How Will Blockchain Disruptions Affect Financial Institutions?
Although blockchain technology was invented back in 2008, its potential and effects are more known today, with the banking sector seeing the biggest impact.
In its base form blockchain is a publicly accessible ledger that uses mathematical procedures to verify transaction processes. Cryptocurrencies are based on blockchain technology, so anything that has anything to do with Bitcoin or cryptocurrency in general—cryptocoin exchanges, Bitcoin gambling etc., — is possible because of blockchain technology.
Banks process a sizeable number of transactions daily, and given the fact that they are the heart of the business world, it is easy to see why finance is among the first sectors to be influenced by the development of blockchain.
How Does It Work?
Blockchain processes are initiated when a user wants to transact. Once she makes a transaction, computer nodes get to work by sending data across different servers on what is known as the digital ledger.
From there blockchain gets to work verifying the transaction and issuing a unique address. A new block is then created and stored with the rest of the existing blocks.
What Are the Effects?
Traditional banking methods usually involve third parties and this extends the payment process. The introduction of blockchain technology would lead to time and transaction cost reductions of almost 50%. Loans would also be easier to secure, thanks to the lower interest rates.
About 45% of financial intermediaries are affected by economic crimes yearly. Blockchain technology seeks to eliminate this problem by decentralizing all databases, making it less vulnerable to cyberattacks.
Blockchain will enable financial institutions to verify their new customers’ details easily. By publicizing each customer’s information, banks won’t have to repeat the process. The transaction costs usually imposed by banks will be heavily reduced, thereby making it easy for people to transact worldwide.
Blockchain technology is without a doubt an exciting discovery. Though still in its infant stages, its future impacts are very promising.
