Saturday, August 20, 2022

Can Blockchain revolutionize the financial sector?

The word Blockchain has been quite popular in the fintech community, especially among Bitcoin investors. This technology whose framework was designed first by Stuart Haber and W. Scott Stornetta in 1991 is based on the methodology where the transaction records can’t tamper, which is today majorly used to store transaction records.

A blockchain is nothing but a sort of encrypted block linked to each other in chains, once a particular block gets filled with the data, the block is connected to the previous data block and hence a progressive order is made for storing data. The first application of Blockchain tech was in the creation of the first virtual currency, Bitcoin in the late 2000s. Blockchain makes a record or a ledger of digital data or asset which remains unaltered and transparently visible to the users by the help of decentralization of data.

As this tech makes transparent changes, chances of fraud are less as compared to traditional ways of data transfer. This is getting popular, especially in the financial world as it helps to reduce fraud and forging of data records, bring in transparency to build the trust of the general public. The very basic structure of Blockchain tech which is the decentralization of the data records can help in reducing the costs of transactions and possibly change the economy.

The structure of Blockchain is based on 3 important pillars: 1. Blocks 2. Miners 3. Nodes. They all three are interconnected and help in secure ledger making. The ‘Blocks’ which store data are created by ‘Miners’ through the process of mining at ‘Nodes’ which are electronic devices storing records of data.

As of today, several big tech giants like IBM, NIVIDA, Lockheed Martin, and several others have invested billions of dollars in this revolutionary technology. With the majority of the US and Europe-based tech companies and financial institutions investing huge amounts, Blockchain can become the biggest market disruptor in the history of Mankind.

As the Fintech market has been the largest investor in this technology, traditional banks have faced an enormous challenge from it. Due to the decentralized working, transactions can be done round the clock, unlike Banks that have fixed work timings. The cost of typical blockchain transactions has varying fees depending on the service provider, ranging from free to around $50 whereas the Banks have fixed rates typically 1-3% of the transaction amount. Though the transaction speed of Banks has overpowered the Blockchain transaction speeds, by an average ratio of 200: 1. When it comes to privacy, the governments can easily track Bank related transactions because of the compulsory KYC, but in Blockchain tech due to the presence of nodes and data blocks, it’s very difficult to track the original owner of the transaction initiator. Many banks have started to integrate blockchains but at a private level so as to transfer funds quickly and securely between institutions. This has helped them reduce several additional charges, making it more secure and accurate.

This tech can be helpful even in keeping the property and public health records, supply chains, and many more places. Proper legal scrutiny of blockchains has happened in the past several years, and with this buzzword entering the third decade of its life, it will have many significant changes in several sectors including the financial sector.

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Pragyan Jaiminy
Pragyan Jaiminy is currently pursuing his B.tech in Computer Science from JNU,Delhi. His areas of interest are Technology, Science, Economics and Fintech. He loves to read stuff related to every sphere of life. Follow me on twitter : @Irongyan18

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