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Blockchain Use Case in Finance

The finance industry has been facing a lot of difficulties and challenges for a very long time. The upcoming technology being implemented in the finance industry has solved many problems by digitalization the industry, but there are a lot of problems that also came with the process. The biggest problem industry is facing is that there are multiple fintech solutions available now, and the enterprises don’t know what technology to implement in their business that will suit them best. Blockchain in the financial industry can play a significant role and solve the challenges that the industry is facing.

Blockchain has been a rapidly growing technology and has caught the attention of users all over the world. Many enterprises of different fields have started implementing blockchain in their businesses to leverage the benefits of this disruptive technology. Blockchain is facilitating the users to make the digital exchange of assets, from tokenization of votes to huge transactions, everything is being done through the blockchain networks. It is being used as both the ledger and also to enable the secure transfer of the assets between the users. The first use case of the blockchain in finance was a secured, peer-to-peer cash system that was made in 2009. But today, there are many different use cases of blockchain in finance. 

Blockchain and finance overlapped with each other because of the secure nature of blockchain technology. Security is the biggest concern in the finance industry and blockchain solved it by saving the data and transactions into the blocks of the technology that are connected. A network of computers that are called nodes in the blockchain technology is connected and they keep exchanging information with each other on new transactions or when a new node is added to the chain. Due to the nodes and chain, the hacking or changing of information in blockchain is very difficult because not only that node but its adjacent nodes also contain some part of that information. In any case of failure of the node, there is always a replaceable node that contains the same information so the network is never disrupted. 

Banking Financial Institutions and Blockchain

Cryptocurrencies have always remained a controversial topic in the financial industry and many critics including popular economists like Paul Krugman and Warren Buffet considered the cryptocurrencies ‘evil’ and ‘terrible’. Yet some consider it the next internet. It has been a revolutionary technology that challenged the political and economical underpinnings of society. The critics failed in their assumptions as there are millions of users only on the Bitcoin blockchain. The number of digital currencies has only exploded in the past few years, and the users are still preferring them over traditional financial methods because the users think that the assets will all be digitalized in the upcoming years. 

After criticizing the blockchain and the cryptocurrencies, the banks are now trying to catch up with the blockchain technology used in finance. They are now trying to implement the technology in their systems and make a profit from it. But their attitude towards the blockchain has cost them time, and now a whole new financial system is springing up around them, attracting more customers. 

As the blockchain financial methods and cryptocurrency startups are also now providing credit cards and loans to their users. Due to all these facilities, users all over the world are moving toward cryptocurrency startups at a rapid pace. Even the governments are now being involved in it and it is predicted that Bitcoin might be accepted as a legal tender. On the other side, the central banks are also following the steps and are planning to launch their digital currency so they can compete in the industry. 

Another reason why it has attracted users is the decentralization of the platform. There is always a fear of loss and theft in physical traditional banking. The decentralization makes it more secure, and all the transactions are safe and are done peer-to-peer, which means that the users know with whom they are trading. Another advantage of decentralization is that there is no involvement of any third party. This excludes the additional charges at each transaction, and the transactions are fast and easy. Providing such facilities to the users has gained the attention of the users as everyone wants a secure and fast platform for payments. 

Asset Management and Decentralized Hedge Funds

The assets of the users can be managed by decentralized hedge funds. But what are decentralized hedge funds? By merging Artificial intelligence and the blockchain, Decentralized hedge funds came into being.  They are programmed by artificial intelligence and are completely autonomous, so all the asset management of the users can be done by AI while they do other tasks in their life. It enables users to trade in unlimited cryptocurrencies in exponential ways at any hour of the day. The trading by the bots can be performed 24/7 without you even knowing running on the algorithms they are programmed.  

In traditional banking, there was no control over data privacy and security, and the assets were at a high risk of cybercrimes, hacking, and stealing personal data like passwords. But blockchain technology has solved all these problems as all the transaction information is stored in blockchain technology and there is no chance of theft in it. It also provides a platform that is highly secure, immutable, and transparent to make payments. Blockchain with artificial intelligence is providing the users with several new ways to transfer the values and assets within the DHF network which is peer-to-peer. 

Both of them are the perfect combinations because they both can together can bring data insights to the whole other level. This makes the world understand AI better so that computers can make decisions faster and more accurately. Blockchain platforms can be handled better by computers than humans. To build trust and transparency between the users and platforms, AI records the decision-making process of the computers so the humans can also understand those decisions later easily. The data is being analyzed and processed by these bots in a way it has never been done, and it is bringing a whole new revolution in the industries. 

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Specific Uses of Blockchain technology in Finance

Blockchain Payment Systems

One of the biggest and most useful use cases of blockchain technology in finance is payment in banking and other platforms. Payments are an important use case because it is very often used by users to utilize their bank accounts for money exchanges. Banks are revolutionizing their way through the digitalization of the platform and making their digital currency. Different banks have already implemented blockchain technology, so they can also benefit from it. One of the advantages of implementing blockchain technology in banking is that the transactions are made secure as all the transaction information will be stored on the blockchain. 

The payments are made faster as there is no third-party involvement, and there are no extra commissions and charges. The transactions are safe and faster than the traditional methods. The users can make transactions at any time as the blockchain platform never goes off and have no downtime. Also, there is no limit to transactions and the users can make as many transactions, and they are not time explicit. International transfers are also made easy by blockchain technology because by traditional methods international transactions were very difficult as they required much more time sometimes even days and extra charges. This factor was eliminated because blockchain transactions are made all over the world without any huge amount of charges, and transactions are done in a matter of seconds. 

Funding and Investing

Blockchain also provides facilities for funding and investing. It enables loans that are made to individuals by various groups of lenders. These lenders are known as syndicates. Traditional syndicated loans are time-consuming and fraught with complications. Because of blockchain, if one bank has completed the syndication process, other banks do not have to repeat it on that blockchain. Each bank involved can benefit from exchanging information via blockchain as a result of this procedure. This reduces costs while also saving both parties a significant amount of time.

Accounting and Records Reconciliation

Blockchain has the features like instant verification and immutability that provides integrity for both accounting and auditing purposes. It is an important technology to keep and manage records in the chain as it has great implications for securing and authenticating the data. Data on the blockchain is immutable which means that if one entered then it cannot be changed so it manages the data and keeps the record that who owned the assets and to whom they were transferred. If any changes are made then it updates all the copies but also creates a block through coding that stores the previous record. It is enabling users who don’t know each other to make transactions and make trades of assets with full confidence in the accuracy of the assets that are being exchanged. 

Security and Cryptographic Verifications

The security is increased on the blockchain because of the decentralization, and it also reduces trust by using cryptography to access data and ensure the chronological order of files, as well as decentralized consensus to validate major updates and keep them immutable. Every transaction is being recorded and can easily be traced making the platform more secure for the users. Multi-party processes can be tracked and executed using this mechanism on a shared, credibly neutral backend that is incentivized to be managed honestly.

Financial Fraud Reduction

Financial frauds and theft are very common problems in the financial industry. Blockchain is solving this problem by reducing the risks as the assets are completely digitalized and are owned by the users themselves. As blockchain is truly based on smart contracts, there is always transparency between the users and the platform, and they can easily look at the code and understand how the blockchain platform is working. This builds trust among the users because of decentralization. Decentralization enables peer-to-peer transactions so that the traders know with whom they are trading. Another way by which it reduces fraud is that all the transactions that are made are immutable, and the data is end-to-end encrypted, so if any inappropriate or unauthorized activity is noted, it is shut down right at that moment. The data is stored across a network of computers which means that it is almost impossible to hack the network, and it is completely secured. 

The Future of the Finance Industry With Blockchain

A blockchain is a ledger that enables the users to make transactions by verifying and authorizing by all the participants, and then it is saved in the blockchain. After the transactions are once done, they can never be changed again, so there is no chance of changing data into the blockchain by hacking it. It is based on a network of multiple computers which means that no one computer can be easily hacked comparatively, making it more secure. Blockchain in fintech has solved many problems where the banks were hesitant to make the move because it could have cost them billion-dollar fines. Banks and other fintech companies, with the help of blockchain, will provide more digital services with more facilities and ease. It has already solved many problems through the decentralization method. The consumers and the companies both are enjoying the benefits of it, including security, faster transactions, immutability, and many more. 

The financial services industry has started to become complicated as banking has also started implementing blockchain. The economical theory predicts about the fintech that the low-cost competitors only enjoy the profit when there are high-cost competitors present in the market. The market competition in banking will eventually make the banks pass on the initial profit back to the individuals. However, the blockchain has a great future in finance as it can be used in multiple areas for the development of new fintech technologies, securing digital as well as physical assets, and stopping online fraud in banking and finance. 

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Conclusion

As we have discussed above, there are multiple advantages of blockchain in finance, but people don’t often know and understand what right technology to use in their business. Not all technologies being used in finance can be implemented in any business strategy and hence it is a critical decision. On the other side, the financial management of a business involves a lot of factors like planning and organizing the finance, controlling and keeping the track of financial resources to keep your business growing and succeeding. Overlapping blockchain and finance can be tricky at some points but can do wonders for our business. 

Do you need help with blockchain development in the finance sector, or are you trying to leverage the possibilities with distributed ledger technology in your business? We will help you develop your blockchain application development and all trade finance applications to make your business effectively use all the cutting-edge resources that are currently available in the market, gain a competitive advantage in the market and prepare for long-term financial stability. Get in touch and get started with us to make your business scale with suitable financial services and blockchain solutions. 

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