Whether you have been watching the growth of the cryptocurrency market from the sidelines or have already invested or traded in them, you’re likely aware of the excitement surrounding them. What you may be less aware of is the underlying blockchain technology – and in particular how it’s transforming the world of finance.
Below is a primer on some of the ways the technology is already revolutionizing banking and finance.
The cost of service is a big deal for both banks and their customers. As banking customers vote with their feet – and their dollars – the need to drive down costs will continue to grow. In the end, the lowest cost providers will be the most competitive, and that may be why so many banks are investing in blockchain technology.
There are a number of ways blockchain technology promises to drive down costs and make banking more accessible to the masses. From decreasing the time it takes to complete a transaction to reducing the need for additional security, this technology has enormous cost-saving potential.
Speedier Clearing Times
The time it takes to clear a transaction has come down quite a bit in recent years, but the process has even further to go. Clearing times are still long in concrete terms, and that is where blockchain technology comes in.
By enabling secure transactions and fostering trust between participants, blockchain technology can greatly reduce the amount of time it takes for a transaction to clear. The clearing time for banking transactions could conceivably be cut to close to zero, reducing costs and allowing financial institutions to take advantage of more promising opportunities.
From hacker attempts and ransomware attacks to the dangers of insider theft and corporate espionage, financial instructions face greater security challenges than ever before. These security threats are only exacerbated by the fact that banking transactions typically go through a central clearinghouse.
In only takes a single breach in the security of that central clearinghouse to put billions of dollars at risk, and if those threats are not uncovered quickly, the losses will quickly mount. The distributed nature of the blockchain and the unique structure of its ledger could help banks overcome these security challenges, so they can spend less time safeguarding their customers and more time serving them.
Moving into New Areas
The adoption of blockchain technology allows banks and other financial institutions to branch out into new areas. The creation of a Bitcoin ETF could give financial advisors a new product to sell. The ability to trade in privately held stocks could give brokerage firms a new source of revenue. These advances bode well for the banking industry, and for the customers who rely on them.
The banking industry is already being transformed by the power of the blockchain, but those transformations are only getting started. As confidence in blockchain technology increases, so too will the transformative power of this emerging technology.