Let’s say you have a ledger technology where all your crucial information is distributed among several nodes so that if one node is altered or corrupted due to any reasons, the rest don’t get affected, and as a result, the credibility of your data is not compromised. Blockchain is the technology that helps you achieve this goal. It is a shared, immutable ledger that facilitates recording transactions and tracking assets.
All the transactions made in a Blockchain are duplicated and distributed among computer networks that are participating in that particular Blockchain. The system has also built-in safeguards, a mechanism that prevents any unauthorized transactions inside the Blockchain nodes, which as a result, creates a consistency in the shared view of these transactions. Now that we have a quick overview of what Blockchain is let’s observe why it is important in today’s day and age and how it has revolutionized the financial sector.
Security and Transparency
The most important and most valuable characteristic of any system that holds your important financial transactions is that it should be secure. Blockchain relies on cryptographic techniques that make it difficult to tamper with the transaction data. So, if your data has not been tampered with, you know that its integrity has not been compromised, and you can carry out further operations without worrying about any backlash from working with corrupt data.
Also, no single entity can alter the whole Blockchain record because no single entity has complete access to all the records stored in the Blockchain. The content stored on the blocks of the Blockchain and the activities performed by the various participants can be controlled depending on how the Blockchain is configured.
Blockchains are also transparent, meaning that those who have access to a certain Blockchain can independently verify the transactions made on that ledger. Such methodology of working also ensures trust among different parties who rely on the accuracy of information stored in a Blockchain.
Several industrial sectors use Blockchain technology. Banking giants like HSBC and Barclays are using Blockchain technology to streamline their funds transfer and KYC (Know Your Customer) processes. Digital payments giant Visa uses this technology for its business-to-business payment services. Medicine companies like Pfizer use the proof concept for tracking records and managing their digital inventory of all the pharmaceutical products they deal in.
Stable
A stable Blockchain is necessary for the optimum working of the said Blockchain. The entire system can be compromised if changes are made to a particular Blockchain. A stable Blockchain uses a Proof-of-Work or Proof-of-Stake consensus algorithm. This algorithm ensures that all parties involved in the transaction being made inside a Blockchain have reached an agreement to make changes inside the Blockchain.
This practice eliminates the threat of any malicious actors who want to alter the record inside the Blockchain for their benefit. This means that any businesses or government offices that want to use Blockchain technology to carry out certain duties can make plans in advance to allocate resources and develop applications and services using said Blockchain, knowing that their creations will be supported by that Blockchain in the future because to make any changes a strong consensus and testing period is required.
Efficiency and Reduced Costs
Blockchain can increase the efficiency of your transaction operations by cutting down intermediaries involved and reducing settlement times. As a result, you can cut down on operational costs involved when carrying out your tasks in the traditional way. Let’s look at some examples of how one can achieve efficiency and reduction in operational costs by using Blockchain Technology.
Cross Border Payments
Ripple, one of the renowned Blockchain-based payment networks, offers an efficient system that allows cross-border payments to be made in a quick time. The way with which this result is achieved is by using Blockchain technology to eliminate any intermediaries involved and make real-time settlements between clients.
Direct peer-to-peer transfer also reduces transaction fees which would have been higher in a traditional banking transfer system where delays occur due to different parties involved in completing one transaction, which also increases costs.
Smart Contracts
Insurance is a company that connects insurance buyers, brokers, and insurers on a single platform. The company has eloquently stated that maintaining data across multiple spreadsheets is a relic of the past. The Blockchain network of Insurwave automates insurance processes with the help of smart contracts.
Smart contracts are self-executing, meaning that when certain parameters of contracts are met, it triggers further actions like making claim payments. These parameters are set beforehand. The administrative overhead and the processing time are reduced dramatically using Smart contracts.
American International Group (AIG) is another big example of insurance companies using smart contracts. The company partnered with IBM and Standard Chartered Bank to pilot their first “Multinational Smart Contract”. The company has stated that by using Blockchain Technology, they can create a new level of trust and transparency in the underwriting process, which enables them to execute multinational coverage more efficiently.
Supply chain Management
IBM and Walmart are a few examples of companies that are using Blockchain technology in their supply chain management. By recording each step of a product’s journey on a Blockchain, they can verify authenticity, reduce fraud, and quickly trace the source of any issues or recalls. This transparency leads to cost savings by reducing errors, fraud, and the time needed for dispute resolution.
Data Privacy
While Blockchain is a decentralized network that contains different nodes where data is stored, if you are working with a public Blockchain, you cannot ensure the privacy of your data. To counter this problem, private Blockchains are also available where individuals and organizations can ensure that their sensitive data is not common knowledge to outside observers or competitors alike. Private Blockchain has an extra security layer where special access is required to gain access to a Blockchain node before any changes can be made.
Zcash is a cryptocurrency that offers enhanced privacy features. It uses zero-knowledge proofs, specifically zk-SNARKs, to enable fully private and shielded transactions. Users can choose between transparent transactions (similar to Bitcoin) and shielded transactions, which provide advanced privacy by concealing transaction details.
Monero (XMR) is another privacy-focused cryptocurrency that uses techniques like ring signatures and stealth addresses to obfuscate transaction details. It aims to provide complete privacy and anonymity for users by default.
Many multinational companies and organizations and different government entities have adopted Blockchain Technology as a necessary tool in their day-to-day operations. It has revolutionized the way financial services are being carried out by ensuring fast transaction time, eliminating time overhead, ensuring data privacy, safeguarding records, and making necessary backups for all transaction records.
