How is blockchain disrupting traditional financial institutions
The finance space has, in the past, been notoriously behind the times. Yet in more recent years, many forwarding thinking organisations have helped move finance to the forefront. This is primarily due to necessity, with modern technologies like cryptocurrency challenging the status quo and threatening to push slow-moving institutions out of the market.
In this article, we explore how blockchain is disrupting the financial industry and the impact that it has on traditional financial institutions.
What is blockchain?
There is no denying that blockchain has, and continues to, disrupt many industries and areas of technology. Although it is easy to get lost in the technical details of blockchain, it is a straightforward concept which can be applied to many challenges. Investopedia defines blockchain as “[...]a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format.”
Or, to put it even more simply, a blockchain is a chain of nodes (usually computers) that all hold duplicated ledgers of information. Because the information is held across multiple devices it makes it near impossible to hack, cheat or change that information.
Blockchain is most famously used as the foundational basis of cryptocurrencies. However, the level of hyper-secure information storage it offers can be applied to many other areas, both financial and otherwise. For example, blockchain is widely used by governments and private businesses to store, communicate and manage sensitive personal and business information.
The role of blockchain in the financial industry
With blockchain providing the highest levels of digital information security ever seen, it is hardly surprising that it is already widely being applied to the finance sector. This includes areas such as the reduced need for due diligence, improved contract security, speeding up payments and settlements and verifying assets.
Due Diligence
Blockchain offers high levels of information security and quality. When information is held and verified on the blockchain it reduces the time required to scrutinise and check key information. This can limit duplicate and needless effort in areas such as security and background checks.
Contracts
Blockchain offers financial institutions a smart and reliable way to ensure contract accuracy across all parties by placing them into the blockchain.
Payments and Settlements
Blockchain can drastically simplify the infrastructure and reduce the need for intermediaries when making payments and settlements. This can reduce associate costs and speed up the transfer of funds.
Connecting Physical Assets to the Digital Space
Non-Fungible Tokens (NFTs) can be used to help financial institutions verify ownership of physical assets, limiting the potential of fraud outside of the digital space.
How is blockchain disrupting traditional financial institutions?
There is no longer debate over whether blockchain is here to stay. Instead, the financial industry has moved on to thinking about exactly how blockchain will shape its future. Any financial institutions that do not consider how blockchain may impact them and how best to use this technology will be left behind and will struggle to keep pace with others.
We are already seeing a shift in how many businesses and consumers opt to manage their finances, choosing to work with businesses that are adopting new models based on blockchain technology. Although cryptocurrencies may not be as widely accepted as first predicted, their growing popularity is a testament to a shift in the way we think about finance.
What are the advantages of blockchain?
There are many advantages to leveraging the blockchain in the financial space, this includes:
- Proving better levels of control over everything from financial transactions to contacts
- Improving the speed of financial transactions
- Reducing workload, in turn reducing the costs associated with financial systems
- Offering better levels of transparency across all processes
What are the drawbacks of blockchain?
Although blockchain can clearly be positively applied to financial institutions, there are also several downsides that need to be considered and where possible mitigated. These include:
- Excessive costs in creating and rolling out new blockchain-based solutions
- Data immutability, making it difficult or impossible to edit data once secured through blockchain
- Environmental and financial issues surrounding high energy consumption
Find your next FinTech job with Marks Sattin
Blockchain will continue to disrupt the financial industry. With many traditional financial institutions failing or refusing to adopt an innovative approach, this is leaving the door open to ambitious businesses that want to create a brighter future for finance.
A role in fintech can offer you a fast-paced, challenging, and lucrative career. Here at Marks Sattin, we partner with forward-thinking financial institutions, matching them to ambitious individuals. If you are looking for your next role in fintech you can find all our latest roles here.
Alternatively, if you are a business looking for top-quality candidates you can submit a brief here.
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