• Jason McKee, Director at Nine Moons Ltd


• 10.07.2023 08:45 am
undisclosed

Blockchain technology emerged in 2008, even though it only rose to popularity when cryptocurrency became mainstream. 

As more people learned about Bitcoin, Ethereum, and other cryptocurrencies, they also discovered more about the technology behind these forms of payment.

While blockchain has continued to gain importance and relevance in the financial technology industry over the past 10 to 15 years, many experts believe it still has a long way to go.

Below is our analysis of the future of blockchain adoption in 2023 and beyond.

What is Blockchain?

Blockchain has an involvement if you cast your mind to any financial sector, such as the stock market, forex, or cryptocurrencies. Think of blockchain as the key to optimisation, especially as more services go digital. The banking industry constantly looks for ways to innovate to serve its customers better.

Blockchain adoption is significant within the banking and financial services industries and part of the FinTech industry. A distributed ledger that can record transactions cryptographically securely, blockchain allows for decentralisation without any negative security consequences.

The technology creates a network of nodes always connected over the internet. These nodes store copies of data that no one can change or delete. When a bank is trying to verify the authenticity of a user or a financial transaction, blockchain comes in handy.

Distributed ledger technology

The way that banks use blockchain is through distributed ledger technology or DLT. Such technology serves as the protocol for enabling secure decentralised digital database functionality. According to the consulting firm McKinsey, blockchain technology will eventually save the United States banking industry billions annually.

There are countless benefits to the blockchain concerning banking, including cost reduction, energy conservation, transparency, better user experiences, and fraud prevention. Institutions can process transactions faster, accurately track carbon emissions and environmental mandates for clients, and improve transparency by providing a real-time record of any transaction occurring within the organisation.

Blockchain use cases in finance

The recording and verifying transactions is the most common use of blockchain within the finance sector. Blockchain ensures that banks can automate many back-office operations, reducing manual errors and improving the customer experience.

Trading is also possible through the use of blockchain tech. Rather than having to complete tedious paperwork for every international trade, blockchain would ensure that all of an institution’s relevant documents can be stored in a secure digital vault for repeat use.

Experts believe that banks incorporating blockchain into international payment systems can save even more time and money. Blockchain payments can be completed within minutes rather than hours or days. Given these systems are widely used by global institutions, changing them takes a lot of time, which is delaying the adoption of blockchain technology at present.

Notable banks using blockchain

Even though blockchain technology is still relatively new in the minds of the mainstream population, the financial industry has been at the forefront of this advancement. Many sizeable institutions already incorporate blockchain into one or more operations.

Goldman Sachs, for instance, is committed to using blockchain for USDC, a form of digital currency. J.P. Morgan's Liink technology allows institutions to safely and rapidly exchange payment information. HSBC uses the blockchain technology of R3 for its Digital Vault, while UBS came out with its first digital bond publicly traded through blockchain-based exchanges.

Considering how valuable blockchain technology can be for the financial sector, such use cases are still on the fringes compared to what the future will bring. However, the signs are auspicious for blockchain adoption.

The adoption of blockchain tech in 2023

Even though banks and financial companies are fully aware of how blockchain technology can optimise their services, there is still hesitancy around its adoption.

Many financial firms rely on older systems and specific ways of handling certain processes. Incorporating blockchain into those systems is not easy because it can result in compatibility issues or steep learning curves for staff members unfamiliar with blockchain.

Another issue is scalability. While a bank may know how blockchain and DLT can help them save money on financial transactions, they need to figure out whether the tech is scalable to the extent that billions of transactions can pass through it daily.

Blockchain does have some way to go before it can reach its full potential in the financial sector. Banks, however, know they must adopt such tech to remain competitive, which is why every expert believes that blockchain is an integral part of the present and future of banking.