How Blockchain Technology Has the Potential to Revolutionize the Finance Industry
Blockchain technology is probably the best antidote to curb financial scams
Even though blockchain technology is still in nascent stage, the disruptive power of this marvel is paramount and will usher us into a new era of digital transformation. But to concur with the idea of transformation, we need to recap about blockchain technology. First and foremost, this technology is decentralized and hence eliminates the custodian restraints of any private entity. All the data in the system are digitally crypted for unique identification and once posted, a record can never be changed or deleted, leading to security and accountability for all transactions. The fact that it is an open ledger for all the users in the system to view and monitor, leads to complete transparency.
Key Beneficiaries of Blockchain Technology
The implication of this technology is far reaching across almost all industry verticals, albeit the most beneficial sector is the finance industry. Today, most of the global crisis and challenges that plague us, stem from the perils of corruption, bad governance and asset-laundering which can be obliterated by bringing transparency, security and accountability in our processes, all of which are cornerstones of blockchain technology. But how will blockchain help to revolutionize the finance sector? The answer is embedded in the concept of blockchain itself.
Blockchain technology works on the concept of 'smart contracts' wherein a particular transaction takes place only when the pre-set conditions are met and the network approves of the transaction. Let us consider the PNB - Nirav scam here, where loan of crores was sanctioned to the company by a bank employee without the regulators even getting a sniff of the debauchery. Now on blockchain, PNB could have pre-set conditions that, any significant amount of loan dispersal will require senior authority approval and an auto-update is sent to RBI. So, any dubious loan sanctioned would be red flagged and notified to RBI and illicit practices could be shunned. Rather than relying on vigilance of independent institutions or positive virtue of human nature, this technology itself is built on a secure and trust network that ensures accountability for all transactions.
Mitigate Fraudulent Activities
Apart from mitigating fraudulent activities, blockchain technology will also help in minimizing the usual intermediaries, who add-up a huge operational cost to the company. Often these middlemen engage in fraudulent transactions or illicit business leading to heavy losses for the financial institutions. Also, most banking systems around the world are built on a centralized data network which is always under threat of cyberattack. If the main network gets compromised, literally the whole data gets exposed. But blockchain network is a distributed ledger where all the data is encrypted and saved in blocks linked to each other, so to infiltrate the data, one needs to hack all the millions of computers in the network at same time, which is not possible. So essentially this technology is impregnable and can eliminate many crimes perpeuated online against these financial institutions.
Another big benefit of blockchain will be, financial inclusion. Patrons from the remote locations of the country can also easily facilitate banking services and transfer/ receive money, without the need for traditional brick n mortar establishment. Banks can create their rural banking network on blockchain and the individual users verify their identity and process the transaction. Many banks and financial institutions are already pilot testing this model, and if implemented successfully, it will help international trade and business to grow multi-fold and be a boon especially for the poorer nations seeking financial aid.
Addressing Impediments in KYC management
India, particularly can benefit a lot by blockchain technology in our financial sector. The biggest deterrent we have today is KYC management (collection, verification and secure storage). This entire process can be efficiently carried out on blockchain and the data collected will be permanent, unscathed and secure. This technology will also help break down barriers built from bureaucracy and corruption by providing a means to bypass existing power structure. It can also regulate the way social welfare funds, government aid and charities are used in the country, as it has been a bone of contention. Implementing a transparent system of transactions that include deposits of cash, transfers of donation and expenses will bring about a paradigm shift in the perception of the people and also benefit the needy immensely.
Needless to say, implementation of blockchain will also fasten the transactional process in a secure manner. Moreover, this technology has the competence to face-lift the present process by automating manual processes, eradicating fraud possibilities and controlling the issue for authorisation.
Hence, blockchain could be the perfect platform to transform a knowledge-driven economy into a digital-inclusive ecosystem.