4 Ways Blockchain is Transforming the Financial Landscape of Today
New Delhi : Blockchain adoption has been widespread but sporadic in recent years. It's been viewed as a boon for the real estate world for some time now without a whole lot of practical application. We cited Niti Aayog CEO Amitabh Kant years ago regarding blockchain's potential to disrupt the courts. And there has also been talk at times of precious resource trades, from fine art to gemstones, being revolutionised with technology.
Those are just a few examples of blockchain's potential, but again, actual adoption has been sporadic. Amidst other industries though, one has proven to be particularly adept at pioneering use cases: finance.
No, we’re not just talking about cryptocurrencies like bitcoin. As you may know by now, blockchain technologies have emerged as a class in their own right. And in many cases, they have found homes with banking and financial institutions. In fact, an estimate from the HTF Market Report back in 2019 put the global blockchain finance market at roughly $2.3 billion USD (with a projection of more than $17.4 billion USD in five years).
With big institutions like JP Morgan Chase, HSBC, and IBM at the forefront, new standards using blockchain are being refined constantly. In fact, earlier this year Business Insider covered a Bank of America analysis suggesting that some 21% of banks are already using blockchain solutions in one way or another. Among the banks active in this respect, according to the analysis, were Wells Fargo, PNC, and Fifth Third –– all major institutions in the U.S. in particular.
But beyond spreading use, how exactly is blockchain revolutionising the financial landscape today? Here are four ways:
1. More Accessible Retail Banking
There remains a huge portion of the world unbanked, and digital payments are stepping in to fill the gap. Moreover, cryptocurrencies are now stronger and more influential than ever. With lower transaction fees, fast turnaround and transparent transactions, digital payment platforms are now widely used, especially for cross-border transactions.
This combination of developments is leading us rapidly toward what are effectively decentralised digital banks. These will be of use to people all around the world, but hold particularly exciting potential to bank the unbanked, so to speak.
2. Truly Decentralised Forex Trading
The forex market is widely considered to be decentralised. This means that it is not dependent on a central entity as a governing body. Additionally, FXCM's overarching forex guide notes that with the market being decentralised, it means that traders are able to make transactions "anytime, anywhere" with the market open. Despite these factors though, forex transactions are still conducted primarily by central banks, and users still have to input a lot of information manually when conducting and/or analysing trades.
Blockchain tech, by contrast, offers a more complete decentralisation, as well as greater degrees of transparency. With blockchain platforms, traded information can be factored into a transparent and immutable distributed ledger. This can include parameters like auditors, repositories, and clearing houses among others factored into one block of information. And this is becoming increasingly popular in forex trading. For example, HSBC's blockchain platform FX Everywhere is capable of settling trades worth hundreds of billions (USD) a day. And the banks save money on transactions in the process.
3. Faster and More Efficient Trade Finance
Trade finance today involves financial institutions providing credit facilities guaranteeing the exchange of goods. Blockchain solutions being deployed today have the potential in making these transactions in a more transparent, secure, electronically driven paperless environment. By eliminating intermediaries that assume the risk, settlements can be made faster and more traceable. Financial giants UBS and Bank of America are just some banks which recently launched platforms for trade finance. Other trading corporations like Tokyo-based trading company Sumitomo Corporation, SBI Holdings, and even Dutch bank ABN AMRO have entered consortiums to test run blockchain-based trade finance.
4. Rise of Investments through ICOs
Blockchain technologies are also transforming the way people invest, as initial coin offerings for new cryptocurrencies continue to rise. At this point it's not entirely unusual to see prominent new ICOs with each new month. While more stringent yet permissive policies need to be established, experts see ICOs as a new horizon in investing.
Today, investing in distributed ledger technologies is starting to become a hallmark for competitive advantage in the financial sector. As more use cases continue to rise, there’s no telling when blockchain will transform more industries in the future.