“Digital Assets: Sending seismic waves in the financial services industry”
In the past decade, the world digitized at an unprecedented pace. The financial markets, like everything else, witnessed an exponential rise in digitization. As a result, the emergence of digital assets has perhaps been the most critical and debated. The last few years have provided an additional moment to the digital assets revolution taking the financial services industry (FSI) by storm. While most people in the financial services industries (FSI) are convinced about the utility and effectiveness of digital assets, a small percentage of people remain skeptical. In this article, we will discuss how digital assets are all set to change the FSI. We will also explore possible answers to some of the questions raised by the skeptics.
Advantages of digital assets
Digital assets are being touted to replace physical currency in the near future. The volatility in the financial markets in the past two decades led to the shift toward the digitization of the FSI. Let’s delve into the top advantages of the usage of digital assets:
- Digital assets offer various advantages over traditional currencies and financial tools as they are easy to manage and track, and digital assets can be easily distributed and redistributed.
- These assets enable the banks to perform transactions outside the boundaries of the conventional banking system, nationally and internationally.
- They are opening new payment channels and helping financial institutions to diversify their investment portfolios.
- The easy and fast scalability of digital assets makes them ideal for absorbing market shocks. Moreover, these assets provide a competitive advantage in the market and help achieve greater compliance, transparency, and efficiency in the processes.
Organizations can build new revenue streams, meet customer expectations, and reduce risks with digital assets.
Consequently, companies can gain enhanced trust from the customers and the authorities.
The Shared Optimism- Financial Services Industry Leaders Overview
Regardless of sharing several advantages, digital assets cannot bring change on their own. Without trust and active support from the people, the future of digital assets is impossible to imagine. Luckily, there is a breeze of positivity flowing in the FSI regarding digital assets. Global studies have indicated that more than 80% of the executives in the FSI are convinced that digital assets are mainstream and will replace physical currency in the near future.
A majority of Financial Services Industry (FSI) executives believe that digital assets will replace the fiat currency in the next 5 to ten years. Digital assets provide a competitive advantage to businesses in the market. Most FSI professionals believe that their competitors are already working on obtaining and refining digital assets, and their organizations will lose significant competitive advantage if they don’t take proper action on this front.
Potential Challenges Related To Digital Assets
“The caution is in the Air”
Despite all the positivity indicated by the market studies, not everybody is fully convinced that digital assets are the future of financial markets. Although the utility and effectiveness of these assets are not questionable, most skeptics are raising concerns regarding their safety of these assets. While others cite the regulatory barriers in front of the mass acceptance of digital assets. It might be noteworthy that in some countries, the regulations on digital assets are too stringent that they hamper their growth and adoption.
On the other hand, in some countries, the regulations are absent. The absence of regulations makes digital assets vulnerable to malpractices and criminal activities. Since digital assets are designed to work seamlessly across international boundaries, malicious activity from one country could have implications in another country.
Digital assets are built on the blockchain platform that makes them practically hack and tamper-proof. To alter a record in the blockchain, the hacker needs to have control of the majority of the network. This would require a considerable amount of computing power and time, which makes it practically impossible. The decentralized nature of the digital assets on blockchain adds a layer of safety to the framework.
Here are the key barriers to the digital economy acceptance:-
I. Cybersecurity
ii. Regulatory Barriers
iii. Privacy
iv. Financial infrastructure
v. Lack of value propositions
vi. Secondary markets and more.
Yet, many FSI leaders are optimistic about a positive future for financial services.
However, regulatory dynamics are still uncertain and remain one of the biggest
hurdles. Once curbed, it can lead to a secure and transparent digital economy in
the future. Governments across the world are brainstorming on preparing a regulatory framework for them. Investments are being made to prepare technical infrastructure for the custody of digital assets and cybersecurity.
Potential Solutions
Digital assets share a dynamic nature. They vary in terms of design and execution.
Therefore it involves risk.
FSI leaders recognize that blockchain innovation would play a pivotal role in securing
digital transactions. Apart from that, AML, security registrations, antifraud, and
taxation are crucial areas where security is needed.
Following is the list of potential solutions to ensure digital assets are secured:-
I. Digital Asset Management
ii. Data Backup
iii. Two-Factor Authentication
iv. Data Encryption
v. Spread awareness amongst organizations
vi. Financial literacy on changing trends.
Future Scope of Digital Assets
Digital assets built on blockchain are the future of the financial market, and the future is now. Capital markets are realigning around digital assets, and new business models are emerging around them. The advantages of digital assets outweigh the concerns raised by a few. Most of the professionals in the FSI are ready to embrace digital assets, and it is high time that businesses, markets, banking systems, and government entities prepare themselves to align with the upcoming change. Digital assets are ready to change the financial markets and economies like never before only the fittest will survive. So, are you and your organization ready for this new stage of evolution? If not, you better start preparing because the transition is inevitable.
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