Why Blockchain is at the centre of the next financial revolution

Trust.

How much trust do we have in the current financial system?

When we give our money to banks we trust them to keep our funds safe.?We trust?Financial institutions and Fintech companies that also trust that the banks will continue to process their funds smoothly. The banks also trust other banks that they bank with to also keep their funds safe, and they trust that intermediary banks will connect and transfer funds across borders.

The current Financial and payment systems heavily works with and is built on trust. This has been the set up?years before?and it has worked well this way.

For example, the system of using intermediaries to transfer funds across borders was set up and needed to send money from one country to another.

How would one bank know another bank in a different country without a relationship? How would they trust they are sending funds to the right person. The banks in Sweden do not know the banks in Zambia and therefore they have to use a bank that has a relationship with both the bank in Zambia and with the bank in Sweden to complete a transaction made from either countries.

Yet, it is still amazing that other industries have made use of technological advancements and made huge leaps forward and yet the financial system has not changed in years and still works the same way.

We can directly take a plane from one country to another with one flight, but for us to send a payment to another country it has to make a few stops along the way before finally arriving at its destination.

We have figured out how to build a message system that is directly instant and relatively free, and yet for a financial user to send money to a friend in another country they have to use their online banking system to schedule the transaction, and still wait days for confirmation of delivery at high cost.

This has been a cost to the current system of operation, a single fund transfer that works with intermediaries can take from 2–7 days to be completed, and the use of multiple intermediaries has also led to high transfer costs of remittance.

Trust has been effective.

But what happens when that trust is broken? What happens when a bank is liquidated? Fails to complete a transfer? Fails to provide assurance?

Everything would fall apart, or rather has fallen apart.

The Blockchain provides a different way of doing things which is revolutionary.

The Blockchain is a revolutionary form of distributed ledger technology (DLT) at the heart of Web3.?As opposed to relying on centralised institutions to perform a service, this technology works across a?peer-to-peer network?of computers called nodes.

Each node in the network must agree that each transaction is valid before it can be added to a block and appended to the blockchain. Once appended to the blockchain, transactions cannot be altered or tampered with.

No one organisation (government or central banks) can make changes to a protocol built on the blockchain. For any changes to be made to a protocol, the community at large must agree to it.

crypto currencies are an amazing use case of the blockchain but it is just a use case.

In order to facilitate a transfer of funds from their account to another users account, a user would only need to know the recipient users wallet address, which is similar to the account number. No middle intermediary is involved in this transaction. It has been made very easy for the user.

The ‘block’ is created by the mining company and they decide to make or facilitate this transaction.

Miners then broadcast this block to the blockchain and the contents are verified by hundreds of thousands of participants that verify transactions. These participants verify if the transaction is ok, if there is enough money in the wallet, and if the transactions are correct.

The blockchain?improves and builds on the trust system. Accordingly, the blockchain provides an equitable, more?trusted?alternative to the legacy financial system.

We can’t easily verify the centralised information provided by an institution. If the print screen of a bank statement is provided showing account information we cannot easily verify it. In a decentralised system we can see and easily verify the details provided as this is transparent on the blockchain.

And unlike most centralised financial system’s, the technology produces a system that runs 24/7 which does not result in loss of money for banks and people. Therefore you can transfer funds anywhere at any time.

The blockchain is more transparent, has more trust in the system, works 24/7…and anyone can build on it.

This opens up the possibility for people and companies to build efficient financial systems that would be internally used and would operate outside of traditional systems to improve the efficiency of financial operations.?Internal Financial networks that would be completely transparent and customised to the business needs of the organisation and have reduced fees.

So, it is no surprise that Ethereum (a pioneer in the smart contracts that underpin much of the architecture of decentralised finance)is one of the most widely used financial networks in the world.

Even without any direct impact, the blockchain has managed to advance the banking and payment systems, with the EU set to introduce legislation covering a digital euro and full EU-wide coverage of instant payments through SEPA Instant early next year in order to compete against the blockchain. The proposed legislative changes are intended to address the fragmented market for cross-border real-time payments and provide a spur to Open Banking initiatives across the Union.

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