How blockchain can revolutionize the financial sector

Blockchain

How blockchain can revolutionize the financial sector

Digital currencies, and their underlying technology, the blockchain, have been one of the biggest topics of the last decade — not only in the technology sector, but also in the financial one.

Cryptocurrencies offer to be a new native digital asset class with more immediate use in regular people’s lives, which is why they may have been discussed more. Meanwhile, blockchain technology has a lot more use cases than the crypto industry itself, even though many believe this to be accidental.

What does blockchain technology bring?

As many likely know, blockchain technology offers a number of things thanks to its attributes, so let’s start with those.

Blockchain is a decentralized distributed ledger, whose biggest strengths are transparency, the immutability of stored information, and the fact that they are run by the community of nodes, instead of a single, centralized authority. This is actually very simple as a concept, and a small step from things such as P2P network that BitTorrent uses.

However, when applied to different sectors, such as finance, it can be extremely disruptive. This has already started in the previous decade, but for the better part of it, blockchain and crypto were still in the dark.

The world did not know of them, and even those who did, likely did not take them seriously enough at the time. This is now changing at a rapid pace, and the second decade of crypto/blockchain is likely to transform the financial industry beyond recognition.

The advancements of blockchain

If you take a look at the cryptocurrency industry, you can follow its progress rather easily, thanks to various charts that are publicly available to everyone. Take Bitcoin as an example.

The first and largest cryptocurrency was launched on January 3rd, 2009. Back then, its value was pure $0. However, it brought the ability to make instant transactions, and to do it anonymously at the time.

Bitcoin value since 2014

Transactions were irreversible, so no one can trick you by taking the money back. Best of all, your coins were your own, and no one can freeze your wallet and funds. Meanwhile, the transaction cost was incredibly cheap,

All of this, and more, quickly ensured that Bitcoin will become appreciated, and with this new appreciation also came a price tag — one that continued to change, and mostly grow, over the first decade of cryptocurrency’s existence.

Blockchain’s progress is not so easy to track. Of course, every crypto’s blockchain evolved in its own right. However, on an industry level, blockchain’s evolution continued through new projects.

In other words, while Bitcoin’s blockchain is no longer the same one that it was at the time of launch, new crypto projects based on individual blockchains are what truly brought new concepts and use cases.

In a practical example, if we were to only measure blockchain evolution through BTC’s blockchain, smart contracts, dApps, DeFi, and alike — blockchain’s greatest products to date — would never be known.

However, due to these disruptive projects, blockchain came up with countless use cases that could forever change the financial industry.

How can blockchain change the financial industry?

As mentioned, blockchain did not invent the concept of decentralization. However, it did find a way to apply it to the financial industry. It also ensured greater transparency, to fight corruption. This was a logical side effect of simply allowing the public to track any and all transactions that take place.

Meanwhile, decentralization itself — a popularized concept that we keep getting back to — eliminating the need for third parties, such as banks and financial institutions.

This alone can revolutionize the financial industry, as it cuts the cost of transactions. Imagine not having to pay fees for the bank’s involvement in maintaining your account, exchanging currency, or making transactions.

In traditional banking, if you wanted to send $1,000 to someone, you would have to pay great fees to do so, likely 5%, or possibly more. Not to mention the fact that these transactions are often lengthy, and international ones can often need entire days before the money arrives to the recipient.

Blockchain, on the other hand, allows you to pay a fee of only a few cents. There were plenty of examples — especially this year — where hundreds of millions of dollars were sent in Bitcoin, where the fee was less than $0.5.

Meanwhile, transactions can be processed instantly. Maybe not with Bitcoin, unless you pay a higher fee, but this is a project known for its scaling issues, and there are simply too many transactions at any given time for all of them to be processed as they are made.

However, other projects have recognized this issue, and they were developed to be more scalable.

As mentioned, transparency and decentralization can also eliminate corruption and bribery, as anyone can see where the money went.

In addition, keep in mind that this was only a beginning. These days, major platforms are offering nearly all services that traditional banks ever came up with, but it is all based on blockchain. Things like loans and credit, securities, settlements, and more — all of it can be done on blockchain now.

Staking is another popular practice that is growing rapidly these days, and with trends changing not only from year to year, but even from month to month — there is no telling what can come next, or when.

We briefly mentioned dApps and DeFi. dApps, or decentralized applications, can be used for better finance management on the blockchain, with various options to explore, and easily manage your funds at any time. Meanwhile, DeFi, or decentralized finance, is a concept that is only starting to evolve, and it has the potential to become one of the biggest trends in the blockchain industry.

Conclusion

Blockchain technology is very disruptive if applied the right way, and it holds the potential to change nearly every industry out there. But, due to the fact that it was invented to revolutionize the financial industry, this remains the sector where its impact is the greatest.

Will blockchain ever completely eliminate the need for banks and other third parties in the financial industry? Maybe. Maybe not. However, considering the fact that even the banks are adopting it definitely means that blockchain is here to stay, and that it is disruptive enough that they feel threatened.

In the end, blockchain is still a young technology that has yet to reach its final form, and bring all the benefits it can. Many have likely not even been discovered yet. With that in mind, it will be extremely interesting to see how it progresses, and how it continues to impact the financial sector on a daily basis.

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