Blockchain: The Future Financial Model For Globalized Economies

We are living in a globalized world. In the last decade, we have seen how quickly technology-driven companies like Uber and Airbnb have become successful global businesses. They have successfully demonstrated how sharing economies can utilize technology. Technology-based models are more productive, secure and transparent than traditional business models. At the heart of the sharing economy is an open and transparent financial model. Blockchain provides an effective use of technology to increase transparency, security, and openness in the traditional financial system.

In this article, we’ll take a look at blockchain as the future financial model for globalized economies, including its challenges and opportunities.

#1 Peer-2-Peer Model

The blockchain is a peer to peer model. By using the blockchain, two parties can directly make a financial transaction without any interference. This peer to peer system will revolutionize the market by removing any third-party interference in a financial transaction. For example, if there is a buyer in Australia who wants to buy from a seller in England, they can agree on the terms and conditions and the buyer can directly make a payment to the seller’s account who receives the payment immediately.

#2 Banking For The Unbanked

The biggest challenge for future economies is the inclusion of unbanked people. The traditional system is complicated. It makes it hard for unprivileged people to use banking systems. For example, in some third world countries, banks have policies to check residential proof before opening an account. This restricts people who do not own any land from accessing banking services. The blockchain has the true potential to make a positive change in the lives of these people. There are already many startups working in this direction by allowing a peer to peer exchange and payments using eWallets.

#3 Removing The Intermediary

The blockchain will reinvent transactions by removing any intermediary. It replaces the centralized system with a decentralized one – for example, when a purchase has to be made, a seller can check the ledger record of other peers to check if the buyer has enough fund to spend. If there is a distributed consensus among all nodes, the seller can move on with the transaction. This process is called proof of work.

#4 Crowdsourcing

Many technological startups rely on people to raise the minimum fund for their product development. Nowadays many companies are using cryptocurrencies based on blockchain for their crowdsourcing. Tech startups are creating new cryptos which then can be used to demonstrate their valuation (ICO).

#5 Stock Market & Forex Market

The blockchain can help stock exchanges to significantly reduce the cost and complexity involved in stock exchange trading practices. By using blockchain, companies can make it easy for interested parties to purchase equity through cryptocurrency directly. A user can trade without being dependent on a third party. Nasdaq is on the forefront in advocating the use of Blockchain in the stock exchange.

#6 Smart Contracts For Financial Deeds

Blockchain-based smart contracts are self-executing, self-enforcing contracts. Two parties can agree on their terms and conditions and can use this as a trust-building mechanism for trade. Smart contracts remove the middleman involved in a financial transaction. For example, in a money lending service backed by the blockchain model, the borrower can connect with the lender directly and check different terms and conditions of different lenders. The borrower can then choose a lender and enter into a contract with the lender. Smart contracts are faster and more transparent than the existing model where banks do not have clear guidelines and charge heavily for borrowing.

#7 Managing Identity

Managing identity is a complex issue. Different organizations from government agencies to private service providers need different aspects of a digital identity. Data privacy has become a serious concern for people in the recent past. While it is hard to completely secure a system, the Blockchain provides an elegant solution to this problem. Blockchain can provide a single window for the user to manage their identity. Imagine a picture where you can see which data attributes are accessible to which organizations. And if you don’t want to continue with an organization, you can revoke the permission from that particular organization.

#8 Securing The Insurance Industry

One of the biggest concerns in the insurance industry is to establish the identity of a user. Most companies rely on government agencies for the identity verification process. While this system is very effective, it’s also very slow. Most users end up sharing more information than is necessary for an insurance agency. Startups are envisioning the Blockchain combined with biometrics as the future for a more effective insurance industry in which insurance providers can automate the process of identity verification. Since users are connected directly with insurance providers, the user does not have to share their data with anybody else, reducing the risk of data theft.

While Blockchain in itself is a new technology, it is based on old and tested technologies like cryptography and peer to peer model. You can learn more about the Blockchain at Intellipaat’s Blockchain course to take the first step towards upskilling and excelling in your career and business pursuit! Additionally, you can also dive deeper and discover topics and technologies such as data science, big data, salesforce, etc.

The blockchain has the power to transform the way businesses interact with each other and their clients, and the number of startups working on and with the blockchain is increasing by the minute. Some of these young companies will immensely contribute to the growth of the economy and transform their industries – as did Uber and Airbnb.

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