4 Ways Blockchain Technologies Can Positively Impact the Financial Industry

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Cryptocurrencies have immensely grown in popularity in recent years, so much so that when people discuss “crypto”, they’re usually talking about digital coins and tokens rather than cryptography, which is the discipline that made cryptocurrencies possible in the first place.

Cryptography is the study of secure communication techniques, and the discipline is essential in linking and storing data in blocks, which then form the basis of a blockchain. The blockchain, in turn, serves as a public ledger that maintains a record of the transactions that involve cryptocurrencies. Because blockchains store data in chronological order and these ledgers are distributed to the members of decentralized financial systems, blockchains are effectively immutable and irreversible. This keeps cryptocurrency transactions secure from tampering for the most part.

The technology is certainly appreciated by people who have a stake in Ethereum or someone who has a Monero wallet, but the application of blockchain technology extends far beyond bitcoin and the thousands of altcoins in the cryptocurrency market. Some people are even more excited about the opportunities that blockchain technology presents the financial industry over the highly engaging world of cryptocurrency trading and investment. And why not? This is especially true since blockchain technology brings the financial world a step closer to the following possibilities.

 

Quick and Affordable Cross-Border Transactions

 Digital technology has made the completion of financial transactions much faster and easier for the current generation, but there are still plenty of inefficiencies in the way that transactions are being processed. For one, many financial institutions make use of different systems, and these systems have different standards compared to the applications that other banks, insurance companies, and financial services providers use. If a transaction needs to go through multiple intermediaries, it must be able to adhere to the different guidelines set by these financial institutions. The presence of these checkpoints can make it difficult to predict how much time it will need to complete a transaction, and unexpected delays, consequently, can drive up costs.

The use of blockchain technology can make this process easier, faster, and more affordable. Blockchains are designed to work without centralized control, and transactions that make use of this technology don’t have to go through multiple intermediaries managed by various financial institutions. This reduces the need to tweak transaction formats so that they can be easily processed by different systems, and it also eliminates the multiple pain points that prevent complex transactions from being completed in an efficient and timely manner.

 

Improved Transparency and Compliance Guidelines

 Blockchains serve as public ledgers for cryptocurrencies, but they can also do the same function for other types of information, be it financial transactions or company and personal profiles. Now, if a financial institution were to compile customer data for their Know Your Customer (KYC) and Customer Due Diligence (CDD) processes using blockchain technology, then they can rest assured that the information they have has not been altered in any way. This will enable them to streamline their processes and check the background of their prospective corporate and retail customers with minimal effort, all while ensuring the quality of their KYC and CDD outputs.

Applying blockchain technology in this way benefits more than financial organizations. It can also be a boon for regulators that are tasked to ensure the compliance of banks, financial services providers, and insurance companies.

 

Wider Application of Automation in Financial Transactions

 Transparency and traceability are hallmarks of transactions that were carried out using blockchain technology. The proliferation of transactions that bear these qualities not only reduces the role of intermediaries in financial transactions; it also makes it much easier to automate the said transactions. Because the details of the transactions are out in the open, it’s much easier to subject them to the rules that govern automated systems. Financial institutions, then, can count on their automated systems to manage the majority of their transactions, reserving the utilization of their in-house experts to cases that showcase higher levels of complexity and require more nuanced judgment.

 

The Rise of Private Blockchains and Cryptocurrencies

Last but not least, blockchain technology has made it much easier for organizations to maintain their private blockchains. Unlike the public blockchains used in many cryptocurrencies, private blockchains are distributed but not decentralized, and they can function as a closed and secured database. These closed systems can be used to share medical data, monitor supply chain and logistics, and securely operate digital ecosystems in real-time. Private blockchains can have numerous practical applications for insurance companies, banks, and other companies and institutions that work with and monitor sensitive information.

Important technologies like blockchains are more likely to be integrated into the present financial system rather than to replace it altogether. Still, there are plenty of hurdles that need to be addressed before blockchains can be fully utilized for the benefit of the financial industry and the people and organizations that depend on it. The wider adoption of this technology will help ensure that everyone, no matter if they have investments in cryptocurrency or not, can reap the benefits presented by blockchains.