Although blockchain has been a popular phrase for the last ten years, most people have yet to fully comprehend the idea behind the technology or the breadth of its uses. A blockchain is a unique sort of database. It is not equivalent to Bitcoin and other cryptocurrencies, despite what some individuals might think. As a distributed ledger technology alternative, blockchain can be used to safely create a public ledger for trading Bitcoin.
What is blockchain used for?
The ability to establish confidence among two individuals or entities who do not already know one another or have faith in a third party is one of the most innovative and exciting uses of blockchain technology. Additionally, like Bitcoin, the technology has the capability for a variety of uses, from upending the banking industry to empowering how many people utilize money in emerging economies worldwide. Says Slava Vaniukov, expert and CEO of Softermii.
Most common blockchain applications in the financial sector
Numerous elements of financial services may be improved by blockchains and the related distributed ledger technology. For instance, maintaining records, allowing shareholders to vote, and confirming trades all take time and are vulnerable to human mistakes and theft. Verification and real-time transaction accessibility provide significant advancements. The demand for centralized marketplaces or intermediaries is decreased and, in certain cases, eliminated when the data is shared among relevant parties. This section examines unique blockchain applications for the financial sector.
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Voting:
Small shareholders are frequently uninterested, whereas large shareholders frequently vote in favor of their interests. Voting options for shareholders include ballot papers, online submissions, attendance at the annual convention, and voting by proxies. Brokers are responsible for preserving title documents in the street name because keeping correct voter rosters is challenging for businesses. There are ways to lower the significant costs of the existing system, including sending papers, hiring proxy solicitors to get in touch with shareholders to reach quorums, and tabulating outcomes, including vote modifications. Businesses having various share classes and time-phased voting rights make the process more difficult. Transparency enabled by blockchain technology thus improves corporate governance, lowers capital expenses, decreases theft, and boosts accountability.
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Credit reporting:
Credit reports have a significant financial impact on clients. The latest data breaches show that blockchain-based credit reporting is safer than conventional server-based reporting. Blockchain may potentially make it possible for businesses to calculate credit scores by including unconventional elements.
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Foreign exchange transactions:
Big institutional players, central banks, and businesses drive the foreign exchange market, which is enormous, decentralized, and mostly deregulated. Trades take place on the spot market for shipment now and on the forward market for shipment later. Each deal requires a significant amount of documentation from the entire office staff. Furthermore, counterparties verification is necessary for every deal. Details about the transaction are provided to the custodian of each counterparty and other relevant parties. To ease transactional complexity and money transfer, positions are netted. Blockchain systems with permissions can monitor position sizes and cut down on pricing errors. As a result, blockchains might immediately transfer and store value/currencies as well as store and transmit details about the transaction.
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Digital identity verification:
Financial institutions such as banks can now recognize individuals with IDs that are blockchain technology enabled. When client identification information is protected via blockchain, banks may boost public confidence while thwarting theft and vastly accelerating the verification system.
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Real estate:
The acquiring procedure while purchasing or selling commercial and residential properties entails numerous and onerous series of steps. Upon finalizing a purchase, clients exchange several documents and annexures following pricing and terms negotiations between a buyer and a seller. Blockchain technology has the potential to simplify all or a portion of the real estate acquisition and management transaction process. Its distinctive characteristics, such as irreversibility, help to improve the accuracy and efficiency of the real estate transaction process. Since all transactions are forever recorded and made accessible to the participants, authorities, and regulators upon request, blockchain can when appropriately utilized, prevent misunderstandings between parties or possible disputes and aid resolve legal disputes.
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Overseas transactions:
Since processes often travel through many banks’ end routes to the payment’s eventual recipient, cross-border money transfers have historically proven to be slow and expensive. Blockchain has the potential to make international transactions more efficient, precise, and affordable.