Blockchain technology is a type of distributed ledger technology that is decentralized (DLT). It's a "chain of blocks" in which each block contains timestamped digital data as well as its own unique identity, which is known as a hash. The use of blockchain in financial services has been regarded as the technology's key use case since its creation.
Lack of transparency in the system fosters security threats as nobody can know what
is happening until things go wrong or data gets breached.
Security & Transparency.
Invests a lot of money in purchasing central database/ bookkeeping/ maintenance of databases/
labor costs/ security of databases/ intermediaries’ commissions/ value transfer systems.
These costs are recurring, which means money must be invested in them at regular time intervals.
All these additional costs make the system more expensive without the guarantee that data breaches won’t occur.
Payments can take up to a week to finally settle. the current financial system is multi-layered,
which means that every transaction must go through at least a couple of intermediaries in order to settle.
Sometimes these intermediaries are front and back offices of a bank, while other times,
these are third parties like currency exchangers in case of cross-border payments.
Auditing is a very long and expensive process. In the present centralized system, there is no transparency.
Financial service providers face a lot of risk in providing services like loans, such as: the counterparty
not being able to meet its obligations/ credit risk due to information asymmetry/ trusting intermediaries.
Effectively control risk.