?????? Why Blockchain is the Future of Fintech

?? Imagine the cumbersome process of sending a postcard to a friend across the globe 50 years ago. The journey involved the post card making multiple hops through different post offices and took about a month for a single message to be delivered. In contrast, consider how instant messaging platforms like email and WhatsApp revolutionized communication by delivering messages in milliseconds.

?? The Traditional Financial System

This method of communication mirrors the foundational principles of the modern financial infrastructure. For example, if your home bank is in Mumbai and you give a cheque to someone in Bangalore, it historically took 14 days to process. This was due to the physical movement of the cheque to the Mumbai branch for validation.

?? Modern Financial Infrastructure: Incremental Improvements Yet Inadequate

From those days the financial infrastructure has travelled great distance, but still the vestiges of legacy processes remains a hinderance. The evolution from physical cheque transfers to electronic imaging and core banking has improved efficiency within domestic boundaries but struggles with cross-border transactions.

In equity markets, it took a long time for the shift from a T+2 to a T+1 settlement cycle highlights a trend towards faster processing, yet it still involves 24hours in gaining custody of stocks after purchase. Credit card transactions also face similar delays for the settlement to hit merchant account, indicating a systemic inertia in the traditional financial setups.

Our current Financial systems have been designed with the assumption that payments are infrequent face challenges as transaction frequencies increase, evidenced by innovations like UPI stressing the existing IMPS systems.

?? Blockchain: Simultaneous Transaction and Settlement

Blockchain technology revolutionizes this by merging transaction and settlement processes. When a payment is made via blockchain, the transaction is settled immediately, enabling merchants to access funds without delay. Billions of dollars worth of assets are being settled in the crypto ecosystem through the power of Blockchain. This efficiency is why central banks worldwide, including the Reserve Bank of India, are exploring blockchain-based Central Bank Digital Currencies (CBDCs).

Balaji Srinivasan, the former CTO of Coinbase, draws an analogy between social media interactions and traditional fintech processes.

Imagine if social media worked like a giant offline postcard party. You've got a closed group of 100 friends, and when you have something to share, you write it out on 100 postcards and mail them off.

Now, if your friends want to chime in, they've got to do the same thing—write their response on 100 postcards and send them out. Soon, every comment becomes a mountain of postcards, multiplying with each interaction.

It's like a Reply All frenzy in email, but with physical mail. And just like online, if you add functionalities to like comments, attach pictures, fancy text, and even share with more friends by sending out even more postcards.

But here's the kicker: the poor old post office wasn't built for this kind of madness. It's like trying to fit an elephant through a cat door—it just doesn't work.

So while it's a fun idea to imagine social media in the offline world, it's also a reminder of how special our digital platforms are, designed to handle the crazy, wonderful chaos of our online lives.

?? The Future of Payments: Towards Real-Time Financial Exchanges

The concept of payment streaming, where transactions are settled in real-time rather than at fixed intervals, represents a future where financial exchanges are as immediate as sending a text message. This requires a complete architectural overhaul of the current financial systems, with blockchain positioned as a promising foundation.

Just as a three-story building cannot be transformed into a skyscraper by merely adding more floors, the financial infrastructure cannot be upgraded without a complete overhaul of its architecture. As we move towards a world where financial transactions need to be as quick and efficient, Blockchain stands out as a potent starting point for this transformation, promising a future where financial transactions are as swift and seamless as sending an email.

What are your thoughts on blockchain technology in transforming the financial landscape? Drop a comment below sharing your views or experiences with blockchain-powered transactions!