Though a major component of the modern economy, accounting for roughly 7.3% (or $1.4 trillion) of the United States’ annual gross domestic product, the financial sector is extremely inefficient and unprepared to support global scale. Financial conglomerates employ a host of oligopolistic practices that manipulate the regulatory system and drive consumer prices upwards. This pyramid-shaped power structure has numerous downstream effects.
There are, however, platform-based solutions beginning to surface within the FinTech community. As you have likely read in the headlines, blockchain technology is poised to solve for many of these fundamental issues present across the financial world. Technologists are extremely excited by the long term implications of this backend technology that can bring an unprecedented level of accessibility and transparency to the space.
Here are three ways that widely adopted blockchain systems will be able to impact the financial world.
1. The world’s most advanced data-security.
Decentralized blockchain networks offer a number of security benefits over conventional alternatives. The majority of banks currently rely upon centralized databases to manage and store their most precious data. Given that everything is held in a single location, data is considered extremely vulnerable to the growing threat of cyber-attacks. Cyber-crime damage costs are expected to hit $6 trillion annually by 2021. This is a massive concern for companies of all sizes.
Blockchain offers a convenient, technologically advanced solution to this cyber-security nightmare. Distributed blockchain ledgers, where “each block contains a timestamp and holds batches of individual transactions with a link to a previous block,” disseminate risk across nodes within their networks.
This not only eradicates the power of hackers, but also minimizes human intervention, therefore eliminating bias. Furthermore, all of the data held inside of a blockchain ledger is automatically cryptographically encrypted such that only people with proper permission can access it.
Accessible blockchain networks, at scale, will bring the world’s most advanced security features to all.
2. Modern financial services for everyone.
Perhaps the most pressing issue in the financial world is the exclusive nature of many of these financial services. Even the most up-to-date financial tools fail to properly serve the low-income, low earning segments of the world’s population. As a result, there are over 2 billion adults, internationally who lack access to the most basic of fiscal resources.
Using blockchains, startups like U.CASH, an innovative financial ecosystem (that displaces the need for traditional financial services providers), can provide access to both the banked and unbanked consumer populations. Their model hinges on a “peer-to-peer network of retail service providers, called converters, who provide services to transfer fiat currencies to digital cash (including Bitcoin and other popular digital currencies.”
This valuable feature, complemented by an easy-to-use mobile application, allows users to bypass traditional financial services providers and access everything they need from a single portal.
The U.CASH network is global and accessible, meaning it is available to anyone with a stable internet connection. Their highly anticipated initial bounty offering (IBO) allows early adopters to acquire platform tokens by contributing to the network to earn simple bounties.
Effectively, their platform is able to align incentives across a variety of stakeholders and bridge the access gap for financial services. U.CASH’s encompassing platform also includes all the necessary modules, expected from any modern financial services provider, such as mobile and online web applications, enterprise-grade security, and much more.
Empowering a global financial infrastructure, emerging blockchain startups will play a massive role in expanding and cultivating global fiscal markets.
3. Highly automatable infrastructure.
One of the biggest points of friction across the financial world is the heavy reliance on legacy processes to get work done. Manual workflows not only slow financial services down, but also drive up the cost of doing business, as humans inevitably make mistakes.
Blockchain systems, built on top of intelligent algorithms, are highly automatable and can replace the need for human-based labor in many areas of the financial sector. Leveraging smart contracts, a core feature of blockchain, is the key to removing friction in the system.
Effectively, these contracts are, as defined in Tech Target, “computer programs that directly control the transfer of digital currencies or assets between parties under certain conditions. A smart contract not only defines the rules and penalties around an agreement in the same way that a traditional contract does, but it can also automatically enforce those obligations.”
Smart contracts can supplant intermediary parties and speed up the transaction chain. The algorithmically generated contract can “take in information as input, assign value to that input through the rules set out in the contract, and execute the actions required by those contractual clauses – for example, determining whether an asset should go to one person or returned to the other person from whom the asset originated.”
As one can imagine, there are many high-potential use cases for smart contracts and blockchains broadly that will impact the financial world.