Many attempts to work with blockchain in the financial sector today are criticized by experts and market players, but progressive companies are transforming conventional experiments into ready-made solutions that are useful and meaningful for business and ordinary people. Below, we will talk about the five most revealing and vivid cases of using blockchain technology in financial services.
These types of financial transactions between ordinary people without opening an account with any particular bank are one of the most sought-after services in the financial sector all over the world. Its popularity and relevance will only grow further: the process of globalization, labor migration, uneven living standards on different continents and countries is steadily strengthening, all this only strengthens the position of money transfer services. According to the World Bank, the flow of international money for the period from 2000-2010 increased almost by 3.5 times.
The rapid and significant growth in the volume of money transferred, in particular, the international flows between different states, literally dictates the need to create a reliable, simple and understandable infrastructure both within the framework of one country and within the whole world.
“Blockchain with this matter. The introduction of this technology will accelerate and simplify the process of transferring money, eliminating intermediaries, which incidentally will affect not only the speed of the process, but also its cost,” explains Tomas Novak, SHIFT.cash CEO. “According to preliminary estimates, the blockchain will reduce costs to 1-3% of the total transfer amount and ensure guaranteed transactions across borders in real time.”
Large (and savvy) players in the financial market, Western Union and Coinbase have already announced their intentions to use blockchain in their work in the near future.
With the advent and implementation of blockchain in the stock market, another evolutionary leap will occur – there will be no need for brokers (the system itself is a confirmation of the transaction and the way it records all transactions with detailed and exhaustive verification of transactions), and the exchange itself becomes decentralized, operating not on dedicated servers, but on countless computers all over the world.
At the moment, there are already known cases of blockchain use in this segment. The Nasdaq exchange uses this system to conduct transactions on non-public shares. Exchange Japan Exchange Group (JPX) is ready to use blockchain in the capital market. Korea Exchange (KRX, Korea Stock Exchange) plans to introduce a blockchain system and significantly optimize its own expenses.
Another example of the use of blockchain technology in the financial sphere is smart contracts, which are also called self-executing and self-governing contracts. In essence, these are computer programs that facilitate, verify or ensure the implementation of agreements reached during negotiations.
Now smart contracts allow the negotiating parties to freely exchange various tangible or intangible assets. It can be real estate, auto, stocks, money. In this case, one has no need to resort to the services of third parties or intermediaries. And this is the first plus. They also automatically, due to stored information about obligations, monitor the implementation of the agreement by both parties.
As Tomas Novak, SHIFT.cash CEO notes, the main reason for the creation and use of the smart contract is the maximum optimization of the labor-intensive process of contract formation and development, and its presentation in such a way that all parties understand it in the same way, without disagreements in the interpretations.
Remote identification or online identification is still the most difficult process, for the improvement of which millions of dollars are allocated annually, but it has not yet reached perfection. A simple example: a client of any bank can have an online office, perform certain operations, but such services as loans, mortgages, insurance remain unavailable for him. Preliminary approval can be obtained, but not much more, for the actual registration and receipt of the listed services the client will have to go to the office.
The main problem that many financial institutions cannot yet solve is insufficient identification and insufficient security in accordance with the rules of the organizations – “Know Your Customer”. The advantage of using blockchain in this case is that it allows, again bypassing intermediaries, to give each party in the network access to the same “source of truth”. When identity management moves to the blockchain, users can choose how they identify themselves and who will have access to this information.
Finally, last but not least, it’s worth mentioning how the blockchain business will change accounting. How will this work? The principle is the same as when working with any other information – its entering, preserving and recording any changes. When a transaction is performed, information about it is stored gets added to the block in a chain of blocks, it can be changed, but information about changes is also recorded and saved. All corrections become transparent and obvious to each of the parties, which completely excludes falsification and manipulation.
Blockchain in accounting will simplify the audit and increase its reliability, significantly reducing the likelihood of errors in reconciling complex and disparate information from several sources. In addition, accounts do not change after they are in the blockchain, even by the owners of the accounting system. Since each transaction is recorded and verified, the integrity of financial records is guaranteed.