Cryptocurrencies and its underlying blockchain technology are touted as the next major event after the Internet. One of these technologies that may have a major impact is the financial sector. As a form of a distributed ledger technology (DLT), blockchain may change mature financial institutions and bring lower cost, faster transaction execution, higher transparency, auditability of operations, and other benefits Essence Cryptocurrencies are expected to become a new native digital assets without central authority. In this article, we focus on How will blockchain change financial services and why it matters?

What is a blockchain?

Blockchain is a number of trading trading traded in a decentralized network. It is a distributed ledger, which means that the network has no central authority, and no one or entity can control and be able to destroy the network. The blockchain consists of a separate data block. Each data block contains an information record. These data blocks are linked together in the order of time. These links cannot be changed, which makes people confident in the Internet.

This revolutionary technology manages information transactions by protecting it during information transactions. The purpose of the blockchain is to reduce transaction costs and make transactions more efficient and faster.

This technology has many applications that can integrate into different industries and provide investors with many opportunities. For beginners, it is one of the technical foundations of cryptocurrencies such as Bitcoin.

A blockchain has a clear application industry as financial services. In the industry, the company has been competing to reduce transaction costs and frictions.

The main characteristics of the blockchain

Blockchain has the following four main characteristics.

1. Power decentralization: In the traditional centralized trading system, each transaction needs to be verified by the centralized agent (such as the central bank). Each party on the blockchain can access the database without a third party and check the history of the transaction. The main advantage of the chain is its replication on a distributed network. Therefore, if the government organization plans for crimes or abuse of power are not discovered, they must change all the copy of the blockchain at the same time. In addition, distributed ledger records transactions automatically in real time to reduce the chance of fraud. The decentralized infrastructure has limited boundary conditions, which can prove that it is effective in managing the blockchain and its related activities.

2. User anonymous: The transaction occurs between the blockchain address. Each user on the blockchain has a unique letter digital address, and they can decide to keep them secret or open to others. Users can use the generated address to interact with the blockchain network, and no more central parties store the private information of users. This mechanism retains some privacy. However, due to congenital restrictions, the blockchain cannot guarantee perfect privacy protection.

3. Consensus mechanism: Since there is no central trust agent on the entire network, the consensus mechanism is introduced in the network. The purpose is to reach a unified agreement on the verification of each record. By controlling more than 51%of the account nodes in the entire network, a non -existent record can be forged. Therefore, any distortion is easy to detect.

4. Execution: Users can use algorithms and rules to trigger transactions between nodes. If you meet certain conditions, the blockchain can also execute the program. This can be called a smart contract. Hiro general managing of a blockchain company said: "One or two characteristics of blockchain make this technology creative and attract people's attention. Integration of attributes makes this new technology valuable. "

The advantage of blockchain in financial services

Blockchain may make the financial service industry more transparent, not easily affected by fraud, and cheaper for consumers.

1. Improve transparency. Blockchain can make the financial industry more transparent because users conduct activities on public classification accounts. This transparency can expose low -efficiency problems such as fraud, thereby solving the problem, thereby reducing the risk of financial institutions.

2. Add security. As consumers become more and more active on the Internet, the digital world has become a hotbed for scammers. Using blockchain technology can reduce this concern. Compared with traditional banking business, the payment and remittances on the blockchain are faster and more traceable.

When information flows through different financial intermediaries, there is a risk of interception of information, which increases the possibility of fraud. This monitoring vulnerability can be filled with the encryption algorithm of the blockchain, which brings security to the information exchange between the parties.

"In traditional finance, sometimes it is difficult to obtain clean audit clues. In the past, serious economic losses caused by negligence or malicious actors." "By combining blockchain technology and machine learning to high -precision monitoring and management risks, this risk can be significantly reduced."

Fintech companies and other companies using large amounts of data need blockchain to build data integrity.

"Since the blockchain network is distributed, it does not have a single source of failure."

This characteristic increases the elasticity of the network and protects it from damage.

3. Reduce cost. As investors stay away from financial advisers to avoid higher costs, blockchain provides consumers with an opportunity to benefit from low cost related to traditional financial services.

Financial technology companies have become an important part of the financial service industry, allowing investors to open their accounts and make independent financial decisions through digital consultants. With the increasing role of fintech in global finance, its relationship with the blockchain is bound to be closer.

This innovation is beneficial to consumers, because investors have more and more money, and they have a balance between the automation and low cost of financial services.

Blockchain and financial institutions are facing risks

Weighing the commitment of blockchain to financial institutions is a major risk that affects the bottom line: traditional financial institutions make money by reducing or eliminating trading costs that traditional financial institutions can reduce or eliminate transactions.

In terms of transfer, consumers have to rely on banks or third parties to deal with transactions.

However, the use of blockchain can bypass third parties such as banks, thereby eliminating the costs and other costs related to these services. Therefore, banks may face quantitative and transaction -based revenue challenges.

The blockchain makes the exclusive infrastructure proprietary infrastructure of financial institutions that is not so important because it is a verification mechanism that "does not focus on the power of a institution".

In addition, the innovation development of the blockchain is so fast that the supervision has not yet kept up. Therefore, the potential policy that affects the blockchain can be regarded as another obstacle to incorporating the blockchain into financial services.

"The existing supervision does constitute a major obstacle to the adoption of the blockchain, because the regulatory agency will give priority to the existing currentcomers rather than a subversion."

Regulatory agencies are trying to determine the advantages and disadvantages of blockchain technology to determine whether it is suitable for financial institutions and how it affects companies and consumers.

"So far, this rigidity kills innovation," "However, as the government and other public organizations see the benefits of this technology, this view is changing."

The purpose of blockchain in the financial service industry

The following is some of the many uses of blockchain in the financial industry:

1. Remittance

2. Increase transaction security

3. Implement automation through smart contracts

4. Customer information storage

Let's take a closer look at how financial companies implement the blockchain for the above -mentioned purposes -and why they want to do so.

1. Remittance: Starting from Bitcoin (Crypto: BTC), the design purpose of blockchain technology is to transfer funds from point A to point B without a central management agency. With the development of blockchain, they have been able to achieve faster and cheaper transactions.

A prominent example is Ripple, which uses blockchain technology to global payment network Ripplent. The Ripplent transaction is processed within five seconds, and the cost is only one percent of the beauty.

Financial institutions using blockchain technology can provide more efficient remittance services. International remittances that sometimes take hours or days may be completed in a few seconds without paying expensive fees.

2. Increasing transaction security: Financial companies are always the goal of fraud. Especially digital payment, there is a risk of information being stolen during the transaction processing processor and banking during the transaction.

Blockchain uses encryption algorithms to process and record trading blocks. This cryptography may be a way for financial companies to reduce the level of risk when dealing with transactions.

3. Implementing automation through smart contracts: The launch of Crypto (ETH) in 2015 is an important step ahead of blockchain technology. It is the first blockchain with smart contracts. Smart contracts are contracts that automatically execute when meeting conditions.

The contract is an important part of the financial service industry, and the company has spent a lot of time on the contract. Automatic execution contracts can make this process more efficient.

For example, insurance companies can use smart contracts to speed up the claim process. When the customer proposes a claim, it will automatically review it by programming to the code in the blockchain. If valid, smart contracts will execute and pay customers.

4. Customer data storage: Most financial companies need identity verification with customers to prevent fraud and money laundering. This takes time and money, but this is the cost of carrying out business.

Another method is to store customer data on the blockchain that various financial companies can access. After the company and new customers complete the "Knowing your customer" (KYC) process, the customer's data will be added to the blockchain.

Other companies can then use the KYC data instead of completing the process by themselves. This will also save customers, and they do not need to complete the KYC process for each new financial account.

The impact of blockchain on the financial service industry

With its advantages, the blockchain may have a huge impact on the financial service industry. The following are the main advantages of blockchain in the financial field:

It can make the payment process more efficient. Many blockchain can complete transactions within a few seconds at a cost of $ 0.01 or lower, thereby saving funds for financial companies and related customers.

It can help financial institutions save international transaction costs. By the end of 2030, the blockchain deployment is expected to save banks of $ 27 billion in cross -border transactions.

As the blockchain provides distributed, unchanged transaction records, financial institutions can use them to save records and report to regulators.

Faster trading settlement provided by blockchain technology can improve various types of financial services. The loan party will be able to provide funds for loans faster. Suppliers will receive payment earlier, and the stock exchange can almost settle securities to buy and sell immediately.

The future of blockchain in the financial field

At this point, we are still in the development of blockchain and its early stages in the financial service industry. The two largest blockchain development worthy of attention is the improvement of transaction processing and interoperability. Both should make it more useful for financial institutions.

Early blockchain was restricted in transaction processing. Bitcoin can only be dealt with about three to five transactions per second, and Ethereum currently can only process about 10 to 15 strokes. This is not enough to compete with major payment processors such as VISA, which can handle approximately 1,700 transactions per second.

The nearest blockchain is given priority to scalability and faster transactions. The most famous cryptocurrency project in this regard is Solana (Crypto: Sol), which has a peak trading time of 65,000 times per second.

Another change we see is a change to interoperability. So far, most blockchains are independent projects. However, a number of projects have appeared, and its goal is to promote communication between these different blockchains.

The blockchain will not completely completely replace the existing financial system. On the contrary, it is expected that financial companies will use blockchain to understand their functions during trial operation, and then gradually integrate it as a supplement to the existing system.

It is difficult to implement blockchain technology. Despite the challenge, hundreds of financial companies have begun to use it, and blockchain stocks have become popular investment opportunities. Obviously, the industry understands potential advantages, and blockchain will become part of the growing financial services in the future.

Look forward to the future

Although the banking industry is facing many strict rules and regulations, more and more financial institutions are aware of the potential of blockchain technology and cryptocurrencies. As the main participants in these industries test to discover innovative cases and opportunities, we will start seeing more blockchain -based solutions to achieve transparent, accessible and reliable financial transactions.

The above content introduces how blockchain technology affects financial services and why it is so important. In the next few years, more enterprises will implement private blockchain to improve the transparency and traceability of their financial operations, supply chains, inventory management systems and other internal business systems.