28 July 2022
In recent years blockchain has been revolutionizing every type of business you can imagine, but none so much as the financial sector. From the get-go we had bitcoins entry into the financial world, changing forever what money is. But blockchain integration in finance now goes much further than just a new form of money. In this introduction, we will look at the world of Defi (decentralized finance) and how blockchain can be used as a replacement method for launching a business on the stock market (IPO) as a way of funding the expansion of a business.
Sort for decentralized finance, defi is blockchain-based technology that allows customers to access financial products directly, without the need for the old-style middlemen like brokers, banks, and insurance companies. Imagine completely removing the need for humans to price, process, credit check, and pay out a financial instrument, then you are starting to see what Defi can do. Removing the cost of vast offices filled with computer operators and all the support services and infrastructure that is needed to run those offices, all that cost is no longer needed, it is replaced by automated computer code. Also, the time it takes for manual processing is reduced to milliseconds and the correction of human errors is no longer needed. Credit and identity checking also does not need to be done by humans, it is done on a transactional level by the technology itself. Blockchain integration in financial transactions can also be applied across international borders, providing local laws allow it, the location of the customer no longer matters. All this automation has dramatic effects on the speed and cost of the transaction to the point where defi products are making traditional financial products increasingly look like dinosaurs.
Some of the current Defi use cases include:
Defi allows an individual borrower to effectively crowd sauce their loan, peer-to-peer with no broker in between them. And lenders can add crypto to a pool of funds that is automatically issued to a borrower who, in most cases, is securing the loan with other crypto assets.
Users can buy a smart contract insurance policy that is automatically paid out in crypto to the policyholder if certain criteria are met. Once again, once the user has bought the policy there is no further human interaction needed with blockchain integration in finance.
Giving access to financial products to previously unbanked populations, a digital ID allows individuals to transact online and for providers to trust who they are dealing with even when they are on the other side of the world. Digital ID smart contacts can contain a government ID number and also electronic forms of other documents like driving license, passport, medical records, and so on, so this makes trusted and automated online identity checking very reliable.
Blockchain integration in finance provides unprecedented levels of data about customers and market trends like we have never had before. It is possible to build into the systems not only data analyses but financial protection and automation that was never possible when humans were involved in the data processing.
Creating distributed financial instruments and products that are totally autonomous without the central authority of banks, brokers, and insurance companies must be a good thing. Provided we ensure that we keep the transactional algorithms open so that it is clear to everyone involved how decisions are being made.
‘Know your transaction’ is the defi solution to KYC (Know your customer) regulations that have been put in place to combat money laundering and for counter-terrorism purposes. KYT is a lower-level method of identifying everyone involved in a transaction rather than the higher-level KYC method.
Blockchain integration in finance makes the end-user the bank, provided they hold their own private keys. This comes with great advantages for the consumer in terms of cost and capabilities. But also, it comes with great responsibility, the consumer is now responsible for not losing their keys, which no one can recover, and they are also responsible for their own cybersecurity. There is of course a balance between these where an exchange can step in to manage user keys and security and that may be a sensible compromise for the less tech-savvy consumer.
You may also want to consider using blockchain to fund the expansion of your business, in the past, this could have been done through private or institutional finance or an IPO (Initial public offering) floating on the stock market. However, this can now be done at a much lower cost with an ICO (initial coin offering). That is to create your own coin or token and release it to the public to raise capital. This is a form of crowdfunding made possible by the new breed of digital assets. This is just another way that you can benefit from blockchain integration in finance
If you are thinking about integrating blockchain into your business or any form of blockchain integration in finance, you will need to find a trusted partner that can evaluate your business processes and identify how blockchain can be integrated. NextHash is that partner. Our highly experienced development team has already built many of the systems that are required to Implement the integration into your business processes. We can revolutionize your business by helping you automate many of the highly labor-intensive processes, making them faster, cheaper, more accurate, and fully automated so they run without human intervention 24/7. Why would you implement blockchain integration in finance in your industry? The answer is simple, you don’t, someone else will.
NextHash’s expert development team can do the analyses, design a solution, and implement a blockchain integration in finance while your business operates as it always has done, then you can phase in the new system without a break in service.
Contact NextHash today to arrange an initial free consultation.