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Blockchain Disrupts Business Models

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.

What No One Tells You about the Blockchain

Many consider the Internet as the most important invention in the last two decades, but the Blockchain steals the spotlight today. What makes it so interesting is it provides us with a completely new way to carry out transactions that are too complex and that involves multiple parties. It eliminates the need for middlemen. One day, it will power our money transfers and subsidy schemes. But, let us not get too excited about the technology.

Initial Disadvantages of the Blockchain

  • Throughput capacity
  • Scalability
  • Permissioning
  • Storage limits
  • Challenges of integration

As the blockchain is further developed, many of these initial disadvantages are closing. The fast developing ecosystem is addressing them to drive further deployment and adoption. But, there are still some serious limiting factors that can mess up the technology’s potential to change the world:

  • It is not environment-friendly. The Bitcoin might be the most carbon-polluting technology invented in the last three decades. While it has great potential in its use outside the cryptocurrency world, it also has a negative effect on the environment. It is estimated that a single bitcoin transaction uses the same amount of electricity as 1 and ½ households over 24 hours. In other uses, the blockchain could burn more fuels in other countries.
  • It lacks transparency. The modern trend is greater openness and tracking in communication and commerce. But, the blockchain is a closed shop by design. Generally, it is an efficient system for data exchange, but data is only visible to somebody who chooses to mine it. This means some of the data is hidden and the rest are massively distributed, which defeat the purpose of migrating to businesses that offer transparency.

The blockchain has entered a hype cycle. But when we get past that hype, you will realize that there is something fantastic going on in the technology. It is a revolution in the making. Its potential as a technology makes it so exciting in so many ways. In fact, it is being considered to be adopted to the Internet of Things – to take it to the next level. There is no denying that the blockchain will change our lives in the future. While it has some serious limiting factors, the overwhelmingly positive ones are what we are rooting for. 

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How can the Blockchain Change the Financial Industry?

The technology most likely to change the next 10 years of business is not the cloud, Big Data, Artificial Intelligence, social media or even robotics. It is the blockchain. 

The blockhchain technology is complex, but the idea is simple. It is a vast, distributed ledger that runs on millions of devices and caters to everyone. It moves and secures information, money, titles and anything of value. It establishes trust through mass collaboration and clever code. In a word, it ensures integrity and trust between customers, partners, suppliers and even strangers. Thus, with the technology, it is difficult to cheat.    

Today, the financial industry is the most centralized institution. It is also the last to adopt technological revolution. Many financial services are monopolized and are elusive of disruptive innovation. The industry runs on outmoded technology and follows regulations imposed since the 19th century. It is fraught with problems, which make it insecure, and nontransparent to stakeholders. The financial industry makes our global economy buzz; thus, it needs to break free from contradictions and uneven developments.      

The blockchain can fundamentally change the financial industry in many ways:

  • Reducing costs
  • Making complex financial transactions easier
  • Making a viable new market from the world’s unbanked
  • Improving regulation
  • Promoting transparency

Indeed, the blockchain is already making a big impact to the financial sector. The increased security it provides will make it a popular store of money.

The technology holds great promise to revolutionize the financial industry – for good. It can liberate many financial services from the confines of old institution. It will foster both competition and innovation. With the blockchain, people can become more connected. They can participate in financial activities and get a chance to a prosperous life. When everyone shares the same distributed ledger, settlements occur instantly. Billions will benefit, empowering entrepreneurs all around the world.

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