Blockchain technology, the technology that keeps cryptocurrencies safe, has come a long way since its inception. Currently, this technology not only powers popular cryptocurrencies such as Bitcoin and Ethereum, but also serves as a means of storing and trading non-fungible tokens (NFTs) and supporting the tokenization of real estate and art. .
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Blockchain is faster and more secure than traditional transaction methods, plays a huge role in financial planning and wealth transfer, and promises to grow over time. For example, according to a recent report from McKinsey & Company, the market for tokenized assets could reach $2 trillion to $4 trillion by 2030. This is significantly different from the $10 trillion figure previously predicted by Boston Consulting Group. McKinsey reported that assets such as mutual funds, bonds, ETFs and loans have the greatest potential for growth.
“Blockchain technology is still in its infancy and requires a large amount of integration with existing processes and standards,” Anthony Moro, CEO of Provenance Blockchain Labs, told CoinDesk. “Most institutions recognize that tokenization will need to be a big part of their business going forward, but technology integration is key.”
Here, let’s take a look at the role blockchain could play in key areas of financial planning.
What is blockchain technology?
First, let’s take a quick refresher on what blockchain is and how it works.
Blockchain is essentially a persistent shared record in digital form, or a distributed ledger of transactions that take place on a peer-to-peer network. The ledger is also intended to track transactions and build consensus on whether transaction data is valid. Blockchain technology allows users to confirm transactions without the need for a central clearing house.
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Why blockchain is important
Blockchain aims to instantly and transparently distribute information stored in a ledger that is accessible only to network members. Members share a single view of orders, payments, accounts, and other information to help build trust, efficiency, and financial opportunity.
Blockchain eliminates the need for central record keeping and makes the ledger public, making it easily accessible to all involved. This transparency helps speed up the verification process, reduces the need for back-office functions, and promotes security.
How does blockchain work?
One of the key elements of blockchain is that every transaction requires security measures to protect the identities of the transacting parties. Two keys are required to secure transactions in Bitcoin and other cryptocurrencies: a private key and a public key.
The public key is permanently shared within the log. Can be used to sign and encrypt messages. The private key is known only to the user and acts as a PIN code. The recipient uses this key to decrypt the transaction. This technology delivers speed, efficiency, security, and lower costs, even at the expense of significant environmental impact.
Processing transactions on a blockchain requires sophisticated computers that tend to be energy-intensive. If this shortcoming can be resolved, there is no doubt that blockchain will play an even bigger role in financial planning. Here are some ways it is used today.
Tokenization of real estate, goods, art, and illiquid assets
Investors in art, merchandise, and real estate face several challenges. When you invest in art, you not only need insurance to protect your work, but also a place to store and store it. Creating NFTs of your artwork allows you to easily trade these assets. It can also be duplicated, but the final value will be reduced.
Tokenization of real estate through blockchain technology allows investors to trade fractional shares, making investing in high-rise apartments and other commercial real estate more accessible to individual investors.
Improving the efficiency of loan financing and dividend payments
Smart contracts run on the blockchain, and the terms of the contract are written into code. Smart contracts eliminate the need for intermediaries to issue loans and pay dividends. Blockchain facilitates faster loan funding and automatic dividend payments at a faster and lower cost.
Facilitating faster cross-border transactions
According to a LinkedIn Pulse article by Digital Perpetual’s Charles Lau, blockchain transactions are deregulated and have no central government authority behind them, making cross-border transactions faster and more seamless with lower fees. You can.
P2P lending platform and crowdfunding
Similarly, blockchain plays a role in facilitating peer-to-peer lending and crowdfunding transactions. Its security, transparency and speed facilitate faster, lower cost transactions and also reduce the risk of fraud.
Whether you’re launching a business or looking to invest in a startup, blockchain makes it easier and more accessible.
last note
Although blockchain has evolved since the beginning of this century, the technology is still in its relative infancy. As younger generations explore possibilities, cryptocurrencies, NFTs, and other tokenized assets could play a major role in intergenerational wealth transfer.
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This article was originally published on GOBankingRates.com: Impact of Blockchain Technology on Financial Planning
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
