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Blockchain and the Transformation of Financial Systems

Every so often a technology breaks in that causes a profound impact on human activities. In this article we will learn about one of the most recent, which is the blockchain, and how it is leading to the transformation of financial systems.

It is thought that blockchain could change the way transactions are conducted and information is managed in the world of finance, allowing processes to be streamlined, within a framework of greater security. Here are the details.

Blockchain: what is it and what are its advantages

This technology makes it possible to create strong connections between links, impossible to break, without the need for a network or a server. In turn, the blocks can constitute information segments of various types.

Basically, it works like an account book, where transactions are recorded. And once settled, they cannot be erased or altered. New records can only be added, lengthening the string. In addition, all this works with open-source software, freely accessible.

Although blockchain technology was born some time ago (in 2008), in principle it was associated more with Bitcoin. But currently, it is given other uses and applications, due to the advantages it provides, especially in terms of efficiency and security, thanks to difficult-to-break encryption.

In addition, the operations are carried out very quickly, since they do not depend on a centralized entity or an intermediary to approve them, but they are validated immediately.

How blockchain is transforming financial systems?

Making transactions, with contracts and payments between international entities, is constant in an increasingly globalized world. Therefore more and better technological developments are demanded every day, necessarily innovating to streamline the flow of trade.

Although there are banking platforms and electronic wallets, in practice sometimes barriers appear (a retained deposit, for example), which hinder the processes. Therefore, Blockchain is presented as an alternative, and not only for finance.

Bitcoin and cryptocurrencies

Although they are not necessarily the same, Bitcoin and blockchain were born hand in hand, as mentioned. Both this and other cryptocurrencies are based on the same principles, with a cryptography base.

They have been a great innovation in financial systems, as they are currencies that are not supported by a country’s economy. On the other hand, they are currently an important asset market, which moves large amounts of money.

Payment and exchange system

The main advantage and attractiveness of blockchain is the fact that it can perform secure and fast transactions, minimizing the possibility of fraud. This opens up a great panorama for organizations, which can do business with others in a low-risk environment.

Thus, more and more organizations are incorporating this technology, including banks, growing exchange networks and business possibilities. And it is not only money that can be transferred, but also other assets, such as bonds.

Smart contracts

The other great benefit that blockchain provides for the transformation of financial systems is the so-called smart contracts. The system allows you to program and execute, and even block operations, always maintaining transparency in the accounts.

In this way, the smart contracts also present the main characteristics of the blockchain, in terms of speed, security, immutability or inviolability of the data, so the possibilities of providing financial services without intermediaries are increased.

It is even thought that in the future this could impact the trading world, by reducing the need for the participation of agents, i.e. brokerage firms or brokers.

Secure records

In addition to contracts, it is possible to store and transmit other important information and documents, without being able to access or modify them without authorization. Thanks to it, data can be protected from potential cyber-attacks.

Other uses in the financial field

The blockchain can also help with cybersecurity in financial systems, on issues such as theft or identity theft, reduction of electronic fraud and money laundering.

The future of blockchain

More than the future, we can talk about the present of the blockchain, because this technology is already being implemented in stock exchanges, electronic payment systems, securities issuance, digital security and more, contributing to the transformation of financial systems.

Although, there is still a way to go for the blockchain to enjoy greater universal acceptance and use so that this technology unfolds its full potential. In this sense, government (laws) and technological barriers must still be overcome, which includes the updating of financial organizations’ systems and platforms.

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