How Will Blockchain Technology Change Our Financial System?

Although it might feel like we’re living in a digital world, you’d be surprised to learn how many financial institutions still rely on 30-year-old legacy systems. Many institutions are struggling to upgrade their ageing systems in order to enable faster processing and real-time settlements. 

While customers love the speed at which they can receive payments, modern banks are clearly overwhelmed. These data-rich payments are proving taxing for legacy measurement and monitoring systems. Furthermore, most banks rely on solutions that are not equipped to deal with the increased data-flow of real-time transactions. 

Even so, most businesses and customers still heavily rely on third parties to process electronic payments. While this system has worked for most of us, there are inherent weaknesses in this trust-based system. This is where counterparty risks come into play.

When you engage with counterparty risk, there is a chance that the other party will default on their obligations. For example, when you leave your money with a bank, you run the risk of the bank going bankrupt and losing your money. 

So, how does cryptocurrency come in? Well, there are no counterparty risks with cryptocurrency. When you store cryptocurrency in your eWallet at the base network layer, there is no governing body that can seize your funds. Prior to Bitcoin, there was no true digital currency. Once you hand your money over to a bank, you’re really only storing IOUs for your dollars with that institution. 

With blockchain, there is no central authority, and no one organization that can overwrite changes. Once you send cryptocurrency to another user, there’s no way to get it back.

As well, blockchain technology may represent a solution to real-time settlements across the financial industry. It would allow businesses and institutions to send payments directly, eliminating the need for a third party like SWIFT. 

I think that the future of real-time payments lies with the implementation of blockchain technology. With it, we’d have the ability to have a truly global network that could optimize transactions using smart contracts. The increase in both transparency and efficiency would revolutionize the banking industry. While it can seem daunting to challenge the status quo, I think the early players in this space will be rewarded in the long-run. 

What do you think about this? Does blockchain technology hold the key to solving real-time settlements and counterparty risk?