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1.Introduction

Globally, billions of dollars’ worth of cash is moved everyday as business transactions and as
commercial purposes by various individuals. But the current systems which are in place to assist
movement of such huge amounts of cash and transactions is rampant with various problems such
as approval processes, paperwork, fees and various other occurrences that result in long delays.
Long and tedious procedures as stated above further leads to exposing of such transactions to
various fraudulent activities.

Due, to the latter, Banks and financial institutes spend large amounts of money to ensure that
regulatory methods are up to date and security controls are in place. Unfortunately, the indirect
burden of the costs of such implementations are placed on the customers of such institutions.

Blockchain technology is believed to be the latest concept and breakthrough technology in the
banking and financial sector to mitigate such issues. Blockchain technology is a structure that
stores transactional records, also known as the block, of the public in several databases, known
as the “chain,” in a network connected through peer-to-peer nodes. Typically, this storage is
referred to as a ‘digital ledger.

Though it is considered to be the latest advancement in the financial sector, not much
information is readily available in terms of research as it is still in its early stages of inception.

Through this research paper the author will discuss the role of Blockchain technology in finance
and how this emerging concept affects the financial industry as a whole, its implications,
challenges and future developments.

2. Concept of Blockchain Technology

The concept of Blockchain Technology was initially introduced in the year 1991 by Stuart Haber
and W.Stornetta with the intention of ensuring that digital documents are time stamped in a
manner that they could not be tampered with or backdated later.

In the year 2008 the concept of blockchain technology was put in to practice by an individual
under the alias Satoshi Nakamoto, who was later considered to be the architect of Blockchain

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technology.In simpler terms, Blockchain technology is basically a database where all types of
transactions by all participating individuals are recorded. Blockchain technology came to the
forefront back in 2009 with the introduction of crypto currencies as this was the technology that
was used as the underlying mechanism. By the end of 2009, the use of bitcoins peaked, creating
an unexpected hype around digital currency and ultimately on blockchain technology. The
evolution of this new found technology is gradual and twelve years later it is still reforming.
Blockchain Technology at present has three versions, blockchain 1.0, 2.0 and 3.0.

The major difference between existing data bases and blockchain is that the existing financial
systems operate on a centralized data base with a single point of authority where as blockchain
operates on a decentralized database. Instead of being controlled by a single party, blockchain
databases are continuously updated and coordinated across a broad spectrum of computer
networks. Hence, any individual who is within the network has the ability to view this database
without going through an intermediary. To ensure that the data is secure all individuals who are
within the network must validate each transaction, and this has to be done through a
mathematical formula knows as a ‘consensus mechanism’, which is only known to the
individuals within the network and each block within the blockchain is protected by
cryptography. Thus, through this process a sequential chain of transactions if formed which
could be changed only with the approval of the other participants, which ultimately creates a
form of trust among the participants within the network who are participating through various
sites and geographies.

Another major feature of Blockchain tehncology is its ‘smart contracts’. A ‘smart contract’ are
programs with a set of pre agreed set of terms and conditions within the network. For an
example, a ‘smart contract’ can be used activate an automatic refund or a payment, based on pre
agreed conditions. The biggest advantage of the use of smart contracts is that it removes various
delays that maybe caused by middlemen in the traditional financial processes.

3.Implications on Business Organizations

Businesses could use blockchains in a number of ways to gain the maximum output and to gain
advantage over their various competitors. Reduction of transactions costs, streamlining of core
business lines, safeguarding of intellectual property rights and transparency in transactions are

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some of the few advantages that could be ascertained by financial institutions by using this
technology. (Felin & Lakhani 2018).

Stated below are a few methods that could be used by businesses to incorporate blockchain
technology in their operations.

3.1 Accounting settlement and crowdfunding

Businesses that use virtual currency and bitcoins can use Blockchain technology as a solution for
funding related concerns. Businesses that want to implement non cash payments can utilize
blockchain technology to automate the electronic transaction management accounting process in
order to gain control of the financial aspect of the business. In this manner, it enables companies
to handle issues that stem from financial issues more conveniently and flexibly through the use
of blockchain technology(Zadorozhnyi et al. 2018).

3.2 Data storage and sharing

Data is the most valuable resource that any company, especially financial entities have and
blockchain technology is one of the most efficient and consistent platforms a company can use to
store data in a safe manner. Novikov et al. 2018) Further, block chain could also be used as a
secure and decentralized digital ledger. This enable the company to give anyone around the
world access to their data base without having to constantly bear the burden of data tampering.
This method leads to an increase in data transperancy as well data sharing on real time basis.

3.3 Supply chain management

Supply chain management is another core area that could be majorly changed by blockchain
technology as all data could be recorded in the blockchain, such production details, details of the
manufacturer, customer details and all other important details related to manufacturing could be
securely stored on these platforms. This makes it easier for companies to trace back on all the
details of the product starting from raw materials.

3.4 Smart trading

Another important aspect of blockchain platforms is that they enable companies to build smart
contracts. Through the use of blockchain technology companies have the freedom to automate
transactions based on these smart contracts without any manual intervention or confirmation and
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it further gives the opportunity for businesses to automatically file taxes under such smart
contracts as well.

4. Current Applications in Finance Sector

In the current context, blockchain technology is fast becoming popular among emerging markets
in the world, who are at present being overlooked by major financial institutions due to less
competitive ness and high verification costs. A few examples of blockchain technology being
used in the context thus states are the famous digital wallet ‘AliPay’ introducing the use of the
bitcoin option for its customers and Visa going in for a major partnership with a renowned
blockchain company to build a B2B visa platform which would ultimately simplify international
transactions of any nature for all their corporate clients. Emerging markets in Asia, though they
were very much late to embrace blockchain technology, are very much catching up with markets
in the USA and Europe. Though this has resulted in regulatory bodies of such countries being
faced with newer challenges, they have responded positively to date.

Further, blockchain technology has enabled already established banks and financial institutes to
reduce organizational complexity, costs and improve efficiency in their operations. This has
resulted in such banks and institutions partnering up with and collaborating blockchain
companies to develop platforms suitable for their businesses. For an example, major airline
manufacturer Boeing has spent close to one billion dollars in excess airplane parts to GoDirect
Trade, which is a blockchain platform designed by the company to trade parts.

5. Blockchain Technology Implementation Challenges and Steps for Businesses

As repeatedly stated throughout this paper, blockchain technology is still fairly new and is
evolving daily and as is with any other emerging technology, blockchain technology too will
face a number of challenges in the future as it molds in to a more established form of
technological tool. At present, blockchain technology exists on its own. Regulatory bodies of
countries are yet to established firm policies and standards with regards to same and transitioning
from the existing financial infrastructure to a blockchain platform requires a major cost and
know how, which is not readily available for many markets.

Further, more than half of the payment companies which are currently based in Asia, Latin
America and Europe hold some sort of a government license which enable them to operate in
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these regions and countries and they still lack firm regulatory transparency. Thus, establishing a
brand new technology like blockchain which has unique features would require a considerable
amount of effort by the regulatory bodies of these regions and countries to accommodate a major
transition. Regulatory bodies would have to take in to consideration the authorized validity of
digital identity, smart contracts and many other new features that are a part and parcel of
blockchain technology.

If blockchain technology is to be implemented by the banking and financial sector across the
globe this technology would definitely have to overcome vital legal barriers. Unlike crypto
currencies when trying to move actual money in dollars and rupees on to this platform serious
reform in terms of laws are required and the law of the land would need to make some
adjustments to make way and recognize code as law at least to a certain extent.

6. Advantages and Disadvantages of Blockchain Technology

As with any other emerging or existing technology, blockchain technology too has its merits and
demerits.

Some of the major advantages of blockchain technology is that it keeps virtual records of
everything and no one individual or even a group of individuals has the ability to make changes
to the records, it is a reliable mode that provided security to the data on which it operates, it
initiates trust among users across continents due to its transparency in processing data,
blockchains are practically un-hackable as it needs a huge amount of power for processing, and
finally, it is a decentralized network which is not maintained by a single entity and therefore
unalterable.

As stated above, each technology has its own disadvantages, a few of the major demerits of
block chain technology are, it is very complex and requires extensive knowledge of
programming to build a fool proof secure blockchain system, hence implementing blockchain
technology is very much costlier. Blockchains are unalterable, if a mistake is made, correcting it
may require a large amount of time, though blockchain technology is secure than most it is not
perfect, in the sense that it does not provider overall security for financial information and there
are major scalability issues as a there is yet no evidence whether this medium could handle a
multiple number of transactions as in the processes currently used.

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7. Conclusion

Blockchain technology is still not fully developed, its constantly evolving and is nowhere close
to maturity. Banks and financial institutions across the globe as still in the experimental stages
and are yet to understand the full extent, the limitations and the possibilities that could be
attained through this emerging technological platform. Predicting its success at this point in time
is not possible and whether this technology could be used outside of its known domain is yet to
be realized, it may take years for businesses to identify the full potential of blockchain
technology, but at present it is safe to state that it is creating a ripple effect in the financial sector.

REFERENCES

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