Blockchain technology is one of the latest innovations in the financial industry. It allows for decentralised and secure transactions. This eliminates the need to go through intermediaries. It lets you transfer money to anyone, anywhere in the world quickly and cheaply. Reliable money lenders in Singapore have also begun to adopt this technology into their products.
But some experts say blockchain is just a fad that will not really benefit the financial industry. Tech industry leaders, though, would say otherwise. According to them, blockchain is the future of the financial industry.
If you want to see both sides of the story, here are some of the benefits and drawbacks of blockchain technology. Let’s begin with the pros.
Pros of blockchain for the financial industry
Enhanced transparency, security, and privacy
The biggest strength of blockchain technology is transparency. All transactions performed on a blockchain are recorded on a public ledger, which means everyone who uses the system has access to it. That means everyone can see all the transactions on the blockchain software development company. With that, any sort of fraud can be detected right away.
Blockchains are also highly secure because they are decentralised. In other words, not one company or group of people control it. The blockchain and its public ledger is available to every user. If a glitch occurs on the computers of some users, the others will not be affected. The system can still run as if there is no problem.
Blockchains are also better for privacy, as they are not subjected to as many regulations as traditional financial institutions. That means if you don’t want the government spying on your financial activities, blockchain is the way to go.
Self-executing contracts
A key feature of blockchain technology is the smart contract. It is designed to fulfill the terms of the agreement by itself once certain conditions are met.
For instance, your contract with a client is for them to give a downpayment of 50% once your project starts. After they digitally sign and agree to the terms of your smart contract, 50% of the contract price is automatically transferred to your account. No further intervention is needed.
If your terms state that the remaining 50% must be paid on a certain date, the system will automatically deposit that amount into your account on that date. This improves trust between clients and business owners by making sure payments are always made in full and on time.
But blockchain technology is not all good. It also has its cons.
Cons of blockchain for the financial industry
Inconsistent regulations
Blockchains are not yet fully regulated by the Monetary Authority of Singapore (MAS). As such, it is prone to exploitation by scammers, identity thieves, and cybercriminals. Many large-scale scams and cybercrime these days are actually committed with the help of blockchain technology. It makes it easier for criminals to mask their activities and hide from regulators.
Volatile cryptocurrencies
Blockchains must be tied to cryptocurrencies to work properly. Because of how the technology is designed, blockchains cannot use fiat currency, which are the dollars we use in our everyday transactions. This comes with another disadvantage, which is volatility.
The value of cryptocurrencies can easily sway, making them too unstable for normal business operations. If cryptocurrencies can just go up or down suddenly, the monetary value of your products can abruptly change as well. In the worst case, a sudden drop in the value of a cryptocurrency can render your blockchain useless.
Conclusion
Blockchain technology has its benefits like better privacy, transparency, and security, as well as contracts that execute by themselves. This makes transactions quicker, easier, and more secure. But it also comes with drawbacks, such as the lack of regulation and volatility of cryptocurrencies. As the technology improves, though, we may see blockchain being adopted by more companies in the financial sector.
