The main subject and question we are getting today is Why our financial system so inefficient?
We can all agree that Blockchain has the potential to change small business payments and money management in the near future.
Every day, our global financial system moves trillions of dollars and services billions of people. However, the system is riddled with flaws that raise costs through fees and delays, create friction through duplicate and onerous paperwork, and provide chances for fraud and criminality. Every year, 45% of financial intermediaries, such as payment networks, stock exchanges, and money transfer services, are victims of economic crime; the overall economy suffers from 37%, while the professional services and technology sectors suffer from only 20% and 27%, respectively. It’s no surprise that regulatory costs continue to rise and are a major source of anxiety for bankers. All of this adds up to costs, which are eventually borne by consumers.
The majority of financial organizations and banks identify potential to cut friction and expenses.
Here’s why the banking and financial systems are so inefficient, and why blockchain is a true game changer.
- Because banks’ platforms are archaic, a muddle of industrial technologies and paper-based processes dressed up in a digital guise.
- Because the financial systems are centralized, they are resistant to change and susceptible to system failures and attacks.
- It is exclusionary, denying billions of people fundamental financial instruments. Bankers have mostly avoided the kind of ugly creative destruction that is essential to economic growth and advancement.
However, a remedy to this innovation stumbling block has emerged: blockchain.
Given the potential and risks of such a revolutionary technology, many financial institutions, from banks and insurers to audit and professional service businesses, are investing in blockchain solutions.
What Exactly Is Blockchain?
Blockchain has been identified as one of the 25 upcoming technology trends.
Blockchain has the ability to disrupt every business since its beginnings in 2009. A blockchain, in its most basic form, is a database of transactions.
Basically, it’s a digital ledger. The promise of the technology stems from its security, public accessibility, and immutability. The platform is made up of digital blocks of transaction information that are linked together to form a chain. A new transaction’s information is uploaded into a new block, which is connected to the previous block by a hash, which is essentially a fingerprint for each block. The new block contains the information from its own hash as well as the prior block’s hash. 19 As a result, changing the information in the block is extremely difficult because any modification will invalidate the hash, affecting the rest of the chain.
Cryptocurrencies and smart contracts are merely the tip of the iceberg in terms of blockchain technology’s potential. Businesses and entrepreneurs can use blockchain to support and improve their operations in a variety of ways.
Digital currencies such as bitcoin have caught the minds of everyone from investors to company owners in recent years. And, owing to advocacy groups and over 100,000 businesses that take bitcoin, we may expect much greater awareness and adoption of digital currencies in the future.
But you can’t talk about digital currency without referencing blockchain.
If you are unfamiliar with the blockchain, it is basically “a public ledger shared by many different parties in which anonymous transactions are recorded.” In other words, it is purely personal. This means that no banks, financial institutions, or government agencies are involved in the transmission of funds, allowing money to be transferred more quickly and cheaply. Furthermore, because digital currencies are data rather than tangible coins or currency, they cannot be manipulated, erased, or tampered with. That means there is less risk while sending or receiving payments.
“Incumbents such as JPMorgan Chase, Citigroup, and Credit Suisse, all of whom are presently investing in blockchain technology, may be able to do more with less, streamline their companies, and lower risk in the process.”
Aside from financial transactions, firms are utilizing blockchain technology to create and sign “smart contracts,” prove intellectual property ownership, and offer coupons to customers.
But first, let’s return to one of the blockchain’s most well-known and early benefits: payments.
There are no longer transaction fees.
You must pay transaction fees if you take credit or debit card payments. Those transaction fees, which typically range between 2 and 3 percent, are unlikely to have an influence on enterprise-level organizations. However, for small firms, such fees can quickly pile up and harm your cash flow.
The blockchain has the potential to minimize, if not eliminate, these fees. Yes. You read that right. Blockchain transactions rarely exceed 1% in most circumstances. That’s because you’ve eliminated the middlemen, such as banks and payment processors, who make a profit by charging you to process a payment.
Transactions can be processed right away.
To be fair, transaction fees might be reduced. However, the transaction’s speed is not always guaranteed. A cross-border payment, for example, takes three to five business days to process. Again, this is because money is transferred from one account to another through many financial institutions. This is not only inconvenient, but it can also slow down your cash flow.
Because the blockchain eliminates third-party interference, you can charge a client or customer, take a cup of coffee, and your payment will be ready.
In summary, blockchain payments such as bitcoin move extremely quickly.
Easy cross-border payments
Since we now live in a global marketplace, this could be the biggest game changer when it comes to blockchain and payments.
“Blockchain could be especially useful for cross-border transactions.” International payment services provide the most promising starting points in terms of speed, cost, and security. Global payments now take days to settle, and settlement delays can occur for a variety of reasons, such as a country’s incapacity to handle real-time settlement or more onerous regulatory compliance. They also lack transparency and frequently fail due to communication issues.”
Because the blockchain is decentralized, it functions as a worldwide money. This will make entering the global marketplace easier and more economical for your small firm. And this could lead to you entering a completely new market before your competitors.
Disagreements are a thing of the past.
Despite the fact that the blockchain is used to create digital currency, it functions more like cash than a credit card because a transaction that has been approved by both parties cannot be questioned. You must also authorize and validate the transaction. This will lessen any conflicts between you and your consumers, resulting in fewer chargebacks.
How might bitcoin help your business?
Blockchain still has some problems to sort out, such as the fact that it is unregulated, unreliable, and not widely adopted, but it is a potential payment solution for small business owners.
If you want to start reaping the benefits of the blockchain, you may begin by learning the fundamentals and selecting a reputable Bitcoin wallet. In fact, creating a bitcoin wallet just takes a few minutes. After that, you can put a sticker on your website stating that you accept bitcoin (“Now Accepting Bitcoin!”). You can also use bitcoin to pay suppliers or freelancers if they accept it.
Remember that getting started isn’t tough if you’re knowledgeable and open-minded. So, when it comes to blockchain, don’t be fearful or timid. Get out there and start taking advantage of the blockchain prospects for your small business.
Blockchain technology is spawning a new global system with enormous possibilities for entrepreneurs and small enterprises. Beyond improving small business lending, its accessible and efficient applications for entrepreneurs appear to be limitless, ranging from customer loyalty programs to cryptocurrency exchanges, cryptocurrency payments, cryptocurrency gambling platforms, bitcoin vending machines, digital wallet platforms, cryptocurrency crowdfunding, cryptocurrency fundraising, decentralized cloud storage, and non-fungible tokens (NFTs). However, the promise of blockchain and cryptocurrencies will be stifled if government regulation inhibits rather than embraces the technology’s potential for transparency and democratization. Any public advantages of regulation should be carefully balanced against the burden on innovation and entrepreneurship that government laws frequently impose.
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