Whenever one talks about financial services, one has to acknowledge it as one of the biggest enablers of economic growth and stability, however these financial services carry with them a host of constraints that limit the accessibility to the most basic amongst it to large parts of the population around the world.
Now, here is the solution – blockchain technology which has emerged as an innovative solution that erases these barriers and reordered the financial world. Blockchain technology is increasing the decentralisation of financial systems and their availability to the general public more than it has ever been done before.
The Problem with Traditional Financial Services
Traditional financial systems have several shortcomings that hinder equal access:
- Exclusivity: Over one billion 390 million adults have no access to basic financial services because the developed financial infrastructure is missing, the costs of maintaining such accounts remain too high, or they cannot provide documents proving their identity.
- High Costs: Bridging transactions, loan requests, and other financial operations are carried out at a very high cost.
- Inefficiency: Longer transaction time as well as the need for one or more intermediaries leads to less efficient transaction.
- Lack of Transparency: Lack of transparency and customer control over the services’ provision diminish trust in financial companies.
In using the blockchain technology, such problems are greatly eliminated since the blockchain technology is a decentralised, transparent and inclusive technology.
How Blockchain Democratises Financial Services?
Financial Inclusion for the Unbanked
Blockchain does not require the services of traditional banking personalities as a third party. Highly complex and formal financial solutions can be provided via simple smartphone and internet connection to people in the specified areas. In DeFi, one is able to Fig:Save, Borrow and Invest without any requirements of being affiliated with a banking institution.
For example, Celo and Stellar are related to offering blockchain-based financial services for people who have no access to traditional banking; mobile payment services and savings.
Reduced Costs
Banking services as traditional financial services have various intermediaries, who all take their commissions. Such operations are well-processed by blockchain and the fourth has a benefit of lowering the cost way below what the other methods offer. Payments using bitcoin and ethereum are cheaper and faster than the cross border payments that have to go through the traditional payment processors.
Increased Transparency and Trust
Blockchain works in the capacity of an opened bookstore; it provides a record of every transaction ever made transparent and secure. This brings trust between the parties because every transaction can be audited.
Smart contracts—automated digital agreements embedded on blockchains add more transparency to the equation. They only commit the funds to sale, purchase or investment if there are certain conditions provided in advance, thereby minimising the need for extrinsic control.
Decentralised Lending and Borrowing
Currently, decentralised finance platforms are some of the most active players in the provision of lending and borrowing solutions. Hubble loans do not involved credit checks, collateral and do
not need an intermediary. These barriers are not an obstacle in blockchain based lending.
Applications including Aave and Compound enable users to get loans through an online application by offering crypto as security to credit seekers, who may be locked out of credit markets.
Tokenised Assets and Fractional Ownership
Most important, a blockchain system can provide a direct model to implement the scenario of tokenisation of physical goods, including real estate, paintings, and stocks. Tokenisation breaks an asset into portions, which are specific digital tokens that are sellable as fractionated shares of the original asset. This helps to lower entry barriers that were otherwise only within the reach of the wealthy elites, and hence enable every plain investor gain access.
For instance, RealT offers one to invest in tokenised real estates thus boasting the chances to penetrate the most profitable markets.
Real-World Impact
The democratisation of financial services through blockchain is already making a tangible difference:
- Improved Access to Capital: This means that through platforms such as Kiva or Bitbond, small business operating in the emerging economy can get funding through the blockchain.
- Empowered Communities: DAOs allow decentralised groups to collectively manage their funds.
- Global Remittances: Blockchain has thus a positive impact to the workers that use the money to send to their families back at home through quicker and cheap remittance systems.
Challenges Ahead
While blockchain’s potential is immense, challenges remain:
- Regulatory Uncertainty: Different rules and compliance requirements of various countries can slow down adoption and new products/ service developments.
- Technical Barriers: It also requires enhancements within the user interfaces and education to ensuring the blockchain is easily understandable by every user.
- Scalability: Original B2B blockchain networks get slow especially when many people use it and this can reduce its efficiency.
The Future Of Blockchain In Financial Services
It has been planned that as focused on blockchain and its application in extending banking services to the more and more people across the world, there will be further development in the future. Just like Layer 2 scaling solutions, stablecoins, and regulatory changes will solve existing problems to open up the next phases for adoption.
Never miss Blockchain News because it’s authentic and breaking news source for those who are passionate about blockchain updates. Whether it is a new groundbreaking project and even emerging trends the information that is given will assist individuals and businesses to exploit the true potential of this technology.
