Most companies wait for a certain technology to mature before investing on it. That’s why fin-tech companies have their eyes on the blockchain. They are investing huge amounts of time and money on its development. The technology is believed to disrupt business models by making financial services more efficient. Soon, companies will be able to execute financial transactions in entirely new – and secure – ways.
What is exactly a blockchain? It is a geeky term for a digital ledger or bank vault that participants can access and make changes with. It is popularly known as the technology that underpins the Bitcoin, providing indelible record of its transactions with high levels of cryptographic security. It has many features that fin-tech companies find compelling:
- It’s decentralized. It doesn’t have a single point of failure.
- It’s secure. It utilizes cryptography to validate all transactions.
- It’s has an immutable history. It has a write-once, spend-only attribute.
- It’s efficient. You can exchange information fast and easy.
- It’s transparent. Everything is documented in the blockchain.
The blockchain technology has the potential to streamline and accelerate business processes. It can also reduce or eliminate the roles of intermediaries, and increase cybersecurity as well. While it has some challenges, it will be extremely powerful and will change how businesses operate. Instead of relying on a third-part clearing house, financial companies can use the technology to execute and verify transactions safely and discretely among themselves.
However, financial companies face a number of challenges in using the blockchain:
- The main roadblock is that the industry is heavily regulated. This means that many of its transactions have to be regulated by a third-party and must be transparent.
- There is also the question of privacy. It can be difficult to satisfy participants who want to conduct safe transactions without an intermediary, but do not trust one another.
- Lastly, there is the issue of Due to high volumes of financial transactions, the system can slow down or stop – even for just a second. This limits adoption in cases where speed and volume are important.
Despite these limitations, the blockchain is becoming a significant part of the financial services industry. Today, it is being used by banks to streamline and automate their back-office operations. It is also spreading to other industries, such as the healthcare, IoT, real estate, insurance, cloud storage and supply chain management. Hopefully, it will transform the inefficient ways of conducting transactions. A lot will depend on which consensus mechanisms will be adopted. Some transactions may find this technology beneficial. Others may not. It is up to companies which works best for them.