Blockchain is often synonymous with cryptocurrency, but the technology can do so much more than that. Blockchain promises to have a profound effect on the way all financial transactions are conducted.
Blockchain describes a decentralized database with information that’s stored on multiple computers. Because it is decentralized, it’s very secure because a user can’t remove or change any entry in the blockchain. This provides enormous possibilities to the financial services industry.
The industry is already using blockchain technology, but its usage is expected to expand significantly in the coming years. Here are two key benefits of blockchain technology for financial institutions, detailed by experienced investor Daniel Calugar.
We live in a digital age, and while there are many positive aspects of this, there are dangerous ones, too. Perhaps the most significant danger of a digital society is cybersecurity.
This is a huge deal to financial services companies, which hold vital information on millions of people worldwide. In addition, they control much of the money held by individuals and change hands every day.
Transactions that happen in blockchain occur instantly. For example, currently, bank transfers can take many days to process and verify. However, the usage of blockchain can reduce that time to only a few minutes in some cases.
With increased speed comes the decreased opportunity for hackers to manipulate data related to financial transactions or divert any payments to different accounts.
Even if hackers can access information on the blockchain, they won’t do anything with it. That’s because private keys are shared by only the participants of each transaction, rendering them useless to hackers who try to make a transfer of money.
New Products and Services
The financial services industry is often considered behind the times. When people think of large, traditional financial institutions, they don’t think of forward-thinking companies that embrace technology. Blockchain is bound to change that.
First, blockchain technology can make connecting the world financially so much easier. International transactions are much more common today — and for legitimate reasons. In fact, this is one reason why cryptocurrency was created.
Sending money overseas can be an arduous and time-consuming process. Blockchain can completely change that by offering cheaper and faster ways to conduct transactions across borders — all in legitimate ways.
What’s more, Dan Calugar explains that blockchain can open up the possibilities of financial services offering new products. For example, blockchain is already used to borrow money, fund various local projects, and even trade assets.
Crowdfunding campaigns use blockchain technology so individuals can invest in one common fund. Then, individuals, businesses, and local organizations can borrow from that fund to help improve the community around them.
Financial services companies can harness the power of blockchain technology to be the backbone of some of these products, increasing their usefulness to customers.