(MENAFN- America News Hour) The advent of blockchain technology has been an inarguably disruptive force in various sectors of national and international economies, with the financial sector being no exception. Blockchain has clear potential to revolutionise the way the sector operates, from the streamlining of payment processes to the reduction of fraud – all while enhancing transparency in transacting.
But the key technological shift has not been the easiest for businesses to adapt to, despite being a potentially revolutionary shift. How should finance companies be adapting to blockchain and its potential?
What is Blockchain?
Blockchain is, in essence, a peer-to-peer method of making and logging transactions 'immutably'. It is a decentralised digital ledger, that stores transactions and data across multiple computers or 'nodes'. These nodes form a network with no central hub or base and regulate the network they constitute by verifying and recording transactions, which are then added to a 'block' of data.
Once verified, the block is added to the chain, creating a permanent, tamper-proof record of all transactions that have taken place on the network. Not only does this have applications for the transparent sharing of files and contracts, but it also allows the generation of unique blocks that can carry their own value and rarity.
How Blockchain Impacts the World
The latter property that blockchain property possesses has already enabled a sea change in the world of financial technology. Cryptocurrency and NFTs are blockchain technologies, each of which sees value and rarity attributed to digital information – and that information is shared immutably between sources with no central intermediary.
The fundaments of blockchain, otherwise known as 'Distributed Ledger Technology', have also found practical applications in commerce and logistics, where shipment information and destinations are immutably tracked to improve customer outcomes and mitigate health and safety concerns.
How Can Blockchain Reshape Banking?
The potential that blockchain technology possesses with regard to banking and finance is, quite simply, enormous – though not without its difficulties. For one, integrating blockchain is no simple task; expert advice from a blockchain lawyer could help not only to implement the new technology but to ensure its application was compliant with international law.
The latter point is crucial owing to the potential for blockchain technology to make international transactions much simpler – circumventing slower and more cumbersome systems to provide immediate value to customers. Not only this but blockchain can be used to create more secure and efficient systems for identity verification.
Banking institutions can use blockchain to store and verify customer identities, making it both quicker and easier to open accounts and process transactions – while simultaneously reducing the risk of fraud. The speed and security of blockchain-based transactions in particular are a significant advantage over traditional payment systems.
But how will financial businesses adapt? The answer fundamentally lies in investment. Finance companies will need to invest in blockchain technology actively, as well as the skills needed to use it effectively and the legal understanding required to operate it properly.