Throughout human history, there has been a constant law of innovation. Both the French and American revolutions proved the iron law that order arises only from chaos. Now we are in the age of chaos with a new form: blockchain.
As I’m sure you all know, the financial industry is one of the most heavily regulated, and for good reason. Finance is the object of the world. Money can’t buy happiness, but it can certainly buy you a nice house. In a world where books and shopping are digital, money won’t be left behind. With the hype surrounding bitcoin, the global media quickly learned about the nature of bitcoin. Soon, words like bitcoin, cryptocurrency and blockchain began to circulate. So, before we get down to business, let’s get into this origin story.
What are cryptocurrencies and blockchains?
Cryptocurrencies are basically digital currencies with end-to-end encryption. In other words, the encryption process can control the creation of monetary units and verify the transfer of funds.
Blockchain is basically the technology that helps cryptocurrencies function. It is a decentralized, distributed ledger that records and links all transactions on a network. Using this feature, you can confirm transactions without the need for a third party or a central authority. Everyone has access to the stored data. Identity or transaction, everyone can see the change. They provide the entire history of the asset. Transactions are added to the blockchain only after they have been validated using a consensus protocol. Each record is encrypted to provide an extra layer of security. Blockchain is said to be carved in stone because the records cannot be changed. In addition, all participants in the transaction have access to the same version of the truth.
What is a smart contract?
Smart contracts are basically like digital versions of court judges. It enforces the law.
Smart contracts are a world without lawyers, but they involve enforcement power. Smart contracts can help you exchange money or anything of value in a transparent, conflict-free way. In the process, help you avoid the service of the middleman. These smart contracts define and enforce rules and penalties as part of the agreement. These contracts are stored in the blockchain as lines of code and are executed only if conditions are met.
Because blockchains are basically like open ledgers, there is less room for error. Everyone can keep records of transactions, which means fewer cases of fraud. It also means that high costs will be cut. Because the margin of error is smaller, fewer people are needed to manage the correct data. Job cuts mean less profit distribution. This will also increase revenue because you now have your employees to generate more capital. Transactions will be more secure and binding because of smart contracts. Since the entire transaction is digital, penalties or rules will be amended.
Another advantage of using blockchain smart contracts is increased trust. Imagine buying a house. Buying is the easy part but the process is a pain. With blockchain, your identity will be stored and lenders can quickly make decisions about credit. A smart contract is then created between your bank, the property owner and the lender. House repayments will begin under the terms of the agreement. When transactions are recorded on the blockchain and shared among participants, the transfer of ownership will be automatic. Best of all, there are no middlemen! This also increases savings.
Whether it is asset management, share transfers or trading, the entire financial industry will experience a huge disruption. It will start by eliminating the middlemen, because the middlemen eat up most of the money, and that’s the magic of blockchain.
Blockchain smart contracts ensure the following:
· Elimination of middlemen · Speed and safety · Easy access to transparent information · Profits are generated due to fewer reconciling errors · Open trading without central authority. This means that trade settlement can be flexible.
For all these reasons, it is reasonable to believe that the financial industry is poised for a big change.