How is Blockchain Technology Relevant to the Fintech Revolution
The technological revolution has finally hit the financial services industry. The spotlight is now fixed firmly on the transformative impact Fintech could have throughout the entire chain of banking. While it may seem stodgy and highly regulated, the financial sector offers some of the best ways to play around with tech trends. After all, technology brings financial services closer to unbanked corners if the world, allowing just about anyone to make payments and receive services conveniently using smartphones. Additionally, there’s nary a financial institution that doesn’t wish to explore blockchain along with the technology that underpins cryptocurrencies and the ways they could transform movement of money.
The Impact of Blockchain Technology
The highlight of the fintech revolution is a decentralized digital leger of transactions all of which take place in across a P2P network of computers. This is what we have come to know as blockchain technology. This leger securely and permanently records the history of exchanges taking place between the associated peers and is visible to everyone connected to the network. The potential impact that blockchain technology has on regulatory enforcement is quite profound as it examines its applications in contexts that either act as a vehicle for cryptocurrencies or as a verification tool. Using blockchain as a verification tool promotes compliance to set regulations and could potentially reduce the cost of enforcement. Given the nature of cryptocurrencies such as Bitcoin and their ability to conceal and preserve the identities of investors, it's possible to greatly complicate the ability of the regulators to curb against certain forms of unlawful conduct. So, why is blockchain technology important to the uprise and progression of the fintech revolution?
Promotion of Regulatory Compliance
Considering its numerous applications, blockchain technology provides for the ability to preserve transactions and historical records. The information preserved on a blockchain can automatically be downloaded every time a computer joins the network on which it has been stored. The ability for parties to enter into smart contracts that employ coding on the blockchain to define the terms of the contract and automatically execute it when these product deliveries or terms are met is a bonus. Similarly it can facilitate due diligence when it comes to third-party business arrangements, acquisitions and mergers. This means that companies can work with third party vendors abroad to obtain certifications of compliance. When blockchain technology is used as a tool for preserving records, compliance with terms of the involved contracts is important as it has the potential to improve regulatory efficiency greatly. This is vouched by lowered costs and expedition of the time that law enforcement authorities or regulators spend on trying to promote legal compliance. This means that regulators could employ blockchain technology to verify the fulfilment of the applicable reporting or licensing requirements by the companies involved quickly and more accurately. With blockchain technology, they can also assess their strengths while monitoring their programs.
Initial Coin Offerings and Cryptocurrencies
Blockchain technology is also applied significantly as a vehicle for cryptocurrencies. Cryptocurrencies, unlike fiat currencies have no physical form – all transactions are carried out and recorded in the blockchain. This means that they are backed by neither a central bank nor a government. Additionally, holders of cryptocurrencies maintain their anonymity and can securely access their wallets through a private key. This element of anonymity increases the risk of any fraudulent transactions thus complicating the regulators’ role in identifying the perpetrators of unlawful conduct. There’s also the issue of the sale of digital tokens or coins via ICOs which also takes place in the blockchain. Initial Coin Offerings allow companies to fundraise through the sale of tokens which can be redeemed either for services or goods. The virtual nature of cryptocurrencies tends to make it difficult for authorities of law enforcement to view them as assets, which should subject them to seizure and forfeiture.
Verdict
When blockchain technology is applied as a mechanism for record keeping and verification, it has the potential to reduce the time and costs associated with compliance with regulations and its enforcement. If companies wish to realize this prospect, both companies and the government need to work in tandem in order to address all regulatory concerns to root out any sort of illegal financial transaction.