Blockchain technology is one of the most divisive subjects in the technology industry right now. On the one part, proponents believe that blockchain technology will usher in the Internet-of-Money as seen in cryptocurrency applications such as Bitcoin. On the other hand, critics opine that blockchain technology is technically complex, untested, and highly hyped up to be of much a sustainable value in the long term.
However, the decentralized nature of blockchain technology gives it an incredible disruptive potential that could cut across a wide range of industries, markets, and economies. In fact, cryptocurrencies, the most popular application of blockchain technology is causing disruptions across the socioeconomic sphere. This piece shines the limelight on how blockchain technology could be instrumental in changing the status quo of the financial industry by disrupting the status quo.
More efficient banking
Banking is one of the key segments of the financial industry that can’t escape the ongoing disruption of blockchain technology. The current banking system is simply outdated, grossly inefficient, and incredibly expensive to run and manage. Blockchain technology could reduce the cost of banking operations by providing security, scalability, and efficiency all rolled into one. For instance, the fact that the decentralized ledger is updated in real-time can help banks automate transactional records and reduce overhead costs.
Arvind Krishna, senior vice president of IBM Research provides insight into how blockchain technology could revolutionize the world of banking. In his words, “I want to extend banking to the 3.2 billion people who are going to come into the middle class over the next 15 years…So I need a much lower cost of keeping a ledger. Blockchain offers some intriguing possibilities there.”
Reliable insurance processes
The insurance industry is another segment of the financial industry that is on the eve of a phenomenal disruption from blockchain technology. Insurance companies control all the options in underwriting the policies and consumers are often forced to buy whatever policy seems to give them the best coverage even if it doesn’t offer the perfect coverage. Smart Contracts powered by blockchain technology can create a modular policy system in which people actually buy the exact amount of coverage that they need.
Blockchain technology can also make the claims process more transparent since smart contracts can power automatic payouts to successful claims. More so, blockchain can help insurance companies reduce the menace of fraudulent claims by making it possible to track the ownership of smartphones, cars, real estate property and other insured assets. More importantly, blockchain can retire the laboriously slow manual system for processing insurance claims by collating fragmented data sources into a decentralized readily accessible form.
The financial services sector currently wields much influence as the gatekeeper of the fundraising industry at the enterprise level. Entrepreneurs, startups, and small businesses that need startup/expansion capital often must go through traditional financial institutions to raise money both in cash and in kind. Traditional financial institutions conduct due diligence, creditworthiness assessment, and risk management activities in their centralized ecosystem before funding is released. In addition, existing businesses that want to raise money from Wall Street investors often need to go through financial services firms that serve as underwriters in facilitating IPOs.
Now, blockchain technology is changing the way businesses raise money with the advent of Initial Coin Offerings (ICOs). ICOs currently lower the barriers to entry for potential investors by eliminating the hurdles of having a certain net worth or income that Wall Street often use to measure accredited investors. As blockchain technology continues to take center stage in the financial sphere entrepreneurs will find it much easier to raise funding inasmuch as they can justify the value proposition of their idea.
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Author: Justin Kemp