Cryptocurrencies and their underlying blockchain technology are being touted as the next-big-thing after the creation of the internet. One area where these technologies are likely to have a significant impact is the financial sector.
The blockchain, as a form of distributed ledger technology (DLT), has the potential to transform well-established financial institutions and bring lower costs, faster execution of transactions, improved transparency, auditability of operations, and other benefits.
Cryptocurrencies hold the promise of a new native digital asset class without a central authority. Could sending money to a friend in another country be as easy as sending a photo on an instant message? Many in the finance world think that should be the desired customer experience, powered by blockchain solutions. Right now, a cross-border payment can involve a handful of humans at either side of the process; it can take days; and, it’s expensive. Blockchain technology allows for the transfer of value without the need for third parties; the technology lets the process happen quicker and more efficiently.
In the ecosystem KaratGold Coin enables transparent cross-border financial transactions, bringing individuals and SMEs – with or without bank accounts – into the new global economy powered by the distributed ledger technology. The blockchain technology eliminates the need for any third-party or central authority for financial transactions, by encrypting and storing transactions in participants’ account ledger, making it almost impossible to tamper.
One of the products of the Karatbars ecosystem, K-Merchant, which enables end users to instantly accept crypto payments with a simple scan – for which the company offers a white-label solution to any interested parties like retailers and online shops worldwide, and many others, which offer cross-border money transfers.
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What are the benefits of using blockchain for cross border transfers?
There are three main benefits of blockchain technology:
Sending money from one country to another can be an expensive option.
Often, banks in different countries have no direct relationship. As a result, one or more intermediary banks must facilitate an indirect transfer. The intermediary bank charges a fee, which is usually deducted from the total transfer amount. An indirect transfer can also take up to three to five business days to complete. Currency exchange adds yet another layer of cost to the transaction.
Fees associated with international money transfer generally fall between 5% to 20% of the transaction. Blockchain can reduce the total cost to about 2% to 3% of the transaction.
Besides the cost, international money transfer can be a time-consuming process.
According to Deloitte, an indirect transfer can take up to three to five business days to complete. Blockchain technology allows real-time money transfer between any two parties.
The encryption feature of blockchain provides security and an easily verifiable public audit trail. Better security means less of the economic crime and fraud that runs rampant in the traditional banking industry, which drives up regulatory costs that ultimately are passed along to consumers.
It is estimated that consumers could save up to USD 16 billion in banking and insurance fees by using blockchain-based smart contracts.
Blockchain’s decentralized nature not only makes it impossible to unilaterally modify the original contracts it records; it also makes it less vulnerable to system failures and hacking. Traditional payment systems have already been the victim of several significant hacks by cybercriminals.