7 June, 2022

Why blockchain is the future of finance and how it affects the global economy

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Recent world events have brought to light just how pervasive blockchain technology and crypto are becoming. Blockchain technology is being developed and deployed to serve many use cases, from monitoring cattle from space to running transport in smart citi

Recent world events have brought to light just how pervasive blockchain technology and crypto are becoming. A case in point: after Russia was hit with sanctions, the shift to decentralized currencies within Russia was hard to ignore.  

Blockchain technology is being developed and deployed to serve many use cases, from monitoring cattle from space to running transport in smart cities.  

While we don’t know how quickly the finance world will fully embrace blockchain technology, it’s clear that it’s here to stay. It is predicted that, by 2027, blockchains could house up to 10 percent of the global GDP. 


Why Blockchain 

Blockchain technology is rapidly entering a new stage of evolution where financial goods can be managed more transparently than ever. 

Blocks in a blockchain are difficult or even impossible to hack once recorded. Every block within the chain shows how many transactions occurred and each time this happens, the recorded transaction session is added to a participant's ledger. 

This enables the system to solve trust issues and provides transparency, immutability and security.  

Blockchain technology is exciting because it's changing the way people interact with each other. It's opening new doors and is available to every human being. Blockchain technology is disrupting almost every industry but traditional finance is set to feel the impact of this technology the most. 

This is because blockchain minimizes the need for traditional centralized infrastructure. It serves as an authentication instrument that doesn't have its centre of power in only one institution. 

However, since blockchain development is constantly accelerating, the regulatory environment still hasn't caught up and the potential policies affecting blockchain can be, therefore, seen as a stubborn barrier to implementing this technology in traditional finance. 


Why the finance industry is ripe for disruption

The global finance industry deals with trillions of dollars every day while servicing billions of users. However, problems with bureaucracy, high costs, frequent fraud and constant delays are endemic 

Third parties such as payment networks, stock exchanges, and money transfer services deal with a crime on a daily basis and the regulatory coststherefore rise as the end-user ultimately bears the burden. 

In the digital age, these old-fashioned, segregated, centralized, paper-based processes are no longer sustainable. That's why blockchain, the technology behind Bitcoin,was invented, to create efficiencies where there currently are none.  

Right now, there are more than 16,000 cryptocurrencies of which Bitcoin is the largest by market capitalization. The second largest in market capitalization is Ether, which operates on the Ethereumblockchain 

It is estimated that the total value of cryptocurrencies stands at approximately $2 trillion. Around 300 million people, or 4% of the world's population, are currently using cryptocurrencies in some form. 

But how did it all start and what really happened that big players such as Visa, Mastercard, JPMorgan, Ernst and Young and Deloitte decided to implement blockchain in their businesses? 


Current Finance Industry Blockchain Trends 

Firstly, the world economy has been pretty turbulent these past three years thanks to Covid 19, and the ripple effect on unemployment and inflation. These factors contributed towards global recession.  

Usually, duringan economic crisis there is a safe haven for governments and people to invest in. Before blockchain technology, people turned to gold or real estate when inflation hit its peak.  

However, nowadays, even the most bullish economies choose some crypto variations, not just because they can be used in times of geopolitical crisis but also because company CFOs have started to see them as cheaper and faster options. 

Blockchain technology also enables financial institutions to increase transaction processing speed and reach new global customers. It is estimated that by 2024, around 20% of large enterprises will use crypto for some sort of payment. However, 84% of surveyed finance executives are still suspicious saying holding Bitcoin poses a financial risk.  

Accepting cryptocurrencies will definitely represent a challenge for CFOs as they manage this disruption to current financial networks and business models. Also, cryptocurrencies and decentralized finance (Defi) in general, could be viewed as attractive hedges against inflation.  

Imagine if the US Government boosted the pandemic-weary economy with cryptocurrencies over the past two years. Instead, the US Federal Government and Congress started approving trillions on stimulus and relief, and the Federal Reserveincreased supply to pay for that debt. 

Some reports showed that COVID resulted in the US printing more money in that short period than they had during the last 200 years. 

The total stimulus was set to $5 trillionfrom the start of the pandemic. To understand how big that is, the stimulus packagethe UScreatedin response to the 2009 recession hovered around $787 billion—or $975 billion in 2021 dollars.  

Meanwhile, only two days after the Senate approved the stimulus package, Chinese app creator Meitu and Norwegian multinational Aker ASA confirmed adding Bitcoin to their balance sheets, joining US firms such as MicroStrategy and Square.  

Then, governments all over the globe started opening up to blockchain and crypto.  

As of right now, around 90 countriesare considering the possible implementation of so-called Central Bank Digital Currencies, or CBDCs, into their own financial systems.  

The first to start this process was China with its 'digital yuan'. The country decided to assign over $5 billion of digital yuan to its citizens as of June 2021. On the other hand, India's government is trying to figure out how to tax cryptocurrencies as its central bank develops its own CBDC. 


How can blockchain change things? 

Blockchain technology is important for companies since its adoption guarantees revenue growth, lower costs and more efficiency. For example, the fashion conglomerate LVMH decided to fight fake goods by tracking them through a blockchain. 

In the law sector, blockchaintechnology can be used to create smart contracts for legal processes. It also can be used to approve and validatesome courtroom evidence and improve efficiency in the criminal justice system. 

In the real-estate sector, blockchaintechnology can empower the tracking and buying of real estate through digital real estate tokens. 

Furthermore, it can change how goods are tracked and accounted for across a supply chain thanks to provenance tracing which records a product’s entire lifecycle, from production to point-of-sale.


How Unido is playing a part in shaping the future of finance?

It’s an exciting time to be a pioneer in the global blockchain-based finance industry. At Unido, we’re looking forward to fairer, faster and more transparent economies and safer transaction environments for small and medium enterprises and institutions. It’s only a matter of years not decades, before blockchain-based finance systems will be the norm rather than the exception.  

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