Reasons Why The Finance Industry Needs To Take Advantage Of The Blockchain Technology

Blockchain

03
Sep 2018

2902 Views 5 Minute Read

reasons why the finance industry needs to take advantage of the blockchain technology

The blockchain technology has impacted the world in a positive way. It has been very useful and helpful in a lot of industries across the world. It has also enhanced the economy of nations and created a lot of job opportunities for developers as well as other tech enthusiasts.

This has given rise to a lot of blockchain companies and blockchain app developers. Some companies have also taken advantage of this technology to provide blockchain solutions that have helped a lot of individuals all over the world.

One industry that also benefited greatly from this technology is the finance industry. Although the finance industry has not taken full advantage of the blockchain technology, there are some aspects of the industry that have already adopted this technology. The finance industry can benefit a lot when they fully adopt this technology.

By using blockchain technology, financial services can improve in a whole lot of ways. It will greatly enhance the way they do things as well as the processes involved in the system. Normally, the finance industry is known for its system of legacy. Some banks even have tons of legacy systems that are up to thirty to forty years old.

Hence, it is not a surprise that the finance industry has started using blockchain technology to improve a lot of their outdated systems with the help of top blockchain development companies. This has also saved them a lot of money as blockchain companies provide them with blockchain solutions.

By adopting the technology of distributed ledgers, banks can make cheaper and faster trades. This will also make them become more efficient and productive. Listed below are some of the reasons why the finance industry needs to take full advantage of blockchain technology.

#1 Instantaneous Settlements

Transactions can be carried out in seconds, at most minutes. Presently, it takes up to days or weeks to carry out settlements. Settlements can be optimized for users with the help of Blockchain, this can save a whole lot of money and time, for the two parties involved.

Blockchain will eliminate the need for several back-office and middle-office staffs in banks, as there will be an instant settlement of transactions. As a result of this, banks need to explore and take advantage of blockchain to improve settlements and make it much faster. Some banks can explore inter-bank options first, while other explore internal options first.

#2 Minimized Risk of Counterparty

When transactions are carried out and settled almost immediately, it will eliminate the majority of the risk that the counterparty can’t meet up with its duties, and this could be a significant expense for the bank. So to minimize this risk by a greater percentage, banks need to take full advantage of what blockchain has to offer.

#3 Enhance Capital Optimization

One of the major features and advantage of blockchain is that it eliminates the need for reliable intermediaries and make it possible to carry out peer-to-peer transactions. When the finance industry uses blockchain, it could render some intermediaries useless (especially the ones that charge fees) like custodian banks (those vouching for the credit positions of counterparties).

Intrinsically, blockchain provides a better and improved capital optimization because it significantly reduces the costs of operations for banks. Also, when banks come together to share a Blockchain, the cost of that Blockchain, as well as its ecosystem, might be more than the single costs of managing a transaction at the bank. Nevertheless, the participating banks can all share the costs, and as such, there will be a significant reduction in cost.

#4 Improved Transparency

Blockchain solutions can improve transparency among banks as well as other financial institutes. This will greatly enhance regulatory monitoring and reporting by central banks if the blockchain can be accessed by the regulatory.

#5 Greater Contractual Performance As a Result of Smart Contracts

When smart contracts are utilized by banks and other financial institutions, it will greatly enhance the performance of contractual terms as smart contracts are executed automatically immediately some defined conditions are met.

It is crucial that the smart contracts are well grinded in law and that they comply with the required and necessary regulatory compliances. Due to this, the smart contracts within the platform of the distributed ledger of R3CEV was customized. Transactions of financial assets that are intricate are most likely to benefit greatly from blockchain, because of the automatic settlement offered by smart contracts that function with business rules that cannot be altered or interrupted.

#6 Minimized Reconciliation and Error Handling

One of the fundamental features of Blockchain is that once data is recorded, it becomes unchangeable. This means the data cannot be modified by anyone. Data recorded on a blockchain can be monitored in real-time, this leaves a well-explained audit trail. As a result of this, reconciliation and error handling are completely eliminated.

#7 Better Financial Solutions in Periods of Crisis

The use of blockchain will increase financial solution options because of digital or cryptocurrencies and tokens. After the hack of Bitfinex, they developed a compensation solution that was compensating the users (that were all part of the loss) with a tradeable RRT (Recovery Right Tokens). The value of one token is equivalent to 1 USD loss, and every token was seen as an IOU.

Users were allowed to trade their tokens for the market price if they believe Bitfinex will not recover again or if they believe it could recover and just wanted to make extra profit. They were also allowed to exchange the token for equity (this is what happened to almost 50 percent of the tokens) of the top app development company would buy them back in the future for $1.

After the initial reduction in the price of the Recovery Right Tokens to $0.30, the token now trades at about $0.8, and the company is now back to its operation fully. This is a fascinating example of a ground-breaking financial solution; the credit goes to the blockchain. It is possible that without Blockchain, the company would have gone bankrupt and everyone that invested their money there would have lost it.

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