To sign up for our daily email newsletter, CLICK HERE
Blockchain is one of the most disruptive technologies today. It has the potential to transform industries as diverse as finance, supply chain management, and healthcare. The blockchain market is expected to reach a whopping $67.4 billion in 2026 from $4.9 billion in 2021 at an outstanding CAGR of 68.4%.
However, despite its immense potential for transformation and disruption, several challenges prevent blockchain from being adopted by many organizations in the financial sector. This post dives into those challenges and how a security-specific blockchain can accelerate adoption in the finance industry.
Challenges in Blockchain Adoption in the Finance Sector
As a security expert, you know that blockchain adoption in the finance sector faces several challenges. These include:
- Security. Blockchain is well-suited to process transactions and verify identities without relying on a centralized authority, but it’s not yet as secure as legacy systems. According to experts, security and privacy leakage are the biggest challenges facing blockchain adoption in the financial sector.
- Regulation. Banks must comply with numerous rules relating to money laundering and terrorist financing, so they must take extra precautions when adopting new technology like blockchain.
- Interoperability. The fragmented nature of blockchain networks creates interoperability issues between various blockchains that could hinder adoption across different industries.
How a Security-Specific Blockchain Can Accelerate Adoption
Blockchain is still in the early stages of adoption, and many financial institutions are hesitant to adopt it. They fear that blockchain can be hacked and the underlying information can be stolen.
Many blockchain platforms have already been targeted. One of the biggest crypto hacks to date is that on the Ronin Network that supports the popular Axie Infinity game. The hack was worth $625 million.
A security-specific blockchain can help solve the issue. A security-specific blockchain is a blockchain network designed and developed to store securely, process, and transmit sensitive information like credit card or financial data. It is based on the same principles as other blockchains but includes additional features that make it more secure than other blockchains.
The blockchain will work by distributing security tokens. These tokens can act as investment contracts for different assets, including equity, debt, real estate, etc. They can become more secure by putting the contracts on a decentralized blockchain ledger with a security-specific blockchain. One such blockchain network is the Polymesh network.
How Does Polymesh Work?
Polymesh is a security-specific blockchain and multi-chain solution that facilitates the creation of private networks for different use cases.
Polymesh is a permissioned blockchain and a public blockchain, which means that anyone can access it but only on some conditions. It’s been designed specifically for regulated assets to meet the needs of financial institutions and offer them an alternative to traditional distributed ledger technologies (DLTs).
The Polymesh network helps overcome financial institution challenges around governance, compliance, identity, settlements, and confidentiality. It works with the help of the underlying POLYX token.
Like every other blockchain network, even Polymesh has a local token that facilitates all the transactions on its network. This token is called the POLYX token, and it facilitates the creation and management of security tokens. It also enables the continuous running of the blockchain network with integrity through staking.
Advantages of Blockchain in the Finance Sector
The advantages of blockchain in the financial sector are numerous. In many ways, they can significantly impact the finance sector. The transparency of transactions and the low costs associated make this technology attractive to financial institutions. Here are some key advantages:
Reduced Transaction Costs
One of the most important benefits of a blockchain for financial institutions is reduced transaction costs. What does this mean? Well, it means that transactions processed through blockchains are cheaper than traditional methods of payment.
Here’s how this works, when you do business with someone who uses a traditional currency like the U.S dollar or euro, you have to pay fees when you make purchases and transfers.
For example, when you buy something online using your credit card or ATM card, it costs the merchant and bank to process those payments. In contrast, with cryptocurrencies like Bitcoin or Ethereum, no fees are associated with payments made on these networks because no one controls them.
With blockchain technology, there’s no need for third parties like banks since everything happens on-chain. This means lower costs for all parties involved: users don’t have to pay any fees when making their transactions, while merchants also benefit from having access to lower transaction costs since they won’t have to rely on third parties anymore!
Reduced Fraud
By providing a secure, immutable ledger of transactions and smart contracts for tracking the movement of physical assets through blockchain-based smart locks, blockchain technology can help reduce fraud. Fraud prevention is among the top benefits cited by top organizations, including the Blockchain Council.
Blockchain’s distributed ledger architecture makes it impossible for hackers to tamper with data because no single individual holds the keys to make changes. Each computer on a blockchain network keeps its copy of all transactions made on it. This means that if someone tries to alter their transaction records, everyone else will know immediately because they also have access to all transactions on their computers.
The transparency afforded by this level of security is precious in preventing fraud across industries. Now, imagine how effective it would be if every financial institution participating in your supply chain could see every transaction you made!
Increased Transparency
A blockchain is a ledger that records transactions. The data in each block is time-stamped and cannot be altered retroactively, so it’s transparent and traceable. This transparency can potentially increase trust between stakeholders in financial institutions because it allows them to see exactly where their money is going.
Blockchain technology could also make regulatory compliance easier for banks because it creates an auditable record of transactions for regulators to access. And because it makes transactions more visible on the network’s public ledger, blockchain systems may also give investors more insight into how their financial service providers treat them.
Smart Contracts
Smart contracts are computer programs that execute transactions without needing a third party. Smart contracts are executed on the blockchain, which means they’re public and verifiable by all parties involved in a transaction. They can be used to execute transactions and automate business processes.
Smart contracts have been used in finance since their inception, but they’ve become more common as blockchain technology has advanced and gained popularity. Smart contracts have been used extensively in securities trading over recent years, primarily through private blockchains or permissioned ledgers.
Conclusion
Blockchain technology has the potential to revolutionize financial services by reducing transaction costs and improving transparency. To realize this potential, however, it must be adopted by the industry. This will require security-specific solutions that address challenges such as data privacy concerns and transaction speed issues.
