Challenges Associated With Implementing Blockchain technology in the financial sector.
In the initial years, it was assumed that blockchain, along with the help of AI, can bring many variances in the financial sector including customer experience, loan process and procedures of payment.
Though it is a prevalent belief; that blockchain can improve the effective working of the financial sector and enhance its efficiency and transparency.
As we are pretty much aware of the fact, that blockchain designed with the idea to bring in a revolution in the financial and banking sector;
But having a proliferating impact in the business as well as developing industrial sector.
Let me give you a brief idea of what is blockchain is all about:
The blockchain came into effect and got wider recognition due to bitcoin. It is composed of blocks and cryptography consisting of timestamp and transaction data.
The blockchain coined by Satoshi Nakamoto in 2008
It attracts a wide range of interest as an underlying technology for bitcoin and other cryptocurrencies.
It could be seen, as a fixed account database that is complete in itself and unaltered.
Which deducts any involvement of a third party,
which believed in a stimulating transaction, reducing the time and also in facilitating industrial reforms.
The blockchain works on the anonymity of the user. The user has a differentiated alphanumeric address, in which they have the choice to keep the details with them or share them with others.
But, in the recent past, the blockchain is going through numerous challenges, which restricts people from becoming a party to this vividly unique financial revolution.
The openness without any central monitoring authority is the basis of this system, which leads to negative consequences and puts a limitation on the usage of blockchain.
The following can be traced, as a few of shortcomings of this system:
Studies have shown that the applicability of blockchain becomes a cumbersome process due to its voluminous nature,
But with every course of the transaction, it takes some quality time to process due to its intricacy, encrypted nature.
The most well-known platform which blockchain operates is ethereum;
according to a survey depicts that there are around 24000 operations on a visa.
Whereas 193 from PayPal, but on the other hand, ethereum or bitcoin-only handles 20 transactions. But huge transactions, cannot be carried out in a short period.
2.Not Enough Reliability :
This blockchain system is not considered reliable or trustworthy. This technology always originates the underlying threat of being getting stolen.
They may undergo the problem of hacking or being captured by a third party. They may impose a threat to this system by hijacking the entire control in their hands.
Although this blockchain technology carries a unique character in the financial market, its vulnerable technology poses a genuine threat to regulations and protections.
3.Runs On Complex Algorithm:
It is a known fact that blockchain depends on encryption to maintain its security. To have the across to write in blocks. Complicated algorithms have to be installed, which calls for a large amount of technological knowledge.
The advanced world mainly relies largely on generations of computers, as the world is now digitally sewn. That essentially every company needs a Hitch software development.
As this blockchain; is the most advanced technology, only a few expert software developers know about it.
So lack of awareness and technological know-how about it will make it a cumbersome process for its applicability.
4.Degrading to Environment:
The blockchain’s famous Bitcoin, the most widely known and used blockchain all over the world.
That Keeps on a continuous recurring network that consumes a vast amount of energy, which is near to the equivalent of 159 of the world’s population.
The execution, operation and storage costs of vast data programming can rise higher than the long run storage cost of electronic money transactions.
The power needs to run this blockchain programming is increasing rapidly. Do you even know that a single bitcoin programming or transaction requires tera watt-hour.
5.Ethical problems for applicability of blockchain:
(i) Encroaches Upon Privacy:
blockchain technology emphasis creating permanent records for parties, but that brings complex challenges in maintaining the privacy of few participants.
Meanwhile, another serious issue is information can be leaked or looked upon by outsiders.
In the process of blockchain, transactions use specific details like entities address, signature or timestamp.
Which might get which might help in fetching transaction details or users profiles might be reached.
(ii) Implication of Laws and Regulations:
To help a check on the fraudulent practices of blockchain technology or other illicit activities related to it.
Countries like South Korea, Japan, U.K, China, Switzerland, Honking and Singapore are giving much emphasis on regulatory processes to balance and maintain participants trust in technology and market regulations.
But lacking a monitoring process may have altogether; a negative consequence on the overall impact of the system.
Although some experts believe that even if blockchain becomes complete regulatory proof, it cannot beat the manual offline data authenticity and maintenance.
As we know, blockchain entirely relies on the process of decentralization, so lacking in any level of suspension or check of laws, it becomes pretty cumbersome to alter any record in the chain system.
Few countries still may not accept cryptocurrency as the legal form of mode of exchange like its most crucial part bitcoin is prohibited in about 110 nations.
The main reason for this scenario is maybe this system is too naïve for some countries.
Like in case of attachment of privacy or any fraudulent practices may lead to bankruptcy if that company fails to implement the laws or regulatory system.
On the other side, a complete absence of monitory authority may lead to manipulation by money-minded crypto owners.
Until now, we can say that there are no such stringent laws for the correct regulation of blockchain into the financial field; that it can replace the offline banking system.
If not managed properly, it can create room for crypto criminals for money laundering or hacking and leading to many harmful treacherous conditions for the customers.
We are unaware of; who is using the system on the other end due to the blockchain open and feigned structure.
The total cumulative cost of P2P payments or persons to person transactions may be higher with which this blockchain effectiveness operates, which depends upon from one blockchain to another.
This significant crisis arises due to each node performing the regular task as the other owes in its fashion,
The total running cost estimated comes around $600 million per year and may rise further.
Moreover, the capital cost of mining hardware is a separate one.
It is a paradoxical situation as the enhancement of productivity is there but requires a certain number of nodes, and working of each node may be difficult to overall work.
Therefore, the applicability of blockchain requires critical prudence both in the individual and collective sectors.
The banks, in their day to day functioning, make huge profits on financial transactions,
and if their transactions now get instantaneous, transparent then the bank will gradually lose their due role in the entire process, would lose control over it.
The significant issue; being faced by the banks are the setting up of priorities,
Banks are already going through a technology headache. Applying this technology and keeping pace with global regulations is immensely challenging.
If we see in recent times, financial institutions are exploring the merits of using blockchain technology,
overriding the negative consequences of the same.
The advanced vision is to create a shared infrastructure where the time consuming and cumbersome transactions, which now take many days, can be settled quickly and transparently.
But this effort has to go through several institutional challenges which would limit its successful operations.
The factor which becomes a hurdle in applying this technique is that banks are not institutionally well connected, or lined up to accept this kind of innovation.
Blockchain is the non-traditional and modern form of transaction; it is entirely a different world experience.
Even the institution which is highly digitized and well equipped;
the mechanism of adopting blockchain is not smooth enough.
To efficiently implementing blockchain in the system, hi-tech knowledge and efforts in the right direction are needed.
Moreover, the regulatory or the legal system may act as a hurdle for the implementation of blockchain.
Thus, bringing further challenges in the field of regulating and protecting the consumers and market.
Which; has further lessened the significant growth of blockchain automation. So the long term future efficiency of blockchain is still uncertain.