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Is Blockchain The Future Of Finance?
05 November 2024 | 0 comments | Posted by Josh Welman in Money Talks
Who would have imagined that blockchain technology would attract global attention, especially after the first digital currency was launched in 2009? The surprising thing is that almost every sector is opening up to this technology—not just finance.
Well, you may be aware of our modern-day needs and preferences, like fast and cheap transactions, privacy and so on. All these reasons, along with many others, are why blockchain is making its way into sectors like finance.
And if you are a serious investor, you can actually agree that getting acquainted with such information can be very helpful in the crypto industry. Things can rapidly change in this sector, further emphasizing the need to be updated.
For instance, increasing investor demand can increase the bitcoin price and vice versa. Plus, when more sectors like finance open up to crypto technology, it can also affect the prices of digital currencies.
However, in this article, we will focus mainly on how blockchain might affect the future of finance.
Let us set off.
Blockchain's Revolutionary Role in Finance
Blockchain is popular for its decentralized nature, transparency and security, which are three key elements in the finance sector.
Reduced reliance on intermediaries
First, decentralization ensures that no single entity controls the network, which puts intermediaries like banks and brokers out of the equation.
You probably know how a transaction could be delayed because of the number of offices it has to go through to be approved. This is common with international wire transfers, which take days to process and end up costing you high charges because of the multiple intermediaries involved.
However, blockchain can save you time and money because the technology allows you to transact directly with another person regardless of geographical location. As if that’s not enough, the crypto transactions are verified in minutes.
Actually, statistics show that a Bitcoin transaction could take between 1 to 1.5 hours to complete, with one of its confirmations taking up to 10 minutes, while an international wire transfer would take up to five business days.
Transparency and data availability
When it comes to transparency, it goes without saying that everyone wants to know that their money is handled fairly and honestly – and that’s where blockchain comes in. It creates clear and reliable financial records because once a transaction is added to the blockchain, it cannot be changed or deleted.
Also, since the data isn’t stored in a single location but across many nodes, hacking becomes difficult, and a failure in one node doesn’t mean the close of business.
Plus, since it is a distributed ledger technology, it offers real-time transparency where every transaction is visible to all parties involved. This level of transparency leaves hardly any room for fishy activities or corruption and reduces errors that result from manual record-keeping.
Security, privacy and final settlement
Security seems to sum it all up because, with decentralization and transparency, you have some level of assurance and peace of mind that your money is safe. Securing the transactions cryptographically ensures they can only be accessed by those with the correct decryption key, thus preventing unauthorized access.
What’s more, while the transactions are recorded transparently on blockchain, the crypto techniques used, like encryption and zero-knowledge proofs (zk-SNARKs), allow you to transact while maintaining user privacy. This level of anonymity protects your personal information, ensuring it doesn’t land in the hands of people who can use it to exploit you.
Application in Decentralized Finance
DeFi is one of the most transformative applications of blockchain in the finance sector. It is a technology that capitalizes on decentralization, primarily using blockchain to offer traditional finance services without the need for intermediaries.
According to SkyQuest, the DeFi market is projected to grow at a compound annual growth rate (CAGR) of over 9.06% from 2024 to 2031.
This shows that people are fast adopting blockchain in financial services. Thanks to DeFi, you can lend, borrow, trade, or earn some interest on your assets today through smart contracts, which are automatically executed when pre-defined conditions are met.
Think about it – millions of people globally lack access to banks and other financial services, especially those in underserved areas. Actually, a report by the World Bank revealed that about 1.4 billion adults in the world remain unbanked.
But with DeFi, you don’t need to go to a bank to access financial services because anyone with an internet connection can send, receive, and store funds. This brings convenience and accessibility because around 67% of the world has access to the Internet.
Some setbacks of blockchain
Despite blockchain's potential in finance, uncertainties from some regulatory authorities seem to slow progress. Governments worldwide have taken different stands on digital currencies and blockchain technology, with most not yet embracing it.
However, there is still hope that they will warm up, seeing that countries like Malta are on the front line in establishing clear legal frameworks for blockchain.
It is also unfortunate that though blockchain is secure, some fraudsters manage to take advantage of its decentralized nature, unrestricted geographical boundaries and high anonymity to scam people.
Actually, a 2023 Crypto Crime Report recorded an estimated $39.6 billion worth of illicit transaction volume. Conversely, the total illicit revenue for crypto scamming and hacking went down 29.2% and 54.3%, respectively, in the same year.
Blockchain has more room to grow into tradFI
As the world becomes more connected, people want secure, transparent, and easily accessible financial services, making blockchain a big part of the future of finance.
A 2020 report from PwC estimated that blockchain technology could boost global GDP by $1.76 trillion by 2030, with the financial sector being one of the biggest beneficiaries.
While challenges like regulations and security need to be addressed, blockchain’s benefits, like faster transactions and reduced costs, show its potential to reshape the financial world.
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Recommended reading
If you enjoyed this post and have a little extra time to dive deeper down the rabbit hole, why not check out the following posts on cryptocurrency and blockchain?
- Why Blockchain and Cryptocurrency Is The Future Of Money
- 24 Ways To Earn Cryptocurrency
- How To Pay Tax On Cryptocurrency In South Africa
- How To Buy Bitcoin In South Africa
- Why Does Your Bitcoin Wallet Address Keep Changing?
- How To Tokenise Your Art & Sell It For Cryptocurrency
Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational purposes only. As of the time of posting the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk.
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