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Despite the skepticism around distributed ledger technologies, businesses and individuals are embracing it. More individuals and businesses have already expanded their efforts in cryptocurrency and are now interested in investing blockchain service providers. As a result, the financial and banking services industry in particular has had to undergo a drastic change. One of the biggest driving forces behind this are the individuals who are tired of the outdated banking and financial system that makes consumers bear the burden of higher costs. The second driving force are consumers that do not have access to basic banking services since they do not fulfill the criteria set by commercial banks. Thus, innovative startups and businesses that have steadily disrupted the playground by introducing easier, more efficient and effective blockchain enabled services to users and, are facilitating, transactions worth billions of dollars.

Current issues with existing financial services

The efficiency of financial services is not only essential for the development of the economy but also to ensure that the movement of money is swift and error-free. However, the system is full of complications:

  1. Users who require financial services cannot access them simply because they do not fulfill financial institution’s requirements.
  2. Financial institutions hold large quantities of customer data in centralized databases which are very vulnerable to malicious attacks.
  3.  Transactions in the financial world must go through an intermediary. the process of verifying the transaction is a multistep process. As a result, the payment process is delayed.
  4.  Customers lose a significant portion of their money when they incur financial services. The fees required to verify, carry out a transaction result in a loss.
  5.  Local transactions can be completed within minutes or hours. however, cross-border payments take several days before they’re cleared.
  6. Cross referencing and double checks on records for efficiency are necessary however, they are time consuming and costly processes.
  7. Back-end banking services are outdated and inefficient. Moreover, fraud is very common in transaction records and claim settlements.

Blockchain has the potential to solve these problems.

What is Blockchain?

Also known as Distributed Ledger Technology is digital version of traditional ledger. It is made up of blocks which contain a certain amount of data. The information within them is then encrypted, time-stamped and linked to the next block. 

Blockchain is special because it can be used to record transactions, trace assets and trade them in real-time without the need of a third-party in the verification process. Businesses can choose to develop their own custom blockchain enabled solutions if they have the knowledge or resources or they can incur the services of a blockchain service providers.

Blockchain features

Thanks to its unique features, blockchain has disrupted the traditional banking and financial services industry:

Decentralization

Control and decision making does not belong to a single entity

Immutability

Once information has been stored in a block, it cannot be changed.

Transparency

Transaction details are visible to all participants in the blockchain

Security

Data in encrypted and a public key is used to prevent malicious attacks

Efficient

Data is not stored in one place, every user has a copy of the information

Blockchain features that have disrupted the banking and financial industry

As a result, the baking and financial services industry has been disrupted over the course of the past 5 years.


Decentralization

Normally, transactions need to be verified by a trusted agent such as the central bank. However, in a blockchain, every participant verifies the transaction and has the right to access the history of the block. Moreover, there are multiple replicas of the data across the blockchain. Thus, if anyone wants to modify the blockchain, they have to change every single cop of the blockchain. moreover, blockchain service providers set up distributed ledgers so that they are updated in real time, making it even harder to change the blockchain.

User Anonymity

Blockchain does not guarantee perfect anonymity however, it does provide users a level of privacy that is not possible with traditional financial services. In a blockchain, transactions occur between addresses which users can chose to keep a public or private, there is no central authority which stores the user’s private information and they can use a generated address to interact with the blockchain network.

Consensus Mechanisms

There is no central authority that is tasked with the duty to verify the validity of the data within the blockchain. Instead, all participants in the blockchain are tasked with the process establishing the validity of the data. Moreover, it is easy to detect distortion of data since if 51% of a blockchain is taken over, a new record can be forged. However, blockchain service providers are always monitoring and updating the blockchain to ensure that the data is not compromised.

Smart Contracts

When two parties need to full fill an agreement, paperwork either gets lost or takes too long and the transaction is delayed. However, by implementing blockchain users can use algorithms and rules of the contracts into lines of code. Once, certain conditions are met transactions are executed automatically. Many blockchain service providers have designed their services so that the customer does not need to program.

Should you invest in blockchain?

The short answer is: Yes. Many businesses are merely observing the success of projects by leaders within the industry. this could prove to be fatal, as the learning curve for harnessing blockchain is increasing bit by bit every day thanks to the new advancements in distributed ledger technologies. Moreover, as of 2020 PayPal, MasterCard and Visa adopted blockchain as a payment method. More and more startups are trying to build blockchain applications that are user friendly. In addition, users that have already experimented blockchain service providers are now expecting the same quality and efficiency from their traditional financial and banking services.

Impact of blockchain in financial services

Blockchain has always been associated with cryptocurrency. Though cryptocurrency has played a big part revolutionizing the way assets are traded, it is by no means blockchain’s only application. Its applicability has given rise to a new generation of blockchain service providers and, encouraged organizations across multiple industries to develop and deploy or outsource blockchain solutions.

In the financial services industry specifically banks, brokerages, insurers and regulators have been consistently testing ways to take maximum advantage of what distributed ledger technologies have to offer. As a result, they have discovered that blockchain is an effective tool against money laundering because it automatically detects suspicious transactions by keeping track of user transactions and activities in real time. Again, this is not blockchain’s only impact in the industry, other areas in which blockchain service providers have drastically changed include:

Lowered Costs

Blockchain also reduces costs associated with maintaining large, centralized databases, bookkeeping, settlements, and operation costs. Thus, users can make transfers at a much lower price. For example, BitPesa is a company that provides blockchain based transfers to developing countries. As a result, international transfer fees which usually cost $25, and take days to be processed have become more efficient and costs have been lowered by almost 90%.

Venture Capital

Blockchain has also changed the way money is raised through venture capital. Many businesses are now experimenting with initial coin offerings instead of initial public offerings. Businesses can take advantage of the immediate liquidity since they are priced in a 24-hour global market.  For example, Telegram raised 1.7 billion dollars via an initial coin offering. Though regulators have been imposing on strict guidelines for ICO’s their popularity has not dwindled.

Credit Rating

Moreover, organizations have discovered that blockchain helps control risks. The biggest credit companies are ineffective at keeping track of loan use. Gobal regulation of capital circulation makes this even more challenging. However, by implementing blockchain, every user is treated as a node that is connected directly to each other. Thus, there is no need for credit guarantee by banks information asymmetry is reduced and fund management efficiency is improved. Two businesses Salt Lending and Dharma Labs allow users to borrow cryptocurrency and assets without a credit score. Meanwhile, Bloom is attempting to create a protocol for managing risk and create credit scoring for blockchain.

Distributed Ledger Technologies or Blockchain has the potential to change the way business world operates. It has already disrupted the traditional financial and banking services industry thanks to its unique features decentralization, immutability, transparency, security and efficiency. As a result, blockchain service providers have allowed users to obtain greater degree of autonomy thanks to decentralization, anonymity thanks to addresses interaction and, a greater degree of efficiency thanks to automatically executed smart contracts.

Would you like to integrate blockchain into your business with minimal effort? We are blockchain service providers dedicated to providing blockchain services. Our 10-year experience across various industries has helped us drastically reinvent the business processes to assist your organization to leverage blockchain to boost transparency while reducing operational costs. With our services, you will not need to worry about the infrastructure or development, we will bring your ideas to life. Contact Pacsquare technologies at (202) 821-477 or info@pacsquare.com.