations can ease the possible painful fines from regulation authorities if banks fail to verify that their users aren’t taking advantage of the system to carry out criminal activities.
Blockchain technology outside of the financial space
The robust digital solutions enabled by blockchain technology aren’t only limited to banking and financial institutions. As more and more people from outside the finance and technology industry try their hand at it, the gradual adoption of blockchain in various fields is becoming more evident than before.
From healthcare and supply management to cybersecurity and government—there are still a lot of benefits that this excellent digital solution can offer. It’s no surprise that in the years to come, we’ll see blockchain’s firm and progressing potentials being employed in many industries all over the world.