Introduction
Blockchain, which is a distributed and decentralized ledger technology, has recently got a buzz for its power to make the sectors like finance more advanced. Nonetheless, it remains an open question whether or not is an example of a disruptive innovation in reality, or it is just a sustaining force in the financial sector.
While some people are of the opinion that it will be a complete substitute for traditional financial systems, others are insisting that it will play a role of a supplement to central financial institutions.
The main argument of the article is to show how blockchain can occupy both ends of the innovation spectrum. The views will be based on our discussions with experts in the fields of as well as the study that we conducted.
The Hype and Reality of Blockchain Adoption
From the time of its introduction in 2009, technology has been considered an unbeatable innovation. Virtual currencies, smart contracts, and decentralized finance (DeFi) are some of the other forms of blockchain’s security and transparency applications that have now emerged as new innovations.
Consequently, the surge of tracking and payment system technology has increased. In the current stage, not all firms can claim all the stages of blockchain development. No wonder that bitcoin use is also still often associated with illegal activities. Key challenges are scalability, asset security, and regulatory issues.
Understanding Disruptive vs. Sustaining Innovation
Clayton Christensen’s revolutionary idea of the Theory of Disruptive Innovation emphasized the two types of technologies, namely disruptive and sustaining technologies.
Christensen, the late professor, defined sustainable and disruptive technologies as follows. “Disruptive Innovation: A technology that creates a new market by displacing established players. It typically begins in niche markets before it reaches the mass market.”
Disruptive Innovation: The concept of it is a technology that forms a new market space by replacing existing players. It generally initiates in small markets, before a breakthrough occurs to many people.
Sustaining Innovation: A technology that enhances unaltered products or services rather than revolutionizing the industry, is known as a sustaining innovation.
Both global banks and blockchain: Money institutions take the new technology in the name of cost and speed, but in reality, traditional infrastructures are still in place.
Agile contracts and non-centralized ledgers: These incredibly modern tools do not compromise traditional banking infrastructures and, at the same time, fast-track banks’ financial processes.
Incremental growth instead of revolution: According to Preston McAfee, a professional economist, blockchain has arrived on the scene mainly by benefiting the progress of technology on a step by step basis rather than causing an immediate crack in the traditional mode of operation of the whole system.
Increased transparency: It is possible that blockchain technology, being a distributed public ledger, can take over the conventional banks by allowing the users to have the transactions that are most open and available.
Potential to remove intermediaries: DeFi platforms, which are decentralized ones, do not require intermediaries like banks that can change financial services in the future by itself.
New business models: Blockchain-enabled startups could offer new products and services that obliterate the existing dominated financial sector.
Inflection point theory: Breakthrough technologies display low growth at the beginning and then witness an explosion of growth once they get to the turning point. project financing) and at the same time to assist other industries (e.g. credit card payments and commercial lending) to go on with their existing business models.
Scalability Issues: Networks clog up and charge higher fees and time for transactions as more transactions occur.
Regulatory Uncertainty: Governments and financial institutions are still experimenting with blockchain regulations resulting in uncertain times for businesses and investors.
Energy Consumption: Proof-of-work blockchains, like Bitcoin, necessitate high efforts, thus raising environmental concerns in the process.
Integration with Legacy Systems: Blockchain technology that is quite new and innovative may not be simple enough to combine with the existing infrastructure of the traditional financial institutions. Thus, the latter may be fragile.
The Future of Blockchain in Finance
Although knowledgeable opinions differ, the most common thing they all agree which is now part of the financial ecosystem to a great degree.
Whether it changes into a real disruptor is the result of such influences as technological innovation, market specialization, and, most importantly, the relevant regulations.
Joshua Gans of the University of Toronto summarizes this insecurity:
“To the extent it succeeds (still a big if), will end up being disruptive, as it will require new substitute architectures to emerge.”
Key Takeaways
- While block-chain adoption is rising, it is still not equally distributed across the various industries.
- The majority of the industry professionals believe that blockchain technology is a sustaining innovation.
- Some people are of the view that blockchain has the ability to disrupt, more so if it is used in decentralization finance and transparency through use of applications.
- Observable Results of this technology may be faced with the coming of age transmission, where the Gambian microfinance institution of the country gained from the fintech-based mobile banking model through both digital and financial expansion.
- The final outcome of blockchain tech is still in the grey area, but it is a fact that it will be shaped by the future technological and regulatory changes we are to witness.
Conclusion
The progress of blockchain technology will keep the debate burning on whether it will be supportive in the financial systems or it will act as a disruptor among them. Respectively, the clients in banking research are demanding more regulated companies in the banking sector.
As opposed to most experts, who see it as a way to propel the finance industry, there are some who believe it can lead to the industry’s revolution. The next few years are going to be the ultimate determinant of the real observable impact of blockchain. Everything is getting clearer: blockchain is here to stay and develop the industry or it can be applied as an operational tool strictly for efficiency.
