How is Blockchain Shaping the Finance Ecosystem?
With all the protectionism, geopolitical competitions, and weakening global integration, international trade is becoming unsure. But latest innovations are starting to pick-up making ways to influence global economy.
One of these innovations is the so-called Blockchain. Blockchain which debuted in 2008 is a distributed-ledger technology which allows validation of transactions in a decentralized database. This Blockchains helped the rise of the now popular digital currencies or cryptocurrencies like Bitcoin, Ethereum, and Litecoin.
Although cryptocurrencies are mostly used for speculative investments, technologist’s toy and or instruments for money laundering and other online scam, Blockhain has a deeper impact on global trade finance.
Currently, some financial institutions are already utilizing Blockchain to digitize, eliminate intermediaries in financial transactions, and make auditing ledgers much easier.
Many are comparing Blockchain to the Internet. Both are innovations that brought something new and transformed not only a single process but created a change that became societal norms.
The technology behind Blockchain will help big banks eliminate paper contracts, do away with clearinghouses, secure digital systems from cyber attacks, and quickly settle transactions. These changes will help the financial institutions save hundreds of millions of dollars every year.
But getting there takes time because existing financial infrastructure has been in place for decades which makes it hard for competing institutions to cooperate. And that is the role of Blockchain, to unlock the current process and dismantle the old system that will result in the reduction of friction in international commerce, broader distribution of the gains from trade, and encourage higher economic growth.
Aside from dismantling the old system, Blockchain will also help in securing transactions and making transactions faster. With Blockchain’s deep security, not only will it allow for the digitization of contracts and other paperwork, it will also secure digital identities, eliminating or at least accurately detecting performance risk.
Aside from security, Blockchain will also aid international trade in terms of transaction speed. With its real time nature, banks and digital trade-finance platforms and existing institutions will benefit from reduces trade finance barriers.