The world of finance is changing rapidly. With the rise of the Internet and mobile technology, global financial markets have become more accessible and less prone to in-office middlemen than ever before. As a result, money has become more digital and decentralized than ever before.
Financial institutions are now racing to adopt new technologies in order to remain competitive in an ever-evolving financial landscape. The distributed ledger technology (DLT) known as the blockchain is quickly emerging as the future of money. In this article, we’ll explore the concept of blockchain and its potential as the foundation for the new financial world.
What is Blockchain?
A blockchain is a growing list of records, called blocks, which are linked and secured using cryptography. A blockchain database is distributed, decentralized, and immutable. This means that blocks in the chain are distributed across multiple computers rather than just one server. As a result, a blockchain is more resilient and secure than a centralized database.
Innovations that are driving the future of blockchain
Blockchain has the power to transform financial markets. It’s already being tested in a number of areas, including:
Securities trading – Securities are complex financial assets that can be bought and sold in the secondary market. Traditionally, these trades occur over a period of days or weeks, during which time the ownership of the security is continuously recorded in a centralized database. With blockchain, these trades could be recorded and cleared simultaneously, almost as an exchange happening across multiple computers rather than just one. This could vastly improve the efficiency of the trading process and reduce trading costs.
Asset management – Asset management is the process of buying and selling real estate, stocks, and other assets. Traditionally, this process involves a series of human and computer errors that result in financial losses for both the asset manager and their clients. Blockchain could eliminate many of these inefficiencies by recording transactions automatically and recording them in a single, shared ledger.
Distributed ledgers have the potential to revolutionize many industries, including financial services. But before we get ahead of ourselves, let’s review some of the recent developments that have led to this exciting future.
How blockchain works?
Blockchain works as a distributed ledger, which means that it’s maintained by a network of computers rather than a centralized authority. All the transactions that take place on a blockchain are bundled up into blocks that are cryptographically linked to previous blocks. This makes it virtually impossible to modify a previous block without changing at least one earlier block. Once a block has been mined, its contents cannot be altered, including any new transactions. New blocks are added to the blockchain in a process known as mining. The blockchain is secured through a process known as consensus.
Benefits of using a blockchain
A blockchain has many potential benefits for businesses, including:
Increased transparency – All transactions that take place on a blockchain are recorded and publicly visible. This transparency allows anyone to see what assets a company owns, who owns them, and how those assets are being used. This increased transparency could lead to reduced corruption and fraud in the financial services industry.
Improved security – Since each block in the blockchain is cryptographically linked to its predecessor, modifying a previous block would require modifying all the blocks leading up to it. While some fraudsters have tried to crack blockchain’s cryptographic code, they have been unable to do so. As a result, blockchain has been heralded as virtually hacker-proof.
Increased efficiency – Blockchain transactions are highly efficient. They are processed in a matter of seconds instead of minutes or hours, which means companies don’t have to waste time and money frazzling their organizational feathers.
Is Blockchain the Future of Money?
In short, yes. At Robin Hood, we’ve been tracking the rise of the blockchain for some time now. We believe that financial services will be the first major industry to be disrupted by this technology. The sheer size of the financial services market and the fact that it’s relatively closed make it an ideal testing ground for blockchain.
As more financial institutions launch blockchain-based trials, we think the future of money is clear. Like email and the Internet, blockchain is likely to become an inextricable part of our everyday lives. And like those innovations, it’s likely to be increasingly difficult to imagine doing business or moving assets without the blockchain.
Robin Hood is already working with financial institutions around the world to explore how the blockchain can be used to increase transparency and security in financial services. If you’re interested in exploring this technology further, please get in touch.