What is Blockchain
Blockchain is a decentralized, distributed ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network. This unique characteristic of the blockchain technology is useful in the Finance industry as it provides the capability of recording transactions securely and transparently. It also allows the participants to verify and audit transactions inexpensively. A blockchain consists of a series of blocks, each containing a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data.
The blockchain technology has resulted in the creation of digital currencies; one prominent example is Bitcoin. It is also used in tracking ownership of other assets, such as stocks and bonds. Over time, the application of blockchain technology has evolved into a variety of applications, such as cryptocurrencies, supply chain management, and voting systems. This technology still holds a strong potential to revolutionize a wide range of industries by reducing fraud, improving transparency, and increasing efficiency.
Blockchain in Finance & FinTech
Blockchain and FinTech (financial technology) are closely related, as blockchain technology is often used in FinTech applications. FinTech refers to the use of technology to improve and innovate financial services, such as mobile payments, online banking, and investment management. This provides for many potentials and possibilities within the Finance and FinTech industry.
Within the Finance industry, this technology would allow for the transfer of currency with high security and reliability. It also helps to increase security and reduce the risk of fraud, while also making financial transactions faster and more efficient. The use of blockchain in FinTech has the potential to greatly impact the financial industry, with many FinTech companies are exploring its use in their products and services. The blockchain technology has been very disruptive within the financial industry and it has shown that it holds strong potential to reshape how businesses operate.
Future and Benefits of Blockchain in Finance & FinTech
It is difficult to predict the future of blockchain in finance with certainty, but it is likely that the technology will continue to play a significant role in the industry. As more financial institutions and governments begin to adopt blockchain technology, it could become a standard way of conducting financial transactions and tracking the ownership of assets.
This could lead to greater efficiency, security, and transparency in the financial system. It is also possible that new applications of blockchain technology will be developed, potentially revolutionizing the way we think about finance and economics. Blockchain holds the promise of potential cost savings, new operational efficiencies, and improved transparency and accuracy, according to the market. Like any technology, there are also potential challenges and drawbacks that need to be considered.
Some of the areas that the blockchain technology is expected to have an interest in:
Securitization: Blockchain securitisation comes into play in the world of structured finance via a process known as “tokenisation”. In tokenisation, typical illiquid assets held by the SPV are converted into “tokens” that represent the individual securities sold to investors on the blockchain. These tokens will then be distributed to each individual investor and act as proof of ownership of each individual security issued by the SPV. By tokenizing traditional securities such as stocks, bonds, and alternative assets and placing them on public blockchains, the blockchain technology could create more efficient, interoperable capital markets.
Tokenization: In 2022, Non-fungible tokens (NFTs) was a hit in the FinTech industry. While the discussion of NFTs has declined over time, it has shown that it can provide financial markets with a tool to represent physical assets on a blockchain. Enterprises are still working through how to leverage the value NFTs and tokenization can bring to existing business processes and financial products.
Payments and settlements: With the blockchain technology, it would be possible to achieve real time processing of transaction, distribute and enforce business rules, reduce costs by eliminating intermediaries and simplify infrastructure, reduce risk of loss of data, better end to end transparency and predictability. By removing the need for gatekeepers in the loan and credit industry, blockchain technology can make it more secure to borrow money and provide lower interest rates.
Smart contract testing: Smart contracts are a fundamental component of blockchain applications. Blockchain technology users are testing smart contract code for accuracy, security, standardization and efficiency.
Clearance and Settlement Systems: Distributed ledgers can reduce operational costs and bring us closer to real-time transactions between financial institutions.
Syndicated loans: The technology is expected to improve the efficiency of execution and servicing across the syndicated loan ecosystem by using smart contracts to govern loan terms and conditions, distributed ledger technology to solve for communication and transaction tracking, transparency and immutable data to illuminate time consuming reconciliations and erroneous payments.
Digital asset custody: Although the cryptocurrency sector was impacted by bad news like the FTX collapse, the blockchain technology is expected to have movement in the areas of cryptocurrency custody product development and vendor selection, guidance on accounting and tax treatment of cryptocurrency transactions in an evolving environment, financial controls assessments, cybersecurity/fraud assessments; and, controls development/SOC2 readiness.
How Storm2 Can Help Blockchain Businesses
At Storm2, we work with the most disruptive Blockchain companies globally. If you’re a blockchain FinTech looking to hire a specialized blockchain professional to grow your team, we have a huge database of candidates ready for you to connect with. Get in touch with us to schedule a confidential chat.
