Blockchain is a buzzword that can find itself overused by business leaders today. The term has become synonymous with discussion of emerging trends and digital transformation – and for good reason – but still very few of us truly understand the vast implications blockchain has for the world of finance and beyond.
The technology has become synonymous with the likes of Bitcoin and the wider world of cryptocurrencies and decentralized finance, but the potential of blockchain is so much more far-reaching than that. With this in mind, let’s take a deeper look at how blockchain’s distributed digital ledgers can leverage a future finance revolution.
Harnessing the Power of Blockchain
Blockchain technology is all-encompassing. It’s built on a digital ledger via the application of integrated data across a range of platforms and hardware that enables individual computers, all around the world, to share data across the network. This means that it’s a global network built on blocks of data and transactions that are distributed worldwide. These blocks are capable of containing virtually any kind of information based on the blockchain’s purpose.
Blockchains operate on a solely peer-to-peer basis that’s built on consensus algorithms – meaning that every transaction needs to be confirmed by the majority of users for verification to take place and removing the reliance on external or internal sources to validate the authenticity of records, data, or information.
This utility of reaching a consensus to confirm transactions means that there’s no need for middlemen when it comes to data verification or authentication, and end-users have the ability to connect directly to each other and the network – helping to significantly reduce the friction involved in leveraging transactions.
Most significantly, blockchain technology operates in a decentralized manner, and data is not stored by a single entity or within a single location. With no central points of storage, it’s far more difficult for blockchains to suffer security breaches from hackers. As a consensus needs to be reached by distributed users around the world, shady alterations to the data held within blockchains are almost impossible to make. Furthermore, making changes to just one single part of the block will change the unique hash of the block in its entirety – immediately showing users what’s been tampered with and potentially leading to an outright rejection of the alterations made.
As the data above shows, blockchain’s implementation into more traditional financial sectors is already forecast to make savings that could sprawl to $13 billion in terms of aiding regulatory compliance and mitigating instances of fraud.
However, one of the areas in which blockchain is set to excel over the coming years is in the leveraging of borderless transactions in a cost-effective and efficient manner – with the potential to save businesses vast sums of money in leveraging deals with international parties and intermediaries involved.
Cross-Border Payments Delivered by Blockchain
The act of sending or receiving money across borders, or between two different fiat currencies, has generally been a process that can be highly stressful and problematic for businesses and individuals alike.
As electronic payment providers first entered the scene alongside leading eCommerce platforms, the technology was heralded as a revolution in leveraging transactions. International payments became manageable within 24-hour time frames, rather than the days or weeks that traditional bank transfers would take. However, the Bank of International Settlements recently determined that, despite recent innovations across the fintech landscape, cross-border payments were still bogged down in technical hurdles and generally high processing costs – and that bank transfers continued to be regarded as a favourable method of cross-border payment despite its limitations.
Blockchain technology stands as a solution with plenty of potential for leveraging payment gateways for instant transactions across the world at any time of day or night – all with low fees regardless of the value of the transaction itself.
Additionally, through the use of stablecoins as a denomination of finance, it’s possible to send and receive money anywhere to blockchain wallet addresses with no need for conversions or middlemen along its journey.
Infiltrating Traditional Finance
Adopting blockchain technology to digitally transform cross-border transactions isn’t exactly brand new for financial institutions. In 2018, Spanish international commercial bank and financial services giants, Santander, teamed up with Ripple service, xCurrent.
In collaboration with xCurrent, Santander launched One Pay FX later that year to roll out a distributed app (DApp) that pioneered blockchain-based international same-day transactions for customers in Spain, the UK, Brazil and Poland. Whilst the traditional system took between three to five days and comes with an average of a $25 fee plus between 3% and 7% charges for customers to finalize transactions, One Pay FX eliminated all the red tape and friction attached to the process.
Although three years can represent a lifetime in the fast-paced world of blockchain and emerging financial technology, Santander’s innovations alongside Ripple paved the way for more blockchain projects to take center stage as developments in fintech continue to make it easier for the financial landscape to evolve.
The arrival of blockchain-based transaction specialists, Alchemy Pay and Connectum – the latter of which is a fintech specializing in multi-currency one-click processing and P2P-based card-to-card payments – have the ability to take the inroads paved by early blockchain adoption and build on it to develop comprehensive and seamless transaction systems.
Although blockchain has perhaps become something of a bewildering buzzword across the business spectrum, there’s little doubting the central role it will play in the evolution of finance. In paving the way for borderless transactions, the combination of blockchain and fintech can lead to a brighter future for institutions and individuals alike.