If you’ve never heard of blockchain technology, you’re missing out on a cutting-edge innovation that is changing a raft of global industries and marketplaces.
Blockchain essentially refers to decentralised database and ledger technology, which can be stored and accessed through a number of different computers. Blockchain is most synonymous with cryptocurrency and tokens such as Bitcoin, of course, but it is also being leveraged to create more transparent and accessible banking systems across the globe.
But what are the main advantages of using blockchain within the financial services sector? Here are a select few to keep in mind:
#1. Blockchain Technology is Completely Decentralised and Accessible
Even in the digital age, it’s estimated that there are around two billion people worldwide who simply cannot access traditional financial services, banks or institutional lenders.
This represents a huge and worrying discrepancy, and one that exists largely as the individuals in question don’t have access to data that verifies their identity and status. However, blockchain technology can help to bridge this sizable gap, with crypto assets providing anonymity to users and negating the need for holders to verify their ID.
This also ties into another important benefit, as blockchain technology is completely decentralised and removed from the control of a central authority.
This is important in developing countries that have a history of governmental corruption and a large unbanked population, as it negates the risk of citizens having their finances pilfered or manipulated over time.
#2. Blockchain Technology is Completely Transparent
As a decentralised technology without a central point of control, blockchain platforms and networks aren’t synonymous with hidden fees or charges that define many traditional financial service providers.
This is largely because there’s no central authority or third-party middleman to control the transfer of funds or data, with each transaction recorded on an immutable ledger that’s inherently visible.
This represents one of the primary advantages of blockchain technology in the financial services space, especially in an age where individuals tend to be mistrustful of large corporations including banks and lenders.
#3. Decreased Risk of Fraud
This also translates into a decreased and ever-diminishing risk of fraud, even when trading volatile and digital currencies such as Bitcoin.
For example, crypto wallets utilise both public and private keys, with the latter unique to each address and capable of encrypting data (and funds) that are sent from one user to another. This, when combined with the 128-bit SSL encryption used by crypto wallets, makes it incredibly hard for hackers to access your funds and steal your hard-earned coins.
This is why large scale financial institutions are now beginning to integrate blockchain technology into their existing business models, so that they can complete real-time and seamless transfers that don’t compromise on security.
Similarly, blockchain is thought to improve the efficiency of orders and record keeping, which can deliver benefits through the traditional financial system.
Ultimately, risk management plays a key role in the traditional financial services sector, but the inherent nature of blockchain means that this is far less of a concern.