Globally, financial services are still centralized and multi-layered. The majority of financial data is kept in centralized systems and must pass through a number of middlemen, including the front office, back office, etc. The system has a serious lack of transparency because the intermediaries and database security are the only things that can guarantee the security of the data. There are still very high odds of data leaks and server hacking, even if the databases are well protected.
The system’s lack of transparency encourages security risks because no one can see what is going on until something goes wrong or data is compromised. Although it is understandable that no one wants their financial information to be public, some level of system openness is advantageous and necessary for both financial service providers and their clients.
Transparency and security in financial services may both be guaranteed with blockchain technology.
- Immutability: Data cannot be changed since the blockchain is immutable. It guarantees that all data is secure, genuine, and accurate.
- Privacy: A public key and a private key are the two security keys. All network users have access to the public key. But the only people who have access to the private key are the transaction’s participants. With the use of the public key, the transaction will therefore be available to all network users, however the stakeholders and transaction details would only be visible to those who possess the private key. It makes sure that the system remains transparent while protecting the stakeholders’ private financial information.
- Zero-Knowledge Proof Technology: The zero-knowledge proof mechanism is supported by a number of blockchain networks as a privacy solution for their blockchains. It enables the financial data to be verified without disclosure.