Blockchain Technology And Its Effects On Finance Industry
Adapting to a world that is developing with technology very fast and continuously is not always a simple job. Blockchain technology, namely “internet of values”, is one of the best examples in this matter (Özdoğan, Karğın, 2018). The system can be defined as a database that contains blocks storing the data based on reliability and chronological order (Di Pierro, 2017). Starting with the initial block, each block connects to the previous ones with the entire information within, and by this combination, it becomes harder to falsify the data (Avunduk, Aşan, 2018).
The underlying reason for the non-negligible progression of the system despite its newness is the characteristic it owns. There is a time stamp on each data attached which answers the reliability questions. Serving to the same purpose, the blockchain system can be classified by its user groups or accessibility. Such as; public blockchains where everyone can access to the data and private blockchains with a specific user group (Peters, Panayi, 2016).
The blockchain technology that started its genesis with bitcoins, but means more than a single practice, got beyond its initial limits through the benefits it provided. From numerous usage areas, the finance industry will be the one analyzed in this study. The finance industry makes use of this new technology in many different ways such as; smart contracts, bitcoins, accounting transactions, corporate governance and supervises, which all bring advantages as well as disadvantages.
The practice of smart contracts in the finance sector plays a very functional and beneficial role. In contrast to ordinary ones, smart contracts that function in the digital environment, allow us to instruct financial transactions without having an agent. Taking into consideration all these, this directly working system presents a cost-efficient and high-speed service. In addition to this, decentralized structure of the system allows the data to be accessible universally and so becomes the process much more transparent and reliable (as cited in Avunduk, Aşan, 2018; Özdoğan, Karğın, 2018). Despite all its advantages, the decentralized structure also brings some jurisdictional questions with it.
Accounting and supervision are also other essential practices of the finance sector which become simpler and more dependable by blockchain technology. Here plays the “peer to peer” feature of the system a significant role by allowing the parties to establish a direct connection with each other. By this means, it becomes much easier to compare the accounting entries and prevent illegalities like corruption (Özdoğan, Karğın, 2018; Peters, Panayi, 2016). Despite these positive effects, there are also some inconveniences brought by P2P features such as; nonprotected privacy and moral rights caused by universal and simple accessibility (Türkmen, Durbilmez).
Besides the theoretical advantages, Blockchains in practical terms also has significant importance to mention. One of the closest and most outstanding improvements in this particular is the Swiss Financial Market Supervisory Authority (FINMA) issuing banking licenses to two blockchain service providers. This new progress which enables us to benefit the improving side of technology also creates a need for a legal frame for potential disadvantages. Businesses, using this blockchain technology, need to pay regard to the characteristics of the system like; anonymity or universal accessibility and take precautions for possible risks. Anti-money laundering and combating the financing of terrorism have a great significance in this regard. For this purpose, FINMA has regulated the potentialities in detail and brought the Anti-Money Laundering Ordinance (AMLO-FINMA), which will be mandatory for the licensed businesses to fulfill. One of these regulations is the identification by which the system controls the identities of process parties and decides to approve the operation or not. Other than identification art. 10 regulates a boundary for operation parties. As for that, the FINMA controlled institutions are only able to operate with clients of these institutions, and a third party can only be included after these institutions approve its identity. These examples of regulations are forming a semi-traditional technology for data protection.
In defiance of its outstanding progress, blockchain technology has not reached its peak point yet. The legal incompetence and its newness block the benefits it provides and prevents users from trusting the system. A user who cannot foresee the solutions for possible conflicts will behave cautiously. For this reason, the legal ground of this rewarding system must be consolidated. Despite all, it is not possible to not see the continuous progress of the blockchain technology which gets involved in a new area of life every day.
Özdoğan, B., & Karğın, (2018). Blok Zinciri Teknolojisinin Muhasebe ve Finans Alanlarına Yönelik Yansımaları ve Beklentiler. Muhasebe ve Finansman Dergisi, (80), 161-176.
Di Pierro, M., (2017). What is the blockchain?. Computing in Science & Engineering, 19(5), 92-95.
AVUNDUK, H., & Hakan, A. Ş. A. N., (2018). Blok zinciri (Blockchain) teknolojisi ve işletme uygulamaları: Genel bir değerlendirme. Dokuz Eylül Üniversitesi İktisadi İdari Bilimler Fakültesi Dergisi, 33(1), 369-384.
Peters, G. W., & Panayi, (2016). Understanding Modern Banking Ledgers Through Blockchain Technologies: Future of Transaction Processing and Smart Contracts on the Internet of Money, Banking Beyond Banks and Money, pp. 239-278, Springer International Publishing.
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