HOW REGULATED USE OF BLOCKCHAIN CAN STEM CORRUPTION AND PROVIDE TRANSPARENCY

The revolutionary impact of blockchain technologies has one foot through the door of the fintech world. The benefits of cryptocurrencies may not have yet made a permanent impression in mainstream economics as opinions are still divided. But it is rather clear that cryptocurrencies are here to stay, and to ignore their potential means risking technological and financial disadvantages for your business. Moreover, a fusion of crypto and traditional financial systems that brings about the best of both worlds is not only possible – it is already happening.

 

DEFICIENCIES OF THE TRADITIONAL FINANCIAL SYSTEM

It is no wonder that some institutions resent the emerging technological change. The disruption that blockchain is creating will severely limit financial misbehaviour that is possible in global finance today. The current financial system is a complex non-transparent system where major players have access to privileged information and can leverage this information asymmetrically against other players.

In the last decade, big banks engaged in almost every financial machination imaginable. The latest Danske Bank money laundering scandal stands out because of the staggering scale of fraud. Other recent corrupt behaviour by big players includes charging customers for non-existent services, LIBOR fixing, Forex market manipulation, discrimination, fake loans, accounting fraud and overcharging.

The stereotypical view presented by mainstream media portrays crypto as a “Wild West” of unregulated transactions. But one should also be aware that the traditional financial system is also fraught with illegal and unethical activities despite the presence of regulatory bodies. The centralized nature of these systems enables only a few actors to exert control over massive amounts of capital. Blockchain brings decentralization to the table which is a game-changer in the way business will be operated.

 

WHY THE JOINING OF BLOCKCHAIN AND TRADITIONAL FINANCE BENEFITS US:

Money laundering prevention. The traceability of crypto transactions combined with stringent Know Your Customer (KYC) processes applied at the entry points of the system immensely simplifies the search for a given set of funds’ origin. This significantly shortens the current process that could take up to several months in the traditional system.

Prevention of illegal fund appropriation. Digitalization is an intense global process of modernizing government bureaucracies and business models. Blockchain goes a step further and introduces a decentralised ledger into the system. This ledger does not exist in one place, but exists as a complete copy on every node in the network.  Every user participating in this peer-to-peer system can verify the authenticity of transactions and a network-wide consensus is achieved. This system ensures that no central agent can manipulate cryptocurrencies, which makes them fraud-resistant.

Identity theft prevention. Unlike in the traditional credit/debit card payment systems, no personal information is sent with transactions. Users send only the required amount of funds to the designated address.

Fully automated processes. Smart contracts built on the blockchain platform release funds automatically when pre-set conditions are met. The full automation of the transactional process eliminates the need for any middle men, which further decreases the opportunity for manipulation. Wide adoption of cryptocurrencies by different industries would cut out many lengthy processes, such as contract signings and bureaucratic delays regarding authorization of lawyers, notaries and clerks.

The impossibility of transaction reversal.  Credit cards allow users to reverse transactions, which can open room for theft and fraud. The immutability of the chain of blocks containing transactions makes a reversal of a transaction by a sender impossible.

Cheaper and faster transactions. The minuscule cost of blockchain transactions ensures a more efficient allocation of funds and saves time. Cryptocurrencies do experience congestions at this stage, but nowhere near the seven days it can take to process an international transaction in the banking system.

The benefit of joining the game early. Blockchain technology is still in its infancy and is going through the ups and downs of a growing industry while progressing technologically. A solid legal framework for crypto trading coupled with the strongest safety measures of the traditional finance provides the opportunity for this generation and the next to benefit from a technological revolution.

 

CONCLUSION

It may be too early to speak of a paradigm shift in finance, but the foundation that is being laid cannot be ignored. No serious market participant can ignore an emerging technology that simplifies the entire system. Blockchain provides optimism of a rejuvenated economy where centralised manipulation of data is no longer possible. Public accessibility and transparency are the two main features of the future financial system to look forward to.

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David Prezelj
David Prezelj

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