With the rising digitization trend, many businesses are using blockchain technology to upgrade their business processes. Blockchain technology, among many other modern database mechanisms, has made information sharing transparent within business networks. Primarily, this ledger technology fosters trust, transparency, and security for many businesses.
Moreover, blockchain technology allows efficiencies among business networks, thus promoting cost savings. To learn more about the role of blockchain technology in finance and business, read through the information we have covered in this blog.
Table of Contents
Instant Settlements
In conventional processes, it’d take weeks to process payments. It’s due to multiple intermediaries in the system. Transactions go through multiple layers of these intermediaries before they arrive at a settlement. These intermediaries could take the forms of front and back offices of banks and currency exchangers for cross-border payments.
However, through blockchain technology, there will be a reduced need for intermediaries, decreasing the time spent on settlement processes on CreditNinja easy loans, among others, as smart contracts will be able to manage transactions efficiently.
Security and Transparency
In many businesses, financial data is stored in centralized databases. This data would go through multiple intermediaries like transfer agents. However, transparency and security are compromised within these intermediaries, with increased risks of data breaches, although they are considered to have maximum protection as provided by database security.
Without transparency, no one would notice something wrong in the systems until the problem has surfaced. While many wouldn’t want their financial information to be transparent, there should be a certain level of transparency in the process, benefitting the providers and clients.
That’s where blockchain technology enters the picture. With blockchain technology, fraud risks get eliminated, making financial transactions tamper-proof. Blockchain technology is immutable, making all data records authentic and secure.
Moreover, it enables the sharing of private keys between stakeholders. It ensures that stakeholders’ and transaction details are only visible to those who have the private keys, ensuring the financial information of stakeholders is secured and maintained.
Better Auditing
Blockchain technology allows an audit trail of consumer data alterations from its origin to its end state. It’s very beneficial since auditing can be a long, tiring process. It promoted transparency, eliminating the risks of unethical behaviors, irregular compliance, and dishonesty that could transpire during long auditing processes.
Suspicious activities could be easily tracked, ensuring that transparency is maintained. In addition, the time of auditing is reduced since all information needed will be quickly available.
Invoice Management
Blockchain technology allows businesses to upload invoices on the blockchain through smart contracts. Essential information like due dates, the amount to be paid, and other client information can be saved in the blockchain. It will update the invoice status when the client has settled the amount to be paid, quickly updating companies about it.
Paper Currency Replacement
To eliminate paper bills and metal coins, blockchain technology is needed. So, if businesses want to replace paper currency, distributed networks like blockchain can help. It would ultimately reduce costs, promote transparency, boost security, and make transactions more efficient.
While the general population of consumers doesn’t consider it, digital natives and the younger generations would most likely find this idea beneficial.
Reduced Costs
Businesses spend tons of resources on processes like bookkeeping, purchasing central databases, maintenance of databases, security of databases, labor costs, intermediaries’ commissions, and value transfer systems. With the money reserved for these processes, there’s no guarantee that data breaches won’t happen.
By promoting transparency and security, all these costs can be reduced. Additionally, through smart contracts, businesses can reduce the costs of value transfers, intermediaries, and bookkeeping.
Tokenization of Assets
Blockchain technology can also tokenize real-world assets like real estate and private equities. With the tokenization of assets, owners can quickly use their assets as collateral for loans. Moreover, blockchain technology enables fractionalized assets that owners can use to trade.
Minimize Risks
In many financial services, there are increased risks in trusting intermediaries, the counterparty’s inability to meet its obligations, and credit risk due to information asymmetry. In commercial banks, intermediaries are trusted to monitor and track loan usage, increasing the risks to the providers when something goes wrong.
Every stakeholder is considered a node with blockchain technology. It enables peer-to-peer transactions, eliminating the need for intermediaries. Further, it ensures that all transactions are recorded on the network, reducing credit and fund management risks. What’s more, businesses can also settle transactions efficiently with smart contracts. Plus, with immutability, businesses can guarantee better security and reliability.
Final Thoughts
Blockchain technology reduces manual tasks and promotes efficiencies in transaction processing, allowing businesses to reduce costs and maintain data security in their processes. Blockchain technology is expected to become increasingly known to businesses of different industries, and it will soon dominate different natures of businesses.
Photo by Christina Morillo from pexel.com
