Who is leading the blockchain revolution?

06. July 2017 | Drooms Global

Billions of financial transactions take place around the world every single day between businesses, individuals and entities. Up until the technological revolution, the way financial transactions took place had remained largely unchanged. Nowadays, this revolution has truly gathered speed, with blockchain transforming how transactions happen. Could this spell the end of traditional financial services?


What is blockchain technology?

If you follow the finance and technology news, you will have seen the buzzword ‘blockchain’ being thrown around. It initially popped up together with bitcoin. After all, blockchain technology was developed for bitcoin and it is becoming more and more popular in the world of cryptocurrency.

Blockchains act as a public ledger on transactions. The block refers to a current part of the blockchain which records the most recent transactions. Once the transaction is recorded digitally, it is added to the chain. The chain consists of countless blocks, each one linking to another in a linear, chronological order.

Although this global ledger was originally used for cryptocurrencies, the technology can be employed to record anything of value – money, equities, titles, deeds and contracts. The benefit of this technology is that the whole blockchain is shared across different computers in the world. There is no single ‘true’ copy, as the blockchain is always used and transferred as a whole. It also cannot be changed afterwards – the record can only be added to once a new transaction is made.

Why and how is blockchain disruptive for financial services?

Blockchains change how different entities cooperate by creating a model that allows better peer-to-peer collaboration. This removes the need for third-party participants in many finance and business collaborations.

An example of this is the way in which businesses now access growth capital. Under the traditional system, companies would have to target a number of investors at different stages, adding intermediaries such as investment bankers and lawyers to the process. Using a blockchain, companies can access funding via a peer-to-peer model. This not only streamlines the funding process but also reduces transaction costs because they are dealing directly with the investor.

As well as reducing the need for middlemen, this technology is also disruptive in terms of its enhanced security and transparency. Fraud is almost impossible in blockchain technology because transactions are recorded in a system that cannot be changed. Furthermore, these transactions are shared on hundreds if not thousands of different networks and systems, meaning that a problem in one server will not damage the data.

How will transactions take place in the future?

Already, a number of financial transactions have gone digital and cut out the need for the middleman. One such platform is Drooms, which enables due diligence to be performed in a more effective and transparent manner, thus ensuring parties can share data directly in a data room.

Blockchain technology is essentially just starting to transform financial services and its disruptive power will likely reach many other transaction areas beyond the current digital collaboration. Experts speculate that transactions in the future will require fewer, if any, intermediaries, making it possible for blockchains to enable value transfers in the form of payments and remittances, lending and borrowing, trading value in marketplaces and the possibility of performing audits and taxation on these systems.

Blockchain technology can transform many transactions, not just those related to currency. An example of this is Everledger, which helps diamond mining companies to record every rough-cut diamond to ensure they are not used to fund conflicts.

Who is the winner?

We are the biggest winners in the revolution – you and I. Individuals and single entities benefit from the fact that blockchains will allow cooperation between two parties – whether individuals or businesses – without reliance on intermediaries. For businesses, there is no need to involve banks, rating agencies or government bodies to verify identity, establish trust or perform due diligence. Blockchain technology will do this for you and make it faster and more efficient.

Blockchains will also be beneficial to firms in the finance industry. Already, banks, insurers and audit and financial service firms are investing in blockchain solutions. This is because these systems will help them to reduce friction and costs; the consultancy firm Capgemini has estimated that consumers could save up to $16 billion in banking and insurance fees by utilising blockchain technologies.

The disruptive power of blockchain may mean that traditional financial entities could encounter difficulties. Instead, peer-to-peer companies and technologies will benefit more. This revolution is a goldmine for FinTech startups that are able to harness this technology.