What are the ways that cryptocurrency and blockchain are bringing about changes in the financial sector?
Blockchain is one of the most promising technologies that could lead to a ground-breaking change in the financial industry after the internet. An advanced version of Distributed-Ledger-Technology, blockchain is fast becoming a disruptive force in almost every industry. Blockchain technology, particularly cryptocurrency, has the potential to revolutionize the global financial order through its use in the financial sector. Blockchain is the most famous cryptocurrency development; the combination of crypto and blockchain is a powerful force that the world probably has been waiting for a long time.
Cryptocurrency and Blockchain
Blockchain- Overview
It is a public ledger that documents information and secures data with the help of cutting-edge encryption technologies. Blockchain platform offers a decentralized environment where operations are carried out without the help of a centralized authority. The immutability of blockchain technology is another salient feature of blockchain technology. The blockchain network ensures total transparency, eventually allowing full visibility of data stored in its ledger. Blockchain ledgers contain no data that can be altered or manipulated by anyone.
Blockchain is a fast-evolving market. According to market predictions, the blockchain market is estimated to reach $67.4 billion by 2026, up from $4.9 billion in 2021.
Overview of cryptocurrency
Blockchain and crypto are often referred to in conjunction. However, these two terms are different. Blockchain is the technology that underpins cryptocurrencies. Cryptocurrencies are electronic money that operates on a direct P2P basis. Crypto assets are blockchain-based and follow a decentralized transaction model – crypto payment transactions do not involve third parties or intermediaries.
The crypto market surprised the world by reaching an awe-inspiring $3 trillion figure in 2021. However, it crashed in 2022 and has since recovered to regain its former glory. Experts believe, however, that even if the crash is catastrophic, it will not hinder the future growth of the crypto industry. According to market predictions, the crypto industry is about to grow by 5x within 7-8 years.
What is the impact of cryptocurrency and blockchain on the fiscal sector?
Payments that are affordable and faster
No doubt, cryptocurrency and blockchain are transforming the global financial order in this way.
This means crypto-based transactions do not require intermediaries to settle payments. This is completely different from fiat-based payments, which use third parties to settle payments. As crypto-based payments do not involve third parties, they clear and settle payments more quickly than fiat transfers do.
Using cryptocurrency and blockchain technology would allow multiple financial services to process transactions more quickly. For example, loans would be processed faster, and security purchases would be settled more quickly, and so on.
The high costs associated with intermediary processes make international payments extremely expensive, which is why this is especially important. By 2030, blockchain adoption is predicted to save banks $27 billion on cross-border transactions, according to a study.
Through blockchain-based cryptos, payment transactions can be processed directly across borders and almost immediately. They can be paid for at much lower costs than conventional fiat-based international transfers. This particular reason has single-handedly inspired several small businesses to aim for global reach that was previously afraid to target foreign customers due to high international transaction costs.
Investment and payment alternative
More than 15,000 businesses have accepted cryptocurrencies as of November 2022. Bitcoin alone has 190 million users worldwide.
Cryptocurrency and blockchain have provided the global fiscal world with an alternative payment system and a valuable investment tool.
Finance democratization
Furthermore, this is another reason why cryptocurrencies and blockchains are considered disruptive technologies.
The fiat-based traditional financial world features unfair disparities where the centralized governing authorities often favor the rich over the lower-income families. Due to this, a large part of the world’s population remains unbanked. The problem is especially widespread in underdeveloped countries where most people cannot afford the high fees imposed by third parties on financial services. There are, however, a considerable number of unbanked people in developed and first-world countries like the USA.
Bitcoin was launched to provide the world’s financial ecosystem with a more democratic way to carry out financial activities. And cryptocurrency and blockchain together aim to solve that problem by democratizing finance for the whole world.
Safe finance processing
One of their salient features is the cryptographic protection provided by blockchains and cryptography.
A crypto transaction is protected by encryption technology, which prevents nefarious elements from intercepting it.
Confidentiality of records
Blockchain offers immutability, enabling the finance industry to store confidential information about customers and businesses.
A blockchain platform also allows users to choose the level of accessibility they want for their stored data. Financial institutions could also limit access to their confidential data stored on the blockchain. Financial service company heads may decide who will access the records and who will not.
Execution of contracts more quickly.
Processes and transfers of contracts are common aspects of financial services. The traditional process of contract execution involves an elaborate process as it incorporates 3rd party services. However, crypto and blockchain, especially blockchain, solve the problem by utilizing smart contracts.
Essentially, smart contracts are blockchain applications that execute functions automatically once predetermined conditions have been met. Blockchain smart contracts can be used, for example, by stock exchanges, to process futures trading contracts immediately and automatically.