How can Blockchain Technology and Bitcoin change the financial systems?
Blockchain technology is rapidly evolving and expanding its use to various industries. It has already rocked the financial sector and set its sights on changing the world as we know it forever.
Blockchain surfaced as another nonconventional term in the technical dictionary that accompanied the Bitcoin inception more than a decade ago.
At first, blockchain was part of the uncharted territory of the cryptocurrency world. Today, it is an established technology with game-changing capacity and limitless possibilities for development.
It has the power to overhaul the global financial system. It may be the next best technological invention since the birth of the internet. And, just like the internet, it may have the same revolutionary impact on our understanding of the economy, trade, and property.
What is blockchain technology?
Before we rush to predict this technology’s evolution, let’s refresh our knowledge of what a blockchain is.
In 2008, a person or a group of persons named Satoshi Nakamoto released Bitcoin – a decentralized digital asset. The up-and-coming sensation promised to revolutionize the financial world by making money transfers quicker, cheaper, and more secure.
Bitcoin is a decentralized digital asset with decentralized value, which means it is not regulated or controlled by governments or financial institutions. It uses blockchain technology and cryptography to validate and secure all the transactions that include it.
Blockchain technology is a peer-to-peer apportioned ledger of time-branded transactions. It uses distributed databases and cryptography to record transfers in an ever-increasing system of information blocks. As it grows, it keeps track of all the transactions made between two parties in a way that permits permanent verification.
A digital ledger built on blockchain technology works as an unalterable entity of transactions. Money transfers through such a system are more secure and exponentially quicker than through the traditional banking protocol.
How Bitcoin revolutionized the financial system
Bitcoin came into existence as the much-awaited solution to the decentralization of fiat money transactions. Investors and financial developers needed to step away from the slow, outdated banking system. The step became a huge leap forward with the advent of cryptocurrency and blockchain technology.
The clearest depiction of the game-changing effect that Bitcoin has had on the currency transfer market is the required time for international money transactions:
- Through the banking system, the transfer takes between 1-2 working days.
- Through Bitcoin, as of now, the transfer takes around 10 minutes.
Bitcoin also enables anyone to use its blockchain as an alternative to traditional banking systems. It allows the exchange between different forms of fiat money and other cryptocurrencies. It enables users to buy and sell products as well as accept them in return for services.
You can find more about the Godfather of all cryptocurrencies and its amazing benefits in our Complete Beginner’s Guide to Bitcoin.
Blockchain uses other than cryptocurrency.
Blockchain was created to back up Bitcoin and peer-to-peer ledgers. However, it soon became obvious that technology can cover many more applications than cryptocurrency and money transactions.
Some of the other areas that could benefit from blockchain technology include:
- Digital Records
- Private Markets
- Intellectual Property
- Title Records
While it was received with skepticism at first, blockchain technology quickly spurred a few remarkable success stories. Its use now ranges from business-to-business (B2B) collaborations to global-scale industries that implement it to facilitate and quicken various processes.
One example of successful blockchain use outside the crypto world is the collaboration of Belgium’s Port of Antwerp and the startup T-Mining. In this case, the many entities that use the port as a transaction hub have access to a ledger that takes out the middlemen and other intermediary companies. As a result, container handling and the digital data transactions they involve are cheaper, faster, and more secure.
Why banks need to implement blockchain technology
There are no foreseeable impediments to the evolution of blockchain technology. Financial institutions and banks are already looking at ways to affect and update their working processes to modern standards.
There are several reasons for which banking institutions cannot avoid the future implementation of blockchain technology, such as:
- Decentralization would stop their reliance on paper and other physical instruments, of which there is a limited resource.
- Peer-to-peer ledgers reduce the risk of fraud, security issues, and scalability.
- The duration of cross-border transactions would drop from a maximum of 5 days to a few minutes, or even instantly shortly.
- Blockchain technology reduces intermediaries and saves financial institutions enormous funds that would otherwise go on commission fees.
- A decentralized ledger increases trust between the parties that take part in a transaction.
- There is no way back from the digitalization of human life and society. Banks need to go with the flow or risk becoming redundant.
- New financial services that are feasible alternatives to bank transfers challenge the apex position that banks have held at the top of the financial food chain for centuries.
- How does a blockchain-based future look like?
While the future of blockchain implementation looks favorable, it will still be a while until the financial system fully embraces it. Banking institutions worldwide will have to engage at an unheard level of cooperation to make it work.
Still, the promise of blockchain technology revolutionizing our life is alive and kicking.
The decentralization of data transfers would take power from governmental institutions and give it back to the people. Through it, society would gain a new understanding of human trust regarding monetary transactions, crowdfunding, voting, and ultimately the thing that kick-started our economy millennia ago: sharing.