The existence and democratization of Blockchain technology recently made a lot of noise. The first cryptocurrency of its kind, Bitcoin, officially launched in 2009, has enabled a large-scale democratization of the blockchain and its possibilities.
Over time, the importance and potential applications of this technology have grown and are now being considered in all sectors of activity. This would allow the financial and banking sector, for example, to reduce transaction costs, improve transparency and provide banking services to unbanked people. (It should be recalled that in Africa, 80% of the inhabitants do not have a bank account)
The “Popularity” of Blockchain Technology in Financial Sector
The blockchain is a kind of unique and advanced technology that brings many innovations. We are all aware of this, but it is probably in the financial sectors that the main technological innovations are to come.
Generally speaking, we all know that the banking sectors are strictly regulated and are of course centralised by default. This sector differs in its conservative attitude. Cryptocurrencies and the recent bubble have not, in general, pleased traditional finance. Aware that we are not fighting against technological progress, all the financial giants are rushing into the underlying technology of crypto-actives, the blockchain, while denigrating the crypto-currencies that obviously shade them.
How Can Blockchain Contributes to the Financial Sector?
Understanding the blockchain technology and its applications will influence how we treat this article and allow us to see the utility (or not) of this disruptive technology by the financial and banking sectors. The question is therefore whether this technology will be of great use and, above all, how.
In this article, we will try to show you how blockchain technology can positively contribute to and impact so-called “traditional” finance.
Blockchain offers faster financial transaction
Most of the time, the banking system needs time to process the transactions initiated on a daily basis by the world population.
In some cases, validations even take several days (compliance, identity check, amount limits, etc.). That’s where the blockchain comes in. This technology offers an alternative to the rigid and centralized structures of our old institutions.
Faster, the blockchain is validated by minors and does not require any intervention from a third party, the famous “trusted third party” (in this case, your bank that validates the transaction between you and the sender or recipient of the transfer).
Lower fees for financial transactions
We are often charged bank fees for making transfers or financial transactions. The interest of the blockchain also lies in its cost: it is much lower than that of traditional transactions (but not non-existent!). This is the main reason why banks are highly suspicious of this type of digital asset and it is even becoming increasingly difficult to acquire cryptocurrencies through certain banking groups (which is a desired internal choice and assumed by certain institutions, whose names we will keep silent here…).
Setting a Smart Contract
Blockchain has a great ability in storing a massive quantity of digital information. Therefore, establishing a smart contract in a certain transaction for the involved parties is a real advantage. Blockchain companies and bank sector can establish a great collaboration in order to create a certain smart contract for different kind of transactions.
Imagine for a moment: in the event of bad weather and heavy flooding, a farmer’s insurance must compensate him. It is necessary to declare the claim, that the claim is validated by a qualified person, that the transaction is validated internally, that the bank validates the payment… With a smart contract, no need for all this. Software detects that there has been bad weather (a mechanism connected to rainfall readings for example) and the smart contract automatically compensates the farmer, in a safe, inexpensive and fast way.
This simple example allows us to see the almost limitless possibilities of the disruptive technology represented by the blockchain and the applications that can be made of it, in all fields, by all sectors of activity.
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