BLOCKCHAIN Revolutionising Our Finances - By Eva George
In 2018 we watched the price of Bitcoin and other cryptocurrencies like Ethereum and Litecoin rise to hit all-time highs, before tumbling down quicker than several MPs during Brexit. Whilst the future of cryptocurrency is volatile, more can be said for the technology it’s built on.
Many of us are familiar with Blockchain as the tech behind Bitcoin, but as some of the largest financial institutions around the world are discovering, Blockchain’s uses go way beyond cryptocurrencies.
Before we look at how Blockchain could affect our finances, here are some important points to remember about the technology:
‘Byte Size’ Blockchain Basics
A Blockchain is a distributed ledger, secured by cryptography and consensus, providing a single source of truth and synchronicity across a wide network
Once a transaction is entered onto a Blockchain, it is immutable (cannot be edited or deleted)
Blockchains can be either public or permissioned. Public Blockchains are available for everyone, permissioned Blockchains are viewable for selected people only
Smart contracts run on the Blockchain and are self executing pieces of code (computer instructions) that can automatically make secure payments once specified conditions have been met
Blockchain technology cuts out the ‘middle man’ by providing high-level security peer to peer networks.
Consensus is what creates the trust required for Blockchain to work without the middle man.
The Western world has evolved rapidly with money over the past decade, but there is still room for improvement. We have plastic cards, apps, and instant online payment services for smaller amounts, but bank transfers and cross-border payments could still be faster and all digital payments in general could be more secure.
That’s where Blockchain is taking center stage in the Finance industry and is predicted to have the same level of impact as the internet had on the world.
Say adios to unnecessary 3rd parties
Many current business models could completely disappear over the next decade. Even major payment networks such as Visa and Mastercard are at risk, since there will be no middle man required to make the transactions anymore. Does that mean banks will disappear? No, banking is one of the first industries to adopt Blockchain and they will be utilizing the technology alongside existing systems to better serve their customers. Top banks such as J.P. Morgan, Santander, HSBC and IBM have already started exploring and developing with Blockchain.
Luckily, just like the internet, everyone can and will enjoy the benefits of Blockchain without having to know the exact details of how it works. To us, the end-users, Blockchain will just look like another app, website, or device. The technology will be built-in and working its magic, allowing us to do more, faster. Let’s look at this in more detail...
Imagine you want to transfer money abroad. Currently, certain cross-border payments can take up to 10 days to clear and make as many as 7-10 stop off points at banks along the way, each taking their fee. With Blockchain, it’s peer to peer, almost instant, more secure and cost-effective.
The power of Smart Contracts
Let’s say you own a company that pays commissions to your sales team and affiliates, or you receive commissions on sales. Smart contracts on the Blockchain could allow the payment of those commissions to be sent or received automatically and securely, after the pre-agreed conditions have been met. Consensus allows everyone on the network to have a copy of the transactions reconciled in real-time. That means, if a ‘bad actor’ tried to make fraudulent transactions it would show up like a sore thumb and not be verified.
Since the consensus mechanism provides trust and significantly reduces the risk of fraud, things like insurance payouts, or sales refunds could also be triggered through smart contracts on the Blockchain. This would dramatically reduce the time and costs of traditional payment processing, while increasing transparency for all parties involved.
This transparency may also lead to other benefits. In trade finance, for example, companies involved in buying and selling good internationally can use a permissioned Blockchain to track in real-time when the goods have been shipped and review all the steps it took to arrive. When received and confirmed, payment is automatically issued via smart contract. If conditions were not met, the smart contract does not issue payment.
Credit ratings and financial history
Credit management is another financial area to be impacted by Blockchain. The Blockchain itself could serve as a live record of customer information and behaviour, containing ID, contact details, 3rd party credit ratings and other useful data. This would provide real-time clarity, transparency and more accuracy on each customer’s credit history, while maintaining a high level of security.
Where else can we expect to see Blockchain and smart contracts?
Finance isn’t the only industry to benefit from Blockchain technology. Real estate, medical, and food production, are some of the other industries that will see the most interesting use cases. Check out next month’s edition of Society Marbella where we cover the potential impacts of Blockchain on the Real Estate market.
By Eva George
About the Author: Eva is a Marbella-based Certified Blockchain Consultant and Content Writer with a love for good coffee, yoga, and cool gadgets. For business enquiries visit www.evageorge.global