Plagued with rigid internal processes and an intolerance to change, the traditional world of banking and finance is welcoming blockchain technologies. Smart contracts are transforming financial institutions by reducing bureaucracy, overheads and processing times.
By Diego Gutierrez Zaldivar, CEO, IOV Labs
The central idea of banking — the storage and transfer of money and value — is simple, but the scale of the international banking system is staggering and its sophistication and complexity are beyond the understanding of a single person. Blockchain technology, which creates and distributes immutable records, may be one way that banks and other large financial institutions can make their businesses safer, faster, and more secure in the years ahead.
Better, faster, stronger—smart contracts are the answer
While we think of banks as places to hold money and other assets, we could just as easily define them as institutions that move money between independent parties. This was difficult enough in the days when paper bills and metal coins were the accustomed means of exchange, but today, when most value transfer is electronic, a whole new set of problems have arisen.
Information may move at light speed, but it still takes hours or even two days for wire transfers to “close.” And should you choose to transact on a weekend, everything will, of course, wait until Monday.
Today’s blockchain systems allow users to implement “smart contracts” that automatically execute when a given condition is met. The code is transparent and, because it’s on the blockchain, cannot be upended, hacked, manipulated, or abused.
Once tied into a coded smart contract, no has control over its performance. The neutral code, which all parties have agreed to beforehand, functions as the contract’s executor. As smart contracts are implemented, transactions will begin and end more quickly, fewer intractable disputes will arise between contracted parties, and businesses will be able to spend less on backend processes.
Is an error-free financial future on the horizon?
In the current financial system, a firm may have talented and scrupulous accountants, transparent systems, and a whole suite of checks and balances, but none of these virtues will obviate the need for audits. Because it’s so easy to make mistakes, and because modern financial and accountancy systems are so complicated, audits are an accepted, if painful, fact of life.
While they don’t eliminate the need for auditing and checking, smart contracts hold the potential to make these necessary processes less time- and resource-intensive. Because the code, once established, cannot be manipulated, the opportunities for honest mistakes and devious cheats alike evaporate. The self-executing code, audited and agreed to by all parties in the transaction, removes the means and opportunity for dishonesty.
The Asia-Pacific is leading the charge
South Korea and Japan have emerged as major centres for cryptocurrency trading. Cryptocurrency mine installations are also all over China and blockchain developers and enthusiasts are flocking to fintech hubs like Singapore. The Asia Pacific is abundant with the necessary talent and enthusiasm for blockchain technology.
In the past few decades, this corner of the world has led the way in telecommunications, smartphone adoption, and mobile payments. Given this history of innovation and considering the preexisting market for blockchain products in the Asia-Pacific region, there’s good reason to expect significant blockchain development, and implementation, in the area.
Blockchain is in its infancy but is growing up fast
Blockchain’s story is just beginning, but early indicators suggest that it will move quickly. In the single decade of blockchain’s existence, it’s developed from a listserv thought experiment to a clever proof-of-concept to the basis for a multibillion-dollar industry.
Though our modern digital society allows ideas to spread far more quickly than they once could, it’s worth remembering that it took centuries for double-entry bookkeeping, the foundation of accounting for the past 500 years, to become standard. Blockchain is moving fast already; tomorrow, it will help financial institutions, small businesses, and individual customers alike exchange value more quickly the world over.
About IOV Labs
IOV Labs operates as a purpose-driven organization focused on promoting and developing blockchain-based infrastructure that will enable worldwide financial inclusion and adoption at scale.