Transforming banking by Blockchain
Blockchain has emerged as the major multiplier and has completely transformed many industries. The major beneficiary has been the banking and financial sectors. Although, along with the benefits that Blockchain offers, banking organizations also need to weigh the threats that the technology poses to their respective businesses.
With the help of Blockchain technology, multiple parties can access digital ledger, which is constantly updated. The financial attraction is growing its appeal regularly. The various areas in which the blockchain technology impacts the banks are given below:
The intermediaries are eliminated from the process who approve the transactions at various steps, and this gives rise to disruptions. Blockchain technology streamlines the whole process and makes the payment process, faster. These faster transactions also come with lower fees and transaction cost. This aspect is particularly beneficial in the cross-national border transactions.
- Settlement Systems and Clearance
The potential towards reducing the operational costs is promoted by the digital distributed ledgers, which further helps bringing customers closer to transactions among financial institutions, which are real time. It is denoted that when money is transferred across various servers around the world, it promotes various logistical problems. Blockchain helps in addressing these problems and keeps the transactions transparent as well as public.
When companies implement the blockchain system, they have access to liquidity at a faster speed, through initial coin offerings. The newer, crypto-economic model of funding is delivered, which further opens newer streams to access capital while enabling them to circumvent traditional financial services need. The blockchain companies can sell the tokens directly to the public and can avoid conventional fundraising.
When securities such as bonds and stocks are tokenized, and blockchain is implemented, it disrupts the capital structure of the market.
Instead of one authority controlling every activity in the system, block chain distributes the control among all the peers within the transaction chain. This makes the processes quicker and promotes a shared infrastructure.
- Digital Signature
Block chain promotes the idea of approving transactions through digital signatures and involves public keys as well as private keys, which is required to establish proof of ownership.
- Data Integrity
The algorithms that are involved in the system make sure that agreed upon transactions cannot be tampered with.
- Credits and Loans
Blockchain helps in eliminating the established financial institutions in the credit and loan segment and further aid in creating more secure and alternative ways to borrow money, which is lower in terms of interest rates.
Although there are several facts established regarding the benefits of blockchain technology in the banking industry, there are many reports that suggest that blockchain remains in its infancy. It is suggested that several technical issues persist in the blockchain segment, which prevents it from operating smoothly.
The most common sentiment for traditional banking as of now is to ignore the development in blockchain segment. Another suggestion is to offer alternatives to the blockchain technology; they can work in conjunction with several start-ups and play their part in the change process.