How Blockchain Technology has Revolutionized the Finance Industry
The finance industry has undergone various digital transformations, but blockchain technology has made quite an impression.
19:15 18 November 2022
Financial institutions have heavily invested in blockchain services, with an estimated market value of $0.28 billion in 2018 predicted to reach $22.5 billion by 2026. The finance industry has undergone various digital transformations, but blockchain technology has made quite an impression.
Not only has the technology helped the finance sector to mitigate fraud, but it also experiences fast and secure transactions. On top of that, blockchain solutions have helped established and start-up fintech companies to save operational, infrastructure, and transaction costs through automation.
More importantly, financial companies can enjoy customized blockchain services tailored to specific needs. For example, Pixelplex custom blockchain services empower corporations and startups by analyzing their shortcomings and providing transforming solutions that address their specific needs. Blockchain in finance (DeFi) simply defines the incorporation of decentralized technology in the financial sector.
Blockchain Use Cases in the Financial Sector
Financial firms continue to embrace blockchain solutions because they understand that modern-day customers are also up-to-speed with the latest technology trends. There are plenty of ways that blockchain has helped investors to streamline their operations.
These include lower cost of operations and the ability to transact in a trustless business landscape through smart contracts and programmability features and improving liquidity, leaving one to wonder if there is an area yet to be explored. To understand better how blockchain has changed the finance industry, have a look at the following use cases:
One of the best things blockchain technology has helped within the finance sector is the use of smart contracts that streamline the lending process between borrowers and lenders. Traditional lending processes rely on third parties, such as guarantors, to build trust for a transaction. However, blockchain has made it possible for lenders to engage borrowers directly.
Loan processing has always been challenging because of the lengthy verification process. But now lending institutions can use technology to verify information such as credit scores in real time. As a result, it takes less time for loans or mortgages to get approved, a process that would have taken longer through traditional lending.
Blockchain's decentralization allows stock market parties to avoid intermediaries that prolong the trading process by facilitating quick transactions. Owning securities or asset servicing that would have taken days before has been streamlined through automation and unchangeable smart contracts.
In essence, blockchain's transparency and risk containment endeared it to stock market participants who enjoy higher liquidity, reduced transaction costs, and fewer worries of fraud, among other associated risks. Traders can also actively participate in multi-asset trading platforms, a financial risk that requires multi-asset marketplace consultation before undertaking.
Governments worldwide are using blockchain to build trust with their citizens. For example, using public blockchain technology to keep records on utilized funds, and ongoing, and completed projects.
By doing so, governments can fight corruption by leveraging the blockchain's transparency to account for public funds. Another role played by blockchain in government is streamlining procurement processes through smart contracts, reducing costs from traditional error-prone processes.
The insurance sector is another use case for blockchain technology. It’s also a key player in every country's economy. But it can get exploited by outsiders and even insiders if transparency and security cannot be sustained. For instance, cases of fraudulent claims have been the main challenge where perpetrators falsify claims with no solid proof to hold them accountable for their actions.
Blockchain technology has, however, empowered insurance companies and helped them gain client trust by fixing loopholes ailing the industry. Insurance companies can also lower operational costs used to maintain old systems through blockchain solutions. On top of that, the insurance sector can capitalize on blockchain's real-time asset tracking and accelerate claim settlements.
The detailed process of moving or transferring funds between accounts in different parts of the world is a story of the past. This is because blockchain has made the process faster and more secure. Blockchain-powered platforms like have enabled users to transfer funds without involving intermediaries to different accounts worldwide.
Global payments have been streamlined, and transaction costs have been lowered. Additionally, the security and transparency offered by blockchain technology in cross-border remittances allow traceability of records because data cannot be falsified, deleted, or edited. Safe to say that blockchain doesn't yield to geographical barriers, making it a convenient solution.
Accounting and Auditing
Much paperwork is associated with accounting, and errors and omissions can be made intentionally or unknowingly when handled manually. Thanks to blockchain in finance, record keeping is automated, and information retrieval is made effortless. Paperwork like invoices and billing statements, the norm in traditional accounting, does not have room in blockchain technology.
Keeping track of payment due dates and client details is enabled through smart contracts in the decentralized register. Auditors easily retrieve and verify financial records from the chronologically arranged blocks of information. Financial files in a blockchain network have digital fingerprints that make it impossible to alter information, therefore, maintaining high levels of integrity.
Among the challenges faced by banking institutions include dealing with cyber criminals who impersonate account holders. Client identity verification is crucial for banks, especially when issuing loans and blockchain technology helps in KYC (Know Your Customer).
Identity verification in blockchain requires users to register their identities in the distributed system, which enables them to share their information directly with financial institutions. Once a user has their identity registered in a blockchain network, there is no need to repeat the registration process when engaging different service providers.