Implementation of blockchain technologies into global financial transactions: positive and negative consequences

Advantages

Characteristics

Fraud prevention

Blockchain technologies use cryptographic algorithms to process and store blocks of transactions. Financial institutions may find the use of this cryptography less risky when processing transactions. Companies spend a lot of time on contracts as they are a key component of finance. Self-executing contracts can significantly increase the efficiency of this procedure.

Maintaining privacy and confidentiality

There are trillions of banking records in the global financial sector, from personal account information to stock market transaction registers listing stock purchases. Blockchain digital ledgers can be used to record the majority of these transactions because they are immutable and fraud-proof.

Advantages

Characteristics

Guarantee of transparency and security

Blockchain technology enables automation, reducing the cost, complexity and time required for transactions. Smart contracts can record when a buyer has made a payment and take care of any issues that may arise during transaction. Automated systems run continuously and reduce human error. Blockchain can offer a change to traditional banking services by leveraging digital identification and mobile devices.

Increase in the efficiency of money transfers

Blockchain allows people to transfer and receive money without the need for multiple third-party intermediaries. Blockchain will support transparency, guaranteeing the integrity and morality of those who provide financial services. Any shady transaction is easy to spot. Audit procedures will be faster because all information will be available.

International payments

Blockchain-based money transfers allow users to send and receive money electronically using their mobile devices, eliminating the need to travel to a money transfer location, wait in line, and pay transaction fees.

High transaction speed

Blockchain payments minimize or completely eliminate fees by speeding up the transfer process. With blockchain payments, companies can be sure that a transaction will be completed in seconds or minutes. Blockchain allows you to get rid of financial intermediaries, reduce costs and optimize multiple operations.

Simplified audit process

Immutable records in the blockchain allow auditors to verify compliance, ensuring full transparency of a financial organization's actions. Blockchain can help to maintain transparency by ensuring that financial transactions are conducted with integrity and high moral behavior. Blockchain offers instant access to all financial data, reducing the time required for audit procedures.

Ability to create and sell financial services

The distributed ledger allows for the storage of customer data and speeds up service delivery. Blockchain allows transactions to take place within a closed ecosystem that uses cryptocurrency for settlement, unlike traditional value exchange systems where two or more parties must agree on a value and other economic considerations to complete a transaction.

Identity management

The use of passwords and usernames for online accounts, which are becoming increasingly vulnerable, is expected to be replaced by the blockchain-based identifiers in the near future. People will be able to sign digital documents and perform other simple actions, such as logging into websites and applications, using their blockchain accounts.

Strengthening capital markets

Blockchain has the potential to facilitate cross-border procedures and trade finance transactions. It makes it easier for companies to transact with each other across regional or geographical boundaries. Because everyone involved in a blockchain transaction must agree on the transaction before it can be completed, and anyone can check the updated ledger after the transaction, blockchain payments are also incredibly

Advantages

Characteristics

secure. Companies operating in global capital markets request financial and credit information before investing to ensure the safety of their funds. The process of maintaining an investment ledger and verifying accounts will become easier because of cryptocurrencies.

Facilitating international trade

By replicating the entire trading process on the blockchain, this technology has the potential to increase trade security, efficiency and transparency. As a result, procedures are quickly automated and human errors are eliminated, which helps to increase trust through open transparency. Thanks to open distributed ledger technology, transactions between two parties can be efficiently and continuously recorded.

Knowledge sharing and collaboration

Blockchain is revolutionizing financial and accounting transactions in the same way that the Internet revolutionized knowledge sharing and collaboration and has begun to attract the attention of finance and accounting professionals. Eliminating the need to manage accounting transactions between businesses and related stakeholders, such as banks, blockchain and distributed ledgers may one day be the way to unify the record keeping of the commercial world.

Integrated digital asset management

A distributed ledger introduces comprehensive management of digital assets in a reliable, automated and predictable way, with traceability. Blockchain technology can make it possible to process foreign payments quickly, securely and affordably using encrypted distributed ledgers that guarantee reliable verification of transactions in real time without the need for intermediaries such as correspondent banks and clearinghouses.

Disadvantages

Characteristics

Scalability limitations

Modern blockchain networks, especially those based on the Proof-of-Work (PoW) consensus mechanism, struggle to efficiently process a large volume of transactions. This results in slow transaction processing and high transaction fees, making it difficult to meet the needs of the globalized financial system.

Problems with energy consumption

The energy consumption of blockchain technology is a significant concern due to its reliance on computational consensus mechanisms, especially PoW. The energy required to validate transactions and maintain network integrity can be significant, leading to environmental and sustainability concerns. As the global blockchain is widely adopted in the financial sector, there is a pressing need to research and find energy-efficient consensus mechanisms and adopt sustainable practices to reduce the environmental impact.

Disadvantages

Characteristics

Regulatory uncertainty

The regulatory environment surrounding blockchain technology remains uncertain, creating a barrier to its widespread adoption in the context of global financial transactions. Financial institutions are in no hurry to fully adopt blockchain due to the lack of clear regulations and potential legal risks. Governments and regulators are still trying to understand the implications of blockchain technology, and it is essential to establish a robust regulatory framework to address fraud, money laundering and consumer protection issues.

Potential for abuse and complexity of implementation

The anonymity and pseudonymity provided by blockchain networks can facilitate illegal activities such as money laundering, terrorist financing, the development of illegal activities and tax evasion. Financial institutions should implement robust risk management strategies and cooperate with law enforcement to address the potential for misuse of distributed ledger technology.