Blockchain in Banking

• 12 February 2020 | 1271 Views | By Mint2Save

The world is revolutionizing with several technological advancements, which are entirely satisfactory. With the new technologies evolving annually, Blockchain adds its name to the contention by providing ample opportunities in this field.

It is the emerging lists of records that connect through the cryptography with each block containing previous driving blocks with the cryptography hash. Blockchain also includes transaction data (Merkle tree) as well as a timestamp. 

Now, Blockchain is paving its way to the banking sector in the form of Blockchain Banking, which enables the processing of payments more quickly. The best part is that the Blockchain makes an accurate record which reduces transaction processing costs. 

How can Blockchain associate with the Banking?

As bank needs to improve infrastructure for a global network, they require better solutions for a much progressive technology. Blockchain makes payment businesses easier through banking executives. 

Blockchain technology provides a path for all the untrusted parties to deal with the state of databases instead of taking help from the middleman. A ledger added to it will offer selective financial services such as securitization, and payments to its users. 

Blockchain also uses several tools such as “smart contracts” to potentially automate the required manual processes from distributing the contents of some will to compliance and claim processing. 

What is the significance associated with Blockchain 

DLT(Distributed ledger technology) when comes hand with the Blockchain is beneficial for effective governance along with the providing disintermediate vital services which banks fail to deliver, which are as follows: 

• Payments: Using better input such as a decentralized ledger for valid payment such as Bitcoin, Blockchain facilitates a much faster payment option. The best part is that all these payments happen at a lower price. 
• Fundraising: ICO (Initial Coin Offerings) develops a new structure of financing that unfolds the unlimited access to capital from conventional firms and capital-raising service. 
• Clearance and Settlements: With the help of distributed ledgers, there is a slight reduction in the operational costs, which brings out real-time faster transactions between financial bodies. 
• Loans and Credits: By eliminating unnecessary gatekeeping in the lending and credit sector, Blockchain expands its possibilities by providing funds at much lower interest rates.
• Securities: By demonstrating the traditional ways of protection such as bonds, stocks, and assets by fitting them with public Blockchains. Thus, it is proving out to be a much effective, interoperable, and efficient capital market.
• Trade Financing: Now, there is no need for piling loads of paper bills process when Blockchain is merely offering a much transparent and secured approach towards trade parties for financing. 

Along with the above cases, Blockchain offers a much better approach to Banking which is as follows: 

• Transparency: When it comes to being transparent, Blockchain is exponentially raising its standards by increasing the market participants by displaying the public records of activities. 

Thus, these participants can access these records with the help of Blockchain technology.

• Provenance: Through maintaining numerous records and transactions, Blockchain is giving ample opportunity for asset ownership as first appeared on the trade through Blockchain. 

The above case reduces the threat associating with mitigating operations such as multiple asset types. It further reduces the fraudulent, misspelling as well as theft of these intellectual properties. 

• Disintermediation: Through dedicated distributed ledger architecture and transaction immutability, Blockchain fulfills the requirement for eliminating the excessive needs through enforcer of trust.

Disintermediation enables an environment through tamper-proof distributed data that allows counterparties to work with enough knowledge.

How does Banking is considering for the Blockchain? 

Almost all the banks across the globe are developing an interest in Blockchain. Though with its evolution, approximately third-fourth of the banks adopted the Blockchain strategic method for claiming the high interest in their way. 

One of the most prevalent cases banks are working for involves intra-bank cross-border transfers where all the corporate payments, inter-bank cross-border transfers, and Cross-border remittances are lagging. 

But wherever the name Blockchain appears, executives are expecting a wide range of benefits, which includes quicker settlement, lower costs, fewer exceptions and errors, along with new and revised revenue opportunities.

Recent studies got a result that out of the total ten executives present, nine diverted their minds on the exploration of the Blockchain, which reveals its endless possibilities. 

Does Networking play a part in Blockchain?   

Global networking plays a vital role in boosting the use of Blockchains in banks as it transforms payments at a larger scale, and failure associated with it is quite low. Two essential characteristics that should be mind for an active network which is as follows: 

• It must include necessarily defined obligations, rights, standards, and controls.
• Excellent quick and effective onboarding will ensure that banks permanently “plug and play” into their networks for both of its existing and future corridors.

There are more challenges ahead, such as rules of engagement and setting up the basic structure of networking before banks can switch to Blockchain technology. Thus, they must look for this alternative to implement Blockchain technology for better business expandability. 

If appropriately adopted in the Blockchain, networking will significantly play a crucial role in its integration as well as its implementation. This whole process becomes a more challenging part as most of the banks are not able to adapt these both combinations to its peak level. 

According to many executives, applying Blockchain correctly to payments will need some fostering through uncommon bank coordination. It becomes vital for generating positive networking for Blockchains to act.

Practical Examples proving the worth of Blockchain

As millions of transactions are occurring with the help of traditional methods of banking, it is proving out to be time-consuming. Moreover, several risks associated with these transfers make it quite difficult for the banks to implement other methods. Such a complicated procedure makes it difficult to overcome the worst outcomes. 

Since Blockchain is eliminating all the above possibilities, there is one of the significant examples which prove why it can be beneficial in the banking sector. 

Many of us are familiar with Bitcoin, which is one of the digital currencies. It is a form of digital money that does not operate upon the central bank and considered to be an independent body. But some might not know the technology behind this currency, which is Blockchain. Through various Blockchains such as public and private, it can quickly transfer its values across the world where the Blockchain file is accessible.

Cryptography also plays a vital role in deciding whether users can edit to the Blockchain parts that they possess. It ensures to keep every detail of the copy of the Blockchain under sync.

What are the challenges associated with the implementation of Blockchain in banking?

There are various challenges which banking sector might face by applying Blockchain in the banking sector. Some of these are as follows: 

• Technological Designs: Blockchain requires proper implementation of technology, but the actuality is that the banking sector is unable to implement the whole structure as they are several loopholes and coding flaws associated with it. Thus, it makes it even tricky for banks who wish to apply it permanently. 
• Criminal Connections: The worst part is that sometimes not only banks are accessible through this technology, but there are several hackers as well as expert illegal personnel who have the same techniques. 

The chances are that they might misuse the same technique to extract information or loot the currencies. In several cases, Bitcoin became a prime target for several Black markets as well as the dark Web. 

• Scalability: It has been found that Blockchain is suitable for only a limited number of users. But due to its increasing popularity, there is a sharp rise in their usage. 

In banking, it showed its effects as there is an increase in the network, which puts an impact on the transition process. It results in a sharp rise in the price of transaction costs, thus reducing the users on a particular network. 

• Energy Consumption: One of the significant causes of concern while Blockchain adoption is the amount of energy consumption. While implementing all the necessary algorithms requires much time, thus making a load of energy loss alongside. 

Future Scopes of Blockchain Banking

Blockchain, along with the distributed ledgers, has a very bright future. As an open-source, real-time, and trusted platform, Blockchains securely transmits the data as well as digital currencies, which help in cost reduction of several processing payments.

But banks must ensure to counter all the above challenges associated while implementing Blockchains. Then only they can expect the smooth transition of the functionality between Blockchains as well as Banking.