What Will Blockchain Technology Change?

In these days of rapid change, the banking sector has to create quite fast and innovative solutions in order not to fall behind this change. Even though catching up with this change and transformation is difficult, each novelty brings along its own facilities and opportunities. 

Today, we define the new generation economy as the new technology, and the questions such as what this technology is, where and how it is used, what kind of solutions it offers for problems related to speed, cost, and profit, both arouse our interest and urge us to find their answers out. For this reason, we should prepare ourselves for this "Novelty" by sharing the information while we continue learning about these matters.

One of these novelties we have mentioned is the "Blockchain" technology

We can briefly define Blockchain as a database that relies on encryption. This means that the products to be associated with this technology will be programmed on this database, relying on encryption. For instance, cryptocurrencies are products that are programmed on this database. In this respect, Bitcoin or Etherium is also one of these products. In addition, all things with value such as contracts, title deeds, or even intellectual property rights can be stored in this database and their transfer can be performed in an instant. Each of these transactions performed is recorded in the information blocks through encryption and authentication. These blocks are integrated to each other. After all, the "block" part in the name of Blockchain also comes from this phenomenon. This technology has a broad scope of usage from supply chain transactions to many different sectors such as public and healthcare sectors and the business lines under these sectors. 

One of the most significant innovations in the finance world is that the transactions rely on a decentralized/distributed data system

Since the field, we are concerned with is the banking and money systems, we wish to discuss the relationship of this technology with the finance sector.

We can tell that one of the most significant novelties in the finance world brought by Blockchain technology is that the transactions rely on decentralized/distributed data systems. This feature of Blockchain makes the control by a single authority difficult and removes the need for reliability from the monopoly of the intermediary and directs it to the system. Thus, when the necessary conditions for the orders are created, the transaction gets realized without the need for an additional procedure. In addition, each transaction gets recorded and presented in a transparent way. Briefly, a transparent system is provided through these contracts that we call "Smart Contracts", which allows the transactions to be performed in a way that involves no intermediaries, is comprehensive in terms of accessibility, and where the personal information is concealed while the market information is accessible to everyone. 

Blockchain-based transactions are 388 times faster and 127 times cheaper than traditional remittances

The system is used by many actors in the market. Besides, both the transactions and the operational processes have been affected by this change. We can tell that the remittances were the first transactions to get affected in this regard. In fact, when we look at this issue by taking our country into account, even though Blockchain is not preferred for now due to the costs of EFT being lower compared to the past years, its time limit getting removed, and even becoming free, Blockchain can also be preferred now since it is still much faster and cheaper than the transactions within the existing SWIFT system. However, when compared with the traditional remittances, we see that Blockchain-based transactions are 388 times faster and 127 times cheaper than traditional remittances. Considering the fact that the global remittances market has reached a volume of $700 billion as of 2019 and the projection that this market will grow to a volume of $1,035 trillion by 2022, we can tell that we are on the verge of a significant change. Hence, this potential has paved the way for the establishment of 39 Blockchain-based transfer companies between the years 2010 and 2018.

Payment via cryptocurrency, another area that will experience changes, is not that popular yet, however, it will surely become popular in the next wave through the increase in Blockchain-based technologies, their spread to many areas of finance, and becoming available for the use of the masses. In fact, El Salvador has already accepted Bitcoin as a legal tender. However, since the payment transaction is performed via credit card in the countries where the credit card is used widely, payment via cryptocurrency is preferred mostly by those who do not have 

access to banking systems, do not want to be involved in the banking system for any reason, or who are willing to experience the things offered by the cryptocurrencies.

The impact of this technology on loan transactions

When we discuss the impact of this technology the loan transactions, one of the main fields of the finance sector, we have to tell that the start-ups in this field have created a significant threshold. In particular, the open-source access feature allows the new start-ups in this field to organize quickly. These start-ups operate based on collaterals for now. For example, you can deposit the cryptocurrency you have and utilize a loan in return and you can have the relevant amount collected from your collateral or the amount you will send when the payment is due. We will see together how this change and transformation evolves since your supply of money (crypto) is limited. 

All these manners of operation ultimately support the idea expressed as "bankless banking", non-intermediary financing process, or peer-to-peer financing. In addition, research shows that 91% of the banks around the world invest in Blockchain technology, and even tens of patent applications in this regard are accepted by financial companies globally. This indicates that the players who can catch up with the change in the financial market can maintain their position, continue their commercial lives and acquire new positions. Thus, we can tell that the door is still open for those who want to grab the change. In particular, considering the Istanbul Financial Centre Project, this technology offers an important breakthrough opportunity for the participation finance sector, where the share of the sector is low.

AHMET BİÇER