Existing financial legacy infrastructure is slow, risky and inefficient. Blockchain and smart contract technology is the change that is beginning to revolutionise and take over.
The current system
The infrastructure, on which runs the modern-day finance system, is old, decrepit, and not really fit for purpose.
Two particular issues that persist to this day are those of trust and middlemen.
Trust has always been an issue because lack of perfect trust between buyers and sellers means that transactions are slowed down in order to first ascertain if both buyer and seller are acting honestly.
Settlement generally takes three days because the existing system still routes through third parties that actually carry out tasks manually. Obviously, there is risk inherent in such a system which is another negative to add to all the bogginess.
An example to explain the problem here would be a short-term trade in order to react to a potential high-return opportunity. Even this kind of trade is typically settled over a period of a few days, which carries the risk that either party becomes insolvent, or that the price will change adversely.
Systemic financial failure is a possibility here if an insolvency is large enough to bring other connected financial institutions down with it, leading to a widespread financial crisis.
Blockchain supported system
Blockchain is the solution to change all this. It provides a verifiable ledger which tracks assets across nodes which agree to a consensus mechanism that updates the ledger across the whole blockchain.
The immutability of transactions and the ultimate transparency this provides now brings honesty and trust into finance. Third parties are consigned to the dustbin of antiquity as they just aren’t needed in this trust-less system.
International exchanges across the world are now looking at Blockchain to cut costs and vastly improve efficiencies. Both the Australian and Canadian securities exchanges are implementing a blockchain trading and clearing system, while other exchanges are beginning to look into blockchain.
Regulatory compliance is another area where blockchain is closing loop holes and facilitating enforcement. Use of smart contracts means that regulatory compliance can be programmed into a security, stopping it from being sold in certain jurisdictions or to those who aren’t accredited, to quote just two of the many uses.
Blockchain is about to explode in use across the entire legacy financial system as more institutions come to realise the full implications of this extremely elegant solution, providing a full up-grade to an antiquated system in much need of it.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
Title: Blockchain is beginning to revolutionise the traditional finance system
Sourced From: cryptodaily.co.uk/2021/02/Blockchain-is-beginning-to-revolutionise-the-traditional-finance-system
Published Date: Tue, 16 Feb 2021 13:33:01 +0000