Blockchain has become a go-to technology for everything from improving supply chains to fighting identity theft, so how can it make the difference to financial institutions? And is it set to transform the entire sector?

The rise of blockchain and digital assets

Over the last ten years, we’ve seen blockchain gaining ground in financial services. Financial institutions are starting to see the technology’s power to provide robust and regulation-grade infrastructure, supporting the digital transformation of traditional financial assets and processes. The adoption of Digital Assets by financial institutions is also on the rise – as demonstrated by the fact that the European market for tokenised assets is set to reach $1.5tn by 2024.

The disruptive blockchain, or distributed ledger technology (DLT), has a great many use cases beyond digital currency that organisations are exploring. For example, large firms like IBM are using DLT to improve the reliability and agility of supply chains. Even the United Nations (UN) is building projects around the technology to facilitate inter-agency cooperation.

The real value of blockchain in the financial world is built on the digitalisation of value. Digital Assets are changing the way global firms approach transactions and how their infrastructure processes them – enabling them to reduce risk, lower costs, and create new market opportunities.

All of this points to blockchain being a technology that has come of age. But is it ready for mainstream adoption?

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Why your business can no longer ignore blockchain

The major criticism levelled at blockchain technology is that it’s too volatile for mainstream financial institutions. This is a problem caused by lower adoption rates, which means less activity, a smaller community of users and less trust placed in the technology. The more firms use it for a wide variety of financial activities, the less volatile it will become. It is interesting to note that the volatility of the stock market has recently outweighed that of the digital markets, forcing firms to reassess their view of market stability.

There’s a move towards widespread use of Digital Assets and digital currency building. The Bank of International Settlements (BIS) has called for the implementation of Central Bank Digital Currencies (CBDCs) amid the COVID-19 crisis, while China is poised to launch its own CBDC. This suggests that the rise of blockchain adoption seems largely inevitable, despite the concerns of regulators. Even last year, a Deloitte report cited that 53% of executives viewed blockchain as a critical priority for their business. We could be moving towards a scenario where Digital Assets become a major regulated asset class.

However, to achieve this blockchain will have to reach a new level of maturity – convincing regulators and firms alike that it can meet the same security, privacy, KYC and AML requirements as traditional financial markets.

How blockchain is transforming finance

Despite concerns over its maturity, blockchain is already demonstrating a strong ability to transform the Finance industry. For instance, applications built on blockchain can change the nature and speed of transactions – creating ways to transfer secure cross-border payments in real-time, 24/7. Cutting out intermediaries, it drastically reduces the time and costs needed to make these trades.

Beyond currency and payments, blockchain will completely change organisations’ approach to assets. Digitising traditional financial assets (such as equities, loans, bonds, funds, real estate, art and other securities), blockchain will open up new business opportunities – bringing liquidity to previously illiquid assets.

There are also other ways in which blockchain will shape the future of financial processes. Being built around the concept of trust, blockchain can supply users with one uniquely trusted ID. And this single source of truth is important for KYC and AML compliance in banking services.

Based on this, blockchain is no longer a niche technology that firms can largely ignore. It looks set to transform the Finance industry and create exciting new markets.

Discover more about how blockchain can drive the future of finance. Watch our expert panel at the TechCity Connect industry event on-demand, exploring the challenges and opportunities created by the rise of distributed ledger technology and digital assets, here.