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Three Basic Things That Blockchain Offers to the Global Financial Sector

The blockchain is a technology that allows transactions between peers of a single network (P2P network).
Dawn Richard loves to read and more than that loves to share his experiences with others.
Dawn Richard loves to read and more than that loves to share his experiences with others.

The blockchain is a technology that allows transactions between peers of a single network (P2P network). Transactions of this type assume that each network participant can carry out a transaction directly with any other network participant without the involvement of a third-party intermediary, and at the moment this is one of the best opportunities that can be implemented in the financial sector. Thus, the blockchain is already beginning to partially perform the functions of banks by creating p2p applications for personal lending. Here, you can already see the comparative characteristics of these services. Nevertheless, it is expected that the effect of blockchain implementation will not be limited to the financial sphere. This technology can also be applied to other types of multi-chain transactions that require traceability and transparency, for example, contracting and managing.

Centralization Is Becoming a Thing of the Past

Blockchain supporters believe this technology is capable of bringing fundamental revolutionary changes to society, like the ones that have happened thanks to the emergence of the Internet over three decades ago. They claim that technology opens up unlimited possibilities. It can be used in various fields – from storing customer personal data, to making international payments, clearing and settlement during trading in bonds and stocks, as well as for implementing self-fulfilling smart contracts, such as credit derivatives with automatic payment in bankruptcy bonds on which the holder regularly gets his interest paid.

A key feature of building the world economic system on the principles of a decentralized registry is to increase the level of protection and resiliency. At the same time, the efficiency of doing business will increase significantly, and all trading mechanisms will be transparent.

Improvements in the Banking System Around the World

According to the study of the company Transparency Market Research, the most active use of blockchain technologies is currently taking place in the banking sector. Banks are interested in the possibility of introducing blockchain technology, as this will allow processing operations faster and reducing administrative costs. In particular, there is great interest in the possibility of concluding simple contracts automatically. If it is possible to apply the technology not only for operations using Bitcoin, it will be a great achievement in the banking environment.

Now banks are increasingly connecting the blockchain system to their work due to the growing number of transactions. The banks of the R3 consortium were among the first in this business.

Many banks invest their venture capital in startups that are associated with the development of cryptocurrency and the entire blockchain system since the use of a decentralized registry provides an opportunity to increase the level of security of transactions in the system.

Financial Inclusion

One of the changes that may occur due to the spread of cryptocurrencies is the expansion of financial inclusion in countries with an underdeveloped banking sector. About 1,7 billion people worldwide have insufficient or no access to financial services. As a rule, these are people who do not meet the requirements of banks or are unable to pay the costs associated with such services.

Blockchain completely changes the situation, allowing the user to transfer funds at a much lower cost, and not to pay the usual fees associated with opening and using an account. In addition, all transactions are made via the Internet – it is enough to have a smartphone. This is important because people who are deprived of the opportunity to go to the banks often have a mobile phone. Without the need for an intermediary, the transaction cost is significantly reduced. For example, with international transfers, rates are reduced from 6% per transaction to 1-3%. This can be extremely useful for such people since they often send small amounts which carry higher commission rates.

Security Questions

Despite all the enthusiasm, market players agree that launching a full-fledged product based on blockchain technology will take at least three to five years. And the technology itself will have to overcome serious obstacles in order to prove its viability, safety and gain the trust of regulators. The main question is how secure the blockchain technology is in order to entrust savings to it, and whether banks, central banks, and regulatory agencies can guarantee this security.

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