The popularity of Bitcoin and other cryptocurrencies has shifted attention to blockchain, the distributed ledger technology (DLT) that underpins them.
Blockchain technology’s fundamentals are intuitively easy to grasp. The technology forms a decentralized database whose entries must be verified by peer-to-peer networks and encrypted.
It’s easiest to picture it as a Google Doc that’s been thoroughly checked and encrypted, where each cell’s value is dependent on and verified against the importance of its predecessors.
Although Bitcoin is the primary application of blockchain technology, the technology’s potential remains; below, we have outlined some of the new ways enterprise blockchain development is used in finance, business, and government.
Blockchain Use Cases in Banking & Finance
Blockchain technology allows for the efficient and unalterable recording of transactions that previously would not have been possible. That’s why it’s so useful for sending money around the world.
For example, in April 2018, Banco Santander introduced the first-ever global money transfer service to use blockchain technology. The service, dubbed “Santander One Pay FX,” employs Ripple’s xCurrent to facilitate instantaneous and next-day cross-border wire transfers.
Santander has streamlined the process by automating it on the blockchain, cutting out several intermediaries.
Santander, a major commercial bank, serves a large number of individual customers who could use improved payment options, especially in the realm of international wire transfers. By eliminating the need for banks to settle transactions manually, blockchain technology can be used to reduce the cost of such transfers.
Blockchain-based systems may also be used to enhance monetary exchanges. The McKinsey Global Institute has released a report outlining the advantages of blockchain solutions for the financial sector.
- Swifter processing of payments
- Integration of audit trails
- Enhancements to operations
Axoni is a startup that has existed since 2013 and focuses solely on developing blockchain-based solutions to enhance the capital markets. Recently, Axoni announced the launch of a distributed ledger network to manage equity swap transactions, allowing for continuous synchronization between the two parties involved in an equity swap throughout the swap’s lifecycle.
Traditional approaches to trade financing have been a major source of frustration for businesses due to the time and effort required to complete the processes involved. Various factors, including country of origin and product details, must be conveyed in the communication of information during cross-border trade, and substantial amounts of paperwork are produced due to these transactions.
Blockchain technology has the potential to facilitate international trade finance transactions with greater efficiency and less bureaucracy. It enables business deals between companies regardless of distance or location.
Audit and Compliance with Regulations
Blockchain’s high level of security makes it a promising tool for auditors and accountants, as it eliminates room for error and guarantees the authenticity of records. Furthermore, once the account records are locked using blockchain technology, not even the account owners can make any changes to them. But on the other hand, blockchain technology has the potential to do away with auditing altogether, along with the jobs that go along with it.
Money Laundering Protection
Blockchain’s built-in encryption is a huge boon in the fight against money laundering. To “Know Your Customer” (KYC), a company must be able to identify and verify its customers accurately. The underlying technology enables record-keeping, which is essential to the KYC process.
Smart contracts are the most promising use of blockchain technology in the insurance industry. For handling claims, customers and insurers benefit from the open communication and safety provided by these contracts. Since the blockchain would reject multiple claims on the same accident, invalid claims would be eliminated if the network recorded and validated all contracts and claims.
For instance, OpenID automates insurance regulatory reporting and streamlines compliance requirements by utilizing a network developed on the IBM Blockchain Platform in partnership with the American Association of Insurance Services.
Direct Deals Between Individuals
Convenient as they may be, P2P payment services like Venmo have their drawbacks. Depending on where you are, you may need help to be able to use a given service. However, some of them require payment before you can use them. Many are also easily hacked, which concerns customers whose financial data will be exposed. With its many advantages, Blockchain technology can overcome these problems.
How Blockchain Technology Will Change the Financial Industry
Experts in Defi Development agree that blockchain technology still
needs to include several key features before it can be adopted at scale. Before banks can fully utilize blockchain, they must develop the infrastructure required to run a global network based on matching solutions. If blockchain is widely adopted, will it cause a shift in the industry?
But the payoff will be enormous, so it’s worth it. Once implemented, blockchain will help financial institutions process payments more rapidly, accurately, and cheaply. Improved customer service and the ability to compete with fintech startups are benefits that will come from the widespread adoption of blockchain technology in the banking industry.
The traditional financial institutions that blockchain was supposed to replace are showing an interest in the technology. Banks have come around to blockchain’s merits after initially laughing at and ignoring the technology for its novelty.
Multiple use cases for blockchain in the banking industry present possibilities for enhancing existing practices. In the future, banks will use blockchain solutions independent of the current infrastructure. The blockchain industry’s challenge will have been met if this happens.