The blockchain is a technology that creates a ledger of transactions on the internet that is secure, time and cost-effective, and easily accessible. It has no central authority, it is instead a shared record of transactions distributed by a large set of users. It is made of series of blocks of data which record a batch of transactions. The blocks are electronically chained together and locked with advanced cryptography in order to create a permanent and public record of transactions that can’t be deleted after created.
But, what may be the financial uses of such exciting technology?
The most obvious and interesting application which is making large banks excited is about the technology being able to keep track of trades of bonds, and stocks, and make sure that payments are made properly. Presently, this process involves a lot of intermediaries, like banks, traders, exchanges, brokers, and clearing houses, who may end up being an unnecessary cost for investment banks, or hedge funds, or an ordinary person who wishes to make some investments in the stock market. Additionally, it is much more time effective, as trades are verified and paid instantly, and currently, it takes no less than two days to verify the payments have been done.
Of course, there are still some issues to resolve. There is still distrust on the safety of the blockchain applications in finance, as the risk is too big if for instance the chain is hacked, and large amounts of money and information are stolen or hidden.
Furthermore, as the system is decentralized, if something goes wrong there is no one to account for the damages caused.
Finally, it is a drastic change for big financial institutions who will take time to make the necessary changes in order to make that technology part of their processes.
Concluding, I believe that blockchain is one of the most interesting technologies that can have a major impact on how we deal with money nowadays. Do you also think it will take over the financial world?
Rita Guégués
Sources
https://www.coindesk.com/information/how-blockchain-technology-change-finance/
