When Bitcoin, and by extension, blockchain, exploded onto the financial market, the world began evolving alongside the implications of what this could mean for the world. The idea of a decentralized financial system, independent of countries and politics, seems like one ridden with potential. The blockchain technology is not only applicable in the financial sector, but it can also be adopted and used in many different industries such as legal, medical and education, and already we have started to feel its reach into many of these industries.
Blockchain shows incredible potential especially in modern banking but it is not easy to implement overnight as users have to be trained and upskilled to integrate it into existing systems and practices. Furthermore, governments are still reluctant to recognize cryptocurrency, and in China, crypto transactions have been branded as illegal since 2021. However, this doesn’t mean that China is not looking into the technology behind cryptocurrency, and the government has already begun using the technology to verify identities, and as recently as May, opened a blockchain research center to adapt it for industrial use.
The biggest selling point of blockchain is the level of security it affords its users, along with the detail and coherency of its records. In the banking industry, scams and blunders are the biggest threats to the system - the United States alone reported over USD$20 billion lost per annum due to identity fraud; with blockchain, personal information may be retained privately while still maintaining the integrity of their verification process, creating an environment that is conducive to maintaining and encouraging trust and reliability, though the main purpose of reliable identification is primed to stop preventable losses. Money laundering and tax evasion are two challenges that may also be combated against through blockchain, with the help of A.I. or standardization.
Retail banking sectors have been investing strongly into blockchain frameworks in an attempt to reap the benefits of the technology, and even the UK’s Financial Conduct Authority (FCA) is currently developing policies for blockchain, but it is still a few steps away from worldwide - or at least, mainstream - integration.
Currently, the Society for Worldwide Interbank Financial Telecommunications, also known as SWIFT, is trying to implement blockchain into its global payment initiatives, dipping its toes into both fiat and cryptocurrencies, and already we are seeing the benefits of blockchain, with less banking queries being processed on a daily basis.
The dissemination of blockchain in various payment solutions will only continue to grow and the modern generation will bear witness to the adoption of this technology, but will we see this growth in 2024?
“There is no reason why blockchain technology shouldn’t be adopted by mainstream finance”, says Yuki Nakamura from Stakingy, a Crypto-staking platform, was quoted as saying, “blockchain is far more secure, efficient, and cost-effective than conventional methods of banking. But like any industry that is being challenged with new technology, it will take time for the industry to evolve and adapt and accept. Blockchain was officially launched in 2009, but it was only in 2011 when it was widely recognized. A decade might feel like a long enough time for industries to warm up to the idea of the technology, but without implementation, it remains as foreign as a new entity.” Nakamura is confident that the long-term exposure of blockchain in the finance industry has warmed up the population and corporations to it being present in their everyday dealings, which means that we will be seeing a great deal more adoption of blockchain in 2024.
Blockchain should first be implemented as a security measure. As blockchain is capable of creating unique identifiers, it should also be an effective tool in both KYC and AML checks, ensuring that neither has an overlap. These unique identifiers would also have the ability to suppress fraud. But of course, no technology would be able to eliminate it completely as there are always loopholes that hackers and those with malicious intent are able to exploit.
It is expected that the adoption of blockchain in the finance industry would be initially geared towards security, including creating a more secure database that includes individual management of private keys which means better sharing options and a higher level of security. It would also increase the integrity of information databases as all blocks in a chain must be validated before it can be edited, creating a highly incorruptible system.
Mainstream adoption of blockchain in the financial sector is not that far off, as many industries are currently integrating it into their systems and processes, which we will continue to see in 2024 and beyond.