Blockchain initiated as a database for cryptocurrency Bitcoin. However, with passing time and its vast possibilities Blockchain gradually became the long-sought disrupt for various domains. Banking firms are the primary domain that can utilize blockchain technology in versatile ways. In fact, many banks have already begun experimenting with blockchain by integrating new systems with their products.
Initially, banks around the world were skeptical of blockchain. However, in the present day, there are a number of premier banking institutions all over the world that are already experimenting with blockchain. This change in perception happened when blockchain itself started merging into the public domain and it was realized that the technology can be used in day-to-day business. Also, many major organizations began their own experimentation with blockchain which attracted the eyes of the general public and blockchain enthusiasts alike.
Then banking firms had the awakening that they could test out blockchain to overcome certain technical barriers that would fasten the process of banking functions. Also, given that we live in a tech-savvy generation, the first thing that comes into our mind is a paperless system or a digital system. Now, banks have already entered the digital realm but with the power of blockchain, the efficiency in functioning will be far better.
In this post, we will discuss briefly the various aspects of blockchain technology which can disrupt the banking systems in the near future.
Blockchain is a decentralized system that continuously records transactions in a distributed ledger. Distributed in the sense multiple parties can have access to the ledger. With blockchain, there will be no disclosure of the identity of bodies participating in a transaction. All transactions will be encrypted. In the ledger, transactions will be added. Only verified blocks of the transaction will integrate into the ledger. There will be no requirement of re-checking the authenticity of any transaction.
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Blockchain Technology: The Features that Can Disrupt the Banking System
Now, let us discuss the striking features of blockchain that can actually change the efficiency and performance of the banks the way we see it.
The time taken for a transaction with a banking institution will reduce to a few minutes or hours which used to take weeks or some days to process. Blockchain also eliminates the possibilities of data redundancy. The parties involved in transaction posses the exact copy of the ledger.
Blockchain, as we mentioned, is a decentralized platform. So, the transaction is fast enough to disallow anyone to intervene in the transaction. The technology implements two security keys exist for each transaction. One is a public key and other is a private key. The public key is available to all users.
The private key is interlinked with the user’s account number. It can be used only once. Let’s assume if hackers get access to the private key and use it to decrypt the private key, they will not be able to make transactions.
The ledger entry cannot be changed once a block is verified. The only way change can be done is by accessing every copy each user possess at the same instance and do the changes. This is not really possible. So, if banks employ blockchain the security aspect will be a great advantage for the users and the firm alike to function on a secure platform.
Blockchain aims to simplify the way banks deal with the volumes of information in their business. When information stores with various entities there are chances that it will be manipulated. Blockchain can store versatile forms of data. It can be changed as per some pre-defined rules. This technology is called smart contracts. It enables auto verification and enforcement of data.
Having all the information in one shared ledger will provide the benefits of blockchain to all that information. Further, it will also implement faster and simpler transactions.
As said before, we live in a digital world. When we employ a powerful technology like blockchain, then the digitization of the system will significantly bring down the infrastructure costs of the banking firm. Blockchain eliminates the need of a middle entity for a transaction processing. So, this makes the process faster and also indicates cost cutting.
So, this was a detailed overview of how blockchain technology can mark its presence in the banking domain. The disrupt has already begun although slow-paced and ahead lies a great journey. Gradually, we will soon see all banks around the globe making blockchain an integral part of their system and products.