As the financial sphere is evolving and expanding worldwide, the demand on faster, effective and secure transactions is growing tremendously. These transactions do not only concern money transfer but also fund raising, asset transfer and different other financial operations. However, the huge number of transactions makes it more difficult for banks and other parties to assure secure and fast transactions, which increases the complexity of this operation and its cost. This is why financial institutions are opting for the Block chain technology as a solution to the obstacles mentioned above.
What is the Block chain technology and how it is used in finance?
The first studies on the Block chain technology go back to 1991, conducted by Stuart Haber and W. Scott Stornetta and not applied until 2008 by a certain Satoshi Nakamoto for the creation of the Bitcoin.
Originally created to timestamp digital documents then used to secure crypto currency transfer. The Block chain technology also-known-as Distributed Ledger Technology (DLT) is a time-stamped, immutable records of data (block) managed by a cluster of computers that are not related to any central entity (decentralized). It’s a technology that is highly secured and cannot be corrupted, thanks to its effective transaction validation process. It also offers a high level of transparency and immutability as every operation is irrevocably registered in the system, with no possibility of modification or suppression.
This technology is becoming more attractive as professionals in different fields realize its benefits on certain activities. In the banking sector for example, the Block chain is revolutionizing transaction by making them faster and at a lower cost. In fact, in the international money transaction market (440 billion dollars annually) we find that 10% of its value goes to commissions in certain regions such as Africa. This continent, in spite of being one of the poorest in the world, it loses approximately 2 billion dollars each year because of commissions (12%) which is the highest rate in the world. This is why the Block chain is the best solution for African countries to adopt.
For individuals seeking funds for their projects, the Block chain offers the possibility of raising money through Initial Coin Offering (ICO). This method is similar to a normal IPO but with exchangeable tokens and crypto currency in return. It enables new projects raise millions of dollars, which is the case for Suisse Tezos that made 232 million dollars through it.
Furthermore, one of the most promising ways to use the Block chain is through smart contracts. It’s a computer protocol intended to digitally facilitate, verify and enforce the negotiation or the performance of a contract without any middleman and therefore cut costs and save time.
Through smart contracts, digital assets transfer, this technology has enormously changed the way people and organizations interact, trade or manage their money, and it is our duty to be well prepared for this change and face its challenges.
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