Why blockchain is a godsend for financial services
Blockchain is set to change everything. An issue keeping CEOs worldwide awake at night is security, as the rise of digital technologies and e-commerce has opened up businesses to security threats, such as hackers. But, blockchain technology could provide the likes of CEOs and fund managers with peace of mind.
Our sector is a favourite target for cyber-criminals, due to the large sums of money we handle daily. Just look back to last year when firms such as Tesco Bank were subject to significant security breaches. As I discussed when making my fintech predictions for 2017, security is only set to become a bigger issue this year, as people increasingly choose to make their investments online.
Cyber-breaches hold serious consequences. Investors place considerable trust in investment houses, so any breach or data leak can make it harder for them generate business. A well-placed cyber-attack can also cost thousands to clean up – the business costs associated with cyber-crime vaulted up to a phenomenal US$280 billion in 2016, so even one hack can prove potentially fatal for businesses.
CEOs and indeed fund managers like The Blackmore Group are devoting considerable time and money to fighting cyber-crime, but this can be hard, because criminals are staying one step ahead. They’re developing ever-more sophisticated ways to hack data, such as ‘data manipulation,’ where criminals subtly tweak information, such as changing a single digit in a bank account number, to commit fraud that will fly under the radar, so we need to get one step further ahead.
One technology cultivated to stop attacks such as data manipulation is blockchain – a ledger that records information digitally. The beauty of blockchain is that it isn’t stored in one place – it’s distributed across hundreds, even thousands, of computers worldwide. This means that someone has to get a copy of the database from every computer in the system, making it extremely hard to hack, and allowing businesses to keep their data very secure.
In blockchain we trust
Blockchain is so revolutionary, because it promotes trust. In a poll conducted by Accenture, a management consulting firm, 83% of executives said that trust is the cornerstone of the digital economy, as people need to be confident their money and investments will be handled safely. Due to its decentralised nature, blockchain enables trust, giving investors the peace of mind to execute transactions online, boosting business and allowing firms to devote less time and money to stopping cyber-criminals.
Blockchain has gained the most traction in the global financial services sector, and it’s easy to see why. A report from management consulting firm McKinsey states blockchain could save the global industry US$110 billion in costs in the next three years. The cross-border B2B segment of financial services stands to benefit most, as it’s possible to execute an international transaction completely securely via blockchain, because it removes the need for third parties to approve transactions.
The potential for blockchain is far reaching, as it is increasingly being used to boost security for other technologies businesses use every day. One interesting area is blockchain cloud storage. Businesses have really benefited from cloud-storage, as it allows them to access data anywhere, but existing services are centralised, making them easy prey for hackers. Start-ups such as the US-based Storj are currently creating blockchain-powered networks which would provide firms with decentralised cloud storage, promoting the convenience of the cloud with none of the drawbacks.
It’s clear that blockchain has the potential to become a general use technology, in the same way as electricity or the internet. We are seeing start-ups do everything from using blockchain to create decentralised exchanges, cutting out the need for intermediaries such as a brokers to verify deals, as the network acts as a validator, to employing it to develop ‘smart contracts,’ where the parties involved can programme a set of conditions into blockchain that must be met before any funds can be released. Estimates suggest that 10% of global gross domestic product will be stored on blockchain platforms by 2027, so it’ll soon become the world’s security blanket.
Godsend for businesses
Blockchain is destined to be a godsend for financial services, because it’ll secure company systems against cyber-criminals, promoting investor and consumer trust and opening up lucrative new revenue streams. We’re only just beginning to see what this revolutionary, but young technology can do, and it’s likely it’ll be developed further in time, constantly giving businesses new ways to streamline costs and head off cyber-attacks at the pass as they grow more sophisticated. So, who knows just how useful it could prove to businesses in the long-run.