Blockchain technology has been hailed as a complete disruptor in the financial services industry. But what is all the fuss about, really? And is it really going to change the way we bank, get insurance, etc.?
You bet. It has already started doing so. The 80% of bankers expect to see the technology adopted by 2020 on a commercial level. Transactions conducted through blockchain tech are more secure, more immediate, and less labor intensive. This advantage over conventional financial transactions that involve a middleman is the main reason why cryptocurrencies have become so popular in the recent years, and these days you can do quite a bit with your digital money – you can book a flight, gamble with Bitcoin aBitcoin casinos and much more.
To understand how different the tech really is, let’s look at a standard transaction now.
Let’s say that I am in the United Kingdom and want to send money to someone in South Africa. I would go to my bankers, provide full details, and let them know how much I wanted to send. I decide to send the money in Rand, the currency of the country.
They would accept the instruction and verify that it was valid. They would strike a rate for the conversion from Pounds Sterling to Rand. Then they would wire the money through an international clearing house. I would be charged a fee for the transaction.
The clearinghouse would then notify the recipient’s bankers, who would then confirm that all the details are correct. They would then pay the funds over into the recipient’s account, and the recipient would also pay a fee for the transaction.
It is a long process and requires a lot of input from different people. The transaction might take between three and five days to go through.
Now, let’s see how that would be handled by blockchain tech. First off, I initiate the transaction directly on the system. All I need to do is to provide the address of the person receiving the funds. I digitally sign the transaction and transmit it to the network.
Now, depending on that blockchain’s authorization procedure, either other computers within the node will work on verifying the transaction, like with Bitcoin, or, like Ripple, the receiver would need to give the pre-arranged passcode in order to complete the transaction.
Either way, the transaction will take a matter of minutes from start to finish, without the need to involve a bunch of different people. So, my South African friend could have the money in under half an hour instead of having to wait for days.
And, because of the nature of the blockchain, the concept of working days is no longer quite as significant. There are several nodes on the system, and so, even if half are off for the day, the rest can still function.
And that, in a nutshell, is why blockchain technology has upended the financial services industry. Ready to learn more about it? Read our infographic for the full story.