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Before landing on the technicalities of why, what, and how BlockChain will transform the finance sector, let’s take a good look at the back-end scenario of how the technology has found its fit.
A decade back, the whole system of a company’s transactions was recorded in a single master-sheet visited by a few that skipped update time on time. Inevitably, like any other organization, a hustle at the month’s end will lead to a ton of disagreements, unresolved claims, debates on transactions, and so on. Like every CFO’s pipedream, bringing transparency to the company’s financial transaction remained far-fetched until blockchain penetrated the market.
In contrast, the existence of a recorded ledger can be instantly viewed by the participants with capabilities like automatic updation or that provisions for simultaneous settlements were too absolute. Until interrupted with the adoption of the blockchain. A revolutionary asset that redefined the most conservative structures of economy and finance.
Introduced under the pseudo-founder Satoshi Nakamoto, blockchain ruled out the age-old constraints and evolved as the first all-accessible, distributed ledger system that’s efficient, verifiable, and consistent. As far as security is concerned, each block of information stored in a blockchain is bonded by robust coding ethos driven by consensus and immutability.
Older tech-heads who are restrained to think blockchain as a formal transaction platform to mine bitcoins well, its real-time applications goes beyond that. Over the course of time technology found applicable in all walks of industry applications. Rather than a wide net record-keeping system, it eventually became a critical tool to encrypt assets that can be subjected to the relevant transactions on a virtual platform.
Blockchain in a Nutshell
Matching the nomenclature, it is often illustrated as multicolored cubes tied on a string. As each box represents a unique value or data to address a specific transaction. The data stored in each cube or ‘blocks’ stores three specific categories of information – the actual data sandwiched within a memory tag (hash) of the previous block and an identity hash of the cube itself.
Whereas the string represents the code of ‘immutability’. If the information of the cube is tweaked or modified or subjected to data theft, the whole string of stored information will be lost. Again, the ledger that records the data transacts in real-time, subsequently circulated among the adjoint participants. Making it humanly impossible for any hackers to change every copy of the distributed ledger simultaneously.
In parallel to tech evolution, the dark hat hackers are also rising in the game. Even if they manage to re-fix the entire data strings, blockchain quickly captures the digital identification of the individuals, before someone loses the string of data.
Unlike traditional transactions, the responsibility in safekeeping the assets is not the sole responsibility of the banking partners rather the responsibility of each beneficiary who signed the digital ledger. Here, each block of information is validated by the participants, and changes are permitted only under the approval of the attendee. The self-authentication manual proves to be an ultimate roadway to establish trust among the ‘asset’ custodians.
Blockchain has the potential to grow to be a bedrock of the worldwide record-keeping systems but was launched just 10 years ago. It was created by the unknown persons behind the online cash currency bitcoin, under the pseudonym of Satoshi Nakamoto.
In parallel to tech evolution, the dark hat hackers are also rising in the game. Under circumstances of malpractices or data breaches, blockchain quickly captures the digital identification of the individuals, before someone loses the string of data, making blockchain a trusted platform to carry out transactions.
Blockchain in Sustainable Financing
Blockchain application in finance can embark on a huge prospect for the CFOs who want to generate exceptional revenue opportunities for debut sectors in the market.
The touchpoints of improvements are that blockchain can promise a 15 % error reduction guarantee, a 40 % increase in performance efficiency, and a 25 % rise in customer satisfaction. Hence, reinforcing the technology in the financial institutions will drive transparency, improved reporting, and excellent revenue opportunities. Here are the few fintech advancements to watershed existing loops-
Faster Cross-border Payments: What overseas merchants truly suffered is from currency conversion. The process took days for the ‘cash’ custodians to approve the money orders, delaying the payee waiting in another country. Whereas blockchain not only assures a secure gateway for the transaction but enables micro currency trading, crypto transactions and many new fanged bit barters for international trade. The most sought-after that bloomed in the blockchain platform is ‘SWIFT gpi’, dictating the digital revolution in an international payment and many others to experience down the line.
Integration of Trade Finance: From the beginning of the 21st century, there was a steady adoption of enterprise software that efficiently managed in-house duties. Yet it failed to create revenue opportunities with the trading partners due to existing data silos if shared could have marked value for the organization. The need for integration of the data islands stretched the pathway for blockchain to enable multi-party transactions and hence ‘Smart contracts’. It smoothly converts these digital contracts into codes making them easier to run on a blockchain which equals faster clearance and settlements and more new opportunities. This happens to be the most utilized platform which replaced the redundancy of the system.
Rethinking KYC with Blockchain: The robust security structure blockchain is heavily exploited by the financial institutions and banking sectors to improve their Know Your Customer (KYC) process. As each blockchain custodian updates their personal information, upon validating the access the banks can easily access the required information through digital signatures. Therefore, KYC chain fundamentals fulfill three stark agendas; near real-time data exchange, Intra & inter-organizational fact verification, and reducing the process cost.
Blockchain Rooted Credit Scoring: Other than public finance and accounting, blockchain can also participate in personal financing. Apart from security to preserve the identity, It can also debunk the truth about the customers before scoring for sensitive transactions like auto loans, credit cards, or a mortgage. The non-traditional factors like shopping habits, telecom bills, and social media activities of the candidate, which are often overlooked by the formal sectors can give a new dimension to judge the repayment capability of the waiver of the dues. Even though the blockchain system carries certain limitations, blockchain-based credit scoring is more accurate than the traditional way of retracing financial records.
Future Prospects of Blockchain in Financing
A new buzz prevails in the accounting sector that blockchain can take over the existing Enterprise resource planning (ERP) system. But not yet. Rather the finance experts are predicting integration, a unified platform of ERP, blockchain, and cloud. It might take some time to fully understand the potential of blockchain and find ways to utilize ways one can accommodate the real-time feeds for risk management and compliance.
Current online accounts present two virtual keys to the users; private and public to manage their online accounts. Similarly, the financial organizations are about check-in for a private account in retaining the sensitive data, where they can control whom to permit the access. This gave birth to the concept of permissioned blockchains for both industry partners and even customers for transparency and a time-dependency in viewing the data.
Blockchain is still a new concept and the complexity of the technology has created a rift between technocrats and financial strategists. This has given rise to multiple controversies on how the platform will influence the finance and accounting sectors. Issuing proper standards and compliance in the application of blockchain are yet to mature and the industry is awaiting the government’s ‘farmans’ to prepare blockchain for the next takeoff.