Distributed Ledger Technology (DLT) also known as blockchain, is disrupting the financial sector by delivering a secure, transparent and efficient method for transaction and data management. Bitcoin shined the spotlight on blockchain, but blockchain’s potential is much broader than cryptocurrencies. In this article, we take a look at how that DLT is changing the game of finance and what it’s good for, with the applications and benefits.
The future of finance is Distributed Ledger Technology, and you should embrace it. Keep up with the game and discover brand new efficiencies and potential.
Transaction Efficiency Enhancing
The ability of DLT to improve transaction efficiency is one of main strengths of DLT in finance. Between traditional financial systems and the new, corresponding delays and increased costs are often the case. It (Blockchain) leaves away the need for these intermediaries since blockchain serves as decentralized ledger in which transactions are recorded and checked by network participants. One thing about this peer to peer system is that it provides faster transaction processing and minimal cost incurred from the intermediators.
Improving transparency and security
Security and transparency are important features in financial transactions. A transparent and immutable ledger is what the blockchain technology provides to address these concerns. A block contains every transaction and is linked to the previous block in what is termed a chain, that cannot be changed. Everything from this is secure, traceable and prevents fraud by expanding trust between all participants.
Cross Border Payments streamlining
Traditionally, however, the cross-border payments have been very slow and expensive, necessitating the number of banks and clearinghouses involved in them. However, with DLT, transactions are made direct between parties, no matter where they are. Not only does it expedite the transaction, but it also lowers the cost of currency conversion and stop pages. This leads to faster, cheaper cross border payments that enable businesses and people to take advantage of these new delivery speeds.
Facilitating Smart Contracts
Self-performing contracts are contracts that are written in code, which automatically execute. There’s no need for intermediaries and fewer human error risks: for these contracts, when the specified conditions are met, they will automatically execute. In the financial sector, smart contracts can be used for creating automated loan agreements, automated insurance claims, and automated trade settlements. By automating this, we make it more efficient and less expensive to execute contracts.
Enhancing Asset Management
DLT is changing how assets are managed, and traded, through providing a secure and transparent solution. To make it representable in digital forms on the blockchain, a Blockchain enables the tokenization of assets. By tokenizing this, fractional ownership becomes easier, and one is able to easily buy, sell, and trade your assets. Furthermore, the transparency of the blockchain guarantees that all activities will be recorded and verifiable, lowering the possibility of fraud and raising investors’ beliefs.
Improving Regulatory Compliances
Financial institutions have a major concern around regulatory compliance. Blockchain can make compliance easier by being transparent and immutable records ‘‘tracing’’ the movement of assets and funds. This ledger allows regulators on this Ledger to verify compliance to regulations without the need of a lot of audits and manual checks. Not only does this improve compliance, but it also decreases the costs and time that regulatory reporting takes.
Reducing Fraud and Risk
Financial sector is full of fraud and risk management. Immutable ledgers and cryptographic security make blockchain hard for malicious actors doing things like altering transaction records, committing fraud, and changing amounts on transfers. Furthermore, the blockchain has the advantage of transparency and real time monitoring as well as detection of suspicious activities. This proactive method of detecting and managing fraud on financial transactions improves the total financial transaction security.
Future Prospects of DLT in Finance
DLT is a real deal in the field of finance, and we can observe an ongoing progress and development of new use cases. But as technology progresses, we believe that there will be many more use cases for blockchain, like decentralized finance (DeFi), digital identity verification, and supply chain finance. Further advances in DLT will increase the efficiency, safety and transparency of financial transactions, making the technology far more suitable for widespread use within the industry.
Conclusion
With Distributed Ledger Technology comes a secure, transparent and efficient way for financial transactions and data to be managed. The applications of DLT encompass everything from improving efficiency and security of transactions, to facilitating cross border payments, to establishing smart contracts. Embracing this technology lets financial institutions gain new efficiencies, save money, and build trust in the process.
