From identity verification to cross-border payments, explore various blockchain use cases in finance with this article.
Back in 2008, Satoshi Nakamoto created blockchain technology to provide a publicly distributed ledger for bitcoin cryptocurrency transactions. Fast forward to 2022, this decentralized ledger not only serves as an underlying technology for cryptocurrencies but also as a technology serving multiple uses in the finance sector. Although blockchain needs adoption by a wider audience, many financial institutions are already looking for blockchain development services to use this technology. In this blog, we will explore potential blockchain use cases in the finance sector. But first, it is important to learn the benefits of blockchain in this sector.
From security issues to inefficiency, the finance industry has been facing several issues. Blockchain can become a one-stop solution for tackling most of these issues in finance industries. Some of the blockchain benefits in finance are the following.
The current financial structure lacks transparency in the system. Transparency benefits both financial institutions as well as customers. It brings effective communication between banks and their stakeholders. Blockchain records every detail of a transaction in a public ledger. So, it provides visibility to the whole lifecycle of a transaction. The technology has two keys-private and public keys. All the users of a network will have the public key while only the stakeholders of the transaction will have the private key. The public key will show the transaction history and the private key will show the exact transaction details. In this way, the blockchain provides transparency to the users while maintaining the privacy of transaction holders.
Also, Read: Blockchain Grows Bigger Than Finance and Cryptocurrencies
Financial service institutions like banks have to identify and evaluate risks when providing services like loans. Then, they have to make decisions on which risks to take and which to avoid. These risks may include credit risk, trusting intermediaries, missing the commitment by a counterparty, and more. Additionally, users have to rely on intermediaries to monitor and track their loan uses in commercial banks. It adds another risk to the financial systems.
Blockchain technology can manage risks with accuracy, visibility, reliability, and timeliness of transactions. Moreover, the peer-to-peer (P2P) network of blockchain eliminates the need for any intermediaries. Since blockchain stores all the transactions, it reduces the risk associated with funds and credits. It improves reliability as data is immutable on the network. Lastly, smart contracts solve the problem of slow transaction settlement.
To sum it up, blockchain enhances accountability, decision-making, transparency, and robustness in risk management.
Financial sectors spend a lot of money on purchasing and maintaining central databases, value transfer systems, and intermediaries’ commissions. Firms need to pay these costs regularly. All these factors make the system more costly without guaranteed data protection.
Blockchain technology can eliminate all the extra costs associated with the financial system. The blockchain is itself a public ledger that so institutions do not need to purchase a separate central database. It maintains the security of the system. Smart contracts, self-executing programs based on blockchain technology, can remove the need for intermediaries, bookkeeping, and value transfer. All these features of blockchain reduce the overall costs for financial institutions.
Now, it’s time to delve into some of the popular blockchain use cases in finance.
Effective identity protection, traceability, immutable transaction record-keeping, document management, and affordability of blockchain results in various blockchain use cases in finance. We have curated the following list comprising the most popular blockchain use cases in the finance sector.
Many financial institutions use manual document verification process that takes a lot of time. Often, this identity verification is inefficient and prone to human errors. When firms integrate blockchain in the identity verification process, customers get the benefits of quick, secure, and effective procedures. For instance, customers only need to register one time for identity verification.
Borrowing and lending generally require an intermediary in the conventional financial system. But, blockchain can create a trustless system without any intermediary. A lender and borrower can develop a custom smart contract, based on blockchain. They can decide on the rate of interest, duration, and installments of the transaction. Some esteemed banks like Credit Suisse and ING have implemented blockchain-based lending applications.
Banks charge high transaction fees for every cross-border payment. Traditionally, these payments pass through one or more banks and clearing houses before reaching a recipient. Moreover, blockchain limits the number of entities involved in cross-border transactions. Also, it eliminates cut-off times to process payments. Thus, it speeds up the processing time. Additionally, it provides assurances against any fraud in cross-border payments via transparent distributed ledger technology.
Westpac is counted among the largest Australian banks. It implemented cross-border payments using blockchain technology. Other banks that are using blockchain for payments are BNP Paribas, Barclays Bank, and Deutsche Bank.
Presently, stock selling and buying require various intermediaries like brokers, regulators, and the stock exchange. They add more cost to the system. But, blockchain technology eliminates these intermediaries as developers can build regulations on smart contracts. Consequently, the stock exchange offers swift transactions, which makes the system highly efficient. Blockchain brings automation and decentralization to trading and stock exchange systems.
Also, Read: Introducing Blockchain in Trade Finance for Significant Transformations
Blockchain technology can enhance efficiencies, provide an immutable audit transaction trail, and remove any central authority. It provides the potential to revolutionize the current financial system. Financial institutions can tap into this potential of blockchain and alter the way they conduct business by collaborating with a blockchain solution provider like Oodles Blockchain. Our blockchain developers will cater to your business needs.
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