Do you know what empowers bitcoin and all other cryptocurrencies out there? It’s the peer-to-peer electronic cash system called the blockchain. Blockchain is the technology that enables bitcoin and other cryptocurrencies to be used as a means for fast & low-cost cross-border payments. Basically, financial transactions, i.e. payments and money transfer, are the basic utilities of blockchain.
So, what’s the future of blockchain as a financial technology? Let’s find out.
While cryptocurrencies continue to struggle to get regulatory approval from the world’s governments, many large financial institutions, corporations and banks have already started experimenting with the use of blockchain technology to improve their systems and make the processes faster. This is a positive sign that blockchain’s future in the financial industry is bright.
JP Morgan, one of the world’s leading investment banking companies, has recently announced that it plans to launch its own digital token with the aim to make digital payments faster between the company accounts. The global investment in blockchain technology and solutions from the world’s leading companies is growing at an unprecedented rate and is expected to cross $10 billion by the end of 2021. According to a survey, almost half of the top 1000 organizations plan to include blockchain into their systems by the next year.
Blockchain by its basic nature is a technology meant for financial transactions. It’s true that the technology also has applications beyond financial transactions and in multiple other industries, the FinTech sector remains the number one choice for blockchain investors and companies.
If you are wondering why blockchain is preferred for financial transactions, let’s talk about the basics of blockchain.
By definition, blockchain is a distributed, shared ledger of transactions that is owned and managed by the network users. From a user perspective, blockchain is a decentralized network that can be used for making digital transactions that are highly secure (encrypted), transparent and free of middlemen. Basically, everything that happens in a blockchain is visible to everyone in the network, except for encrypted data and records that are immutable.
In practical terms, blockchain can solve a lot of problems of the current financial sector. By making financial transactions decentralized and free of middlemen, it essentially gives control in the users’ hands, who can choose how they manage, own and use their digital data. Second, the technology provides a way to perform secure and fast cross-border transactions without the high middleman cost.
Smart Contracts, which are decentralized applications built on top of blockchain technology, make it possible to perform secure & low-cost digital transactions, trades, purchases and payments in a totally peer-to-peer fashion.
Financial use cases of blockchain
From simple digital payments to online shopping, money transfer, P2P trading, micropayment and more, blockchain is revolutionizing the entire financial industry. There are now blockchain-based platforms/apps that can be used to perform international money transfers in near real-time. The inclusion of blockchain in the trading industry can bring transparency, reduce middlemen commission and make the clearing process much faster. Instead of taking one or two days to clear user funds, all settlements will be instant and low-cost.
For instance, the use of blockchain in the e-commerce space can not only make digital payments more global, secure and inexpensive but it will also make the entire system management more seamless by giving complete control to users. Libra Coin (https://libraecosystem.com/) is a good example of how blockchain can revolutionize the e-commerce payments industry.
There are practically unlimited use cases for smart contracts. From buying simple things like a pizza to buying and selling cars, homes and everything else, blockchain smart contracts can provide security and trust without the involvement of middlemen.
What does the future hold?
There is no way to predict whether or not blockchain will become the next big thing in the financial space. But, seeing the popularity and investor attention it is already getting, it seems safe to say that the future looks bright for blockchain. The revolution that started with the financial sector is likely to go much beyond.