Cryptocurrency has been touted as the next big thing for the finance and banking industry since its introduction with Bitcoin more than a decade ago.
What is more surprising in recent years is that there is a higher level of interest in the underlying tech that supports Bitcoin than the actual currency. Blockchain, since it is a form of distributed ledger technologies, can transform the profit profile of firms active in banking and finance.
It offers the chance to provide lower costs, perform faster transactions, and improve the transparency of each action taken.
Blockchain can also improve the auditing capability of operations while providing additional benefits all at the same time.
The Impact of Blockchain Removes Intermediaries
The finance industry is full of intermediaries. These institutions help to develop trust among the parties that create transactions, including lenders and borrowers. When you introduce blockchain into this equation, then you can receive the same levels of faith without the need to have an agency with centralized control.
When the power to eliminate an intermediary is present, then it gives consumers the option to take back control over their finances from the large, powerful agencies that perform that service.
Most of the value today in blockchain and cryptocurrencies is tied to speculation. The number of actual-use cases is somewhat small for the industry. When you can remove the central authority, some specific protections become possible. It is a benefit that is at its most profound in countries where the central banks are in trouble.
Venezuela is an excellent example of the positive impacts that cryptocurrency offers to people and businesses. The country entered hyperinflation in 2016 with a rate of 800%. It became 4,000% in 2017, and over 5,000% in 2018. If the value of that money were in cryptocurrency and blockchain instead of bills, then a household’s wealth would have greater protections.
Cryptocurrency has its own set of issues to consider. Because it’s not tied to central banks or governments, the privacy and security it offers are an impact that the finance sector cannot ignore.
How Will Blockchain Make an Immediate Impact?
The first area that blockchain can positively influence involves benchmark prices and rates. Current structures use different proprietary indexes to determine interest rates or the value of a mainstream asset.
Blockchain can change this by finding fraudulent or false data immediately that could impact the benchmark values in an economy.
There will be a reduced role for some intermediaries in a future with blockchain. The benefits of automation, transparency, and traceability are too valuable to ignore. These firms will find themselves in a position to take care of the new needs of their customers, helping them to manage the shift toward new standards, speeds, and complex transactions.
When securities start trading, then intermediaries currently get to charge commissions for the trust they provide for the transactions. Smart contracts through blockchain offer a way to ensure legal compliance without impacting the process.
We gain compliance, cost reduction, and service improvements simultaneously in the finance and banking industry. That is why blockchain is set to make such a massive impact.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.