In recent years, blockchain technology has emerged as a transformative force, posed to reshape numerous industries. Initially associated primarily with crypto assets like Non-Fungible Tokens (NFTs) and digital currencies, blockchain's adaptability has captured the attention of major global corporations. Industry leaders like Unilever and Singapore Airlines have recognised its potential and are exploring its applications. Beyond its origins in cryptocurrencies, blockchain is set to bring about substantial changes and advancements to sectors far beyond, with its promise of enhanced transparency, security, and efficiency.
At the recent launch of SMU Academy and CFTE’s Blockchain & Digital Assets for Financial Services, Mr Nam Sin Ng, CEO of the Institute of Banking and Finance, emphasised the transformative potential of blockchain technology in the financial sector. He stated that blockchain is poised to create thousands of new job opportunities annually, reflecting the global trend towards blockchain adoption. This shift has already been embraced by industry giants like HSBC, Barclays, and Visa. These organisations have recognised the power of blockchain to revolutionise the industry by significantly reducing infrastructure costs. This highlights a growing demand for professionals with blockchain skills and underscores the importance of adaptable, problem-solving talent. Mr Nam emphasised that internal training programmes can be a cost-effective solution to meet this demand, providing a skilled workforce without the need for expensive external hires.
The emergence of blockchain in the financial world can be attributed to two significant factors. Firstly, there was a surge of institutional interest in digital currencies during the bull market of 2021. This enthusiasm extended far beyond crypto enthusiasts and garnered the attention of governments worldwide. For example, a recent Reuters report highlighted that nearly half of the surveyed governments are in advanced stages of development regarding digital currencies. In light of this global shift, banks must adapt to the blockchain revolution, which has become intertwined with the rise of digital currencies. Professional courses can equip financial professionals with the knowledge and skills needed to navigate and shape this evolving landscape.
Secondly, the worldwide emphasis on digitalisation in the financial sector played a crucial role in blockchain’s significance. This trend culminated in the ascent of Fintech, where blockchain, as an emerging technology, presented an enticing and practical solution for forward-thinking banks like DBS aiming to maintain an innovative edge. Consequently, professionals are increasingly keen on contributing to this revolution by acquiring related skills, such as learning about blockchain products like Decentralised Finance (DeFi) or analytics. Blockchain’s potential to enhance security, transparency, and efficiency aligns well with the broader digitalisation efforts in the financial industry, making it a valuable asset for those looking to stay competitive.
What Benefits Can Blockchain Bring to the Table?
Transparency and Security
At the heart of blockchain technology lies its defining feature: decentralisation, which brings forth unprecendented levels of transparency and security. Unlike traditional financial systems that depend on centralised authorities and intermediaries to oversee transactions, blockchain, particularly in decentralised finance (DeFi), operates through a unique process.
Transactions are grouped into blocks, once added, they undergo verification by other network participants. This verification process is crucial, as it establishes an immutable chain, with each new block building upon the previous one. This fundamental process forms the bedrock of blockchain security, ensuring that once data is recorded, it cannot be altered or tampered with.
Reduced Costs and Enhanced Efficiency
Blockchain technology holds substantial potential for cost reduction within the financial industry. Traditional financial processes often involve intermediaries, such as banks and clearinghouses, which not only introduce delays but also incur significant expenses in transactions. Blockchain technology disrupts this paradigm by eliminating intermediaries, resulting in faster and more cost-effective transactions.
One of the key enablers of this cost reduction is smart contracts. Smart contracts are self-executing agreements with predefined terms embedded into code. They automate various aspects of financial transactions, including verification and execution of agreements. Smart contracts are highly versatile and can be customised to suit different business functions. For example, in trade settlements, smart contracts can automatically transfer assets as soon as predefined conditions are satisfied. This automation reduces the need for intermediary checks or approvals, ensuring secure and rapid settlement. Additionally, the reduced reliance on intermediaries translates to lower maintenance and manpower costs, freeing up valuable resources.
According to Santander FinTech, blockchain technology can reduce financial infrastructure costs by up to US$20 billion by 2022. This statistic underscores the transformative impact of blockchain on the financial industry, highlighting its potential to drive efficiency, reduce expenses, and enhance security.
Asset Tokenisation
Tokenisation is a transformative process that converts ownership and asset rights into digital tokens, paving the way for innovative methods of asset storage and distribution. Non-Fungible Tokens (NFTs) serve as a prime example of this concept, as they certify ownership of digital art and other unique digital assets.
But tokenisation’s scope extends far beyond digital art. It can also represent physical assets like real estate or stocks, in digital token form. This digital representation streamlines asset trading, division, and transfer, offering several advantages. One notable benefit is the enhancement of liquidity and market accessibility for investors. For instance, consider the possibility of breaking down real estate into smaller fractions represented by digital tokens. This innovation makes it possible for individuals with limited capital to invest in high-value assets, fostering inclusivity in the investment landscape. This democratisation of investment opportunities not only benefits individuals but also opens up valuable new avenues for financial businesses to explore, leading to a more accessible and dynamic financial ecosystem.
Financial Democracy
Blockchain technology holds immense promise in advancing financial inclusion, particularly for the millions of underserved and unbanked individuals worldwide. It has the capacity to bridge this gap by facilitating peer-to-peer transactions, thus granting individuals entry into financial services, provided they have a digital device like a smartphone and an internet connection.
Countries like El Salvador have already taken a bold step by embracing Bitcoin as legal tender, allowing for nationally-accepted payments through blockchain technology. This empowerment extends to individuals in developing countries, enabling them to participate in the global economy and access vital financial services, including savings, payments, and remittances. These innovations go a long way fostering economic growth and stability, particularly among populations that were previously excluded from the formal financial system.
Regulatory Compliance and Auditing
While blockchain technology has faced criticism for its potential misuse in illicit activities, it is important to put these concerns in perspective. Instances of blockchain being used for criminal financial activities constitute only a tiny fraction of the world’s overall financial crimes. Furthermore, the majority of wrongdoers who have attempted to exploit blockchain for illegal purposes have been identified and apprehended, underscoring the technology’s transparency and traceability.
One of the key strengths of blockchain lies in its ability to provide time-stamped and immutable transactions, creating a transparent audit trail that regulators can access in real-time. This heightened transparency significantly improves regulators' ability to monitor and enforce compliance within the financial system.
Integration with Fintech
Fintech and blockchain are a natural match, with their symbiotic relationship promising to reshape the financial landscape. When integrated, they offer the accessibility and accuracy of the latest technologies, creating a dynamic synergy.
Several fintech solutions built on blockchain technology have already emerged, with DeFi leading the way. DeFi platforms act as crypto exchanges, enabling efficient lending, borrowing, and trading on a blockchain without the need for financial intermediaries. This not only reduces transaction costs but also enhances accessibility for a global audience.
Beyond DeFi, blockchain can bolster the security and privacy of existing Fintech applications. Its decentralised model safeguards sensitive financial information and reduces the risk of data breaches, providing users with greater confidence in digital financial services. At SMU Academy, programmes like ‘Future of FinTech, DeFi and Token Economics’ are exploring the intersection of fintech and blockchain, offering insights into the evolving landscape of financial technology.
Blockchain technology is not just a passing trend; it is poised to become a pivotal force in the world of finance. Its attributes, including transparency, security, and efficiency, not only address contemporary challenges in the financial sector but also unlock exciting avenues for innovation. The future of finance is envisioned as decentralised, streamlined, and accessible to all, with blockchain technology leading the charge in this transformative evolution.
Don’t be left out of this financial future. Learn more about blockchain finance and more with SMU Academy.
