Bitcoin and other crypto currencies have created a buzz lately – they make headlines every other day and spark discussions all across the globe. Lets have a look, How blockchain will impact our future banking system?.
Following the overwhelming response to blockchain technology, a lot of blockchain development projects are already in the pipeline. According to a study, around thousands of cryptocurrency projects saw the seeds since the wildfire created by Bitcoin. However, out of many, a few are already dead because of the growing competition. So, as of now, we can only speculate the future based on the current scenario.
To understand the future aspects of the blockchain and banking industry, you need to know how this system actually works. Let’s have a look-
How Blockchain Works?
The words “block” and “chain” in the “blockchain” represent two distinct yet interrelated factors. The word block stands for digital information, while the chain represents a public database. So, it is all about storing your digital information in a public database in a way that no one can tweak or update the information. For example, these blocks can store your details about transaction, date, time, and place.
To add blocks or information to your blockchain, four things need to happen –
That’s a no-brainer – a transaction must occur to store your information. For example, purchasing something from an online shopping platform.
Verification of transaction
The next step includes verification of your transaction. Hundreds on Computers interconnected globally will store your data. You can view it as someone making an entry into the system. However, with blockchain technology, millions of computers around the globe do the needful automatically.
For example, when you make a payment at an online store, the computer network checks whether the purchase has been made by you for the order you added in your bag along with transaction time, amount, and place. To your sheer surprise, this entire process happens in seconds! Thanks to blockchain.
Storage of transaction
Now, the computer network has verified your transaction. The third step is to store your transaction in a block. Following your transaction, the verification gets a green light and your transaction amount along with digital signature, is stored and joined to other blocks of your information.
The final step of this process is called Hash. Once all the information has been stored and verified, it gets a unique identification number called hash. When the block is hashed, it can be added to the blockchain.
Once all of this information has been added, it can be publicly viewed by anyone, including you.
So, What Impact Does blockchain Have on the Banking System?
A recent study has also shown that by implementing the blockchain system, the banks could save up to $20 billion by 2022!
Wondering how? Let’s find out –
Finance or banking sector is all about ledgering transaction information into a secure system, and blockchain is nothing but a distributed ledger system that enables verifiable transactions before it becomes a part of a chain.
As this decentralized system, there is nothing acting as a central system for controlling the information, thus lesser chances of hacking and corruption. Thus, rendering the entire system secure.
In addition to this, we can apply blockchain technology to other banking sectors as well, for example, documents provenance, ownership rights, and digital or physical assets to stop frauds. The main motto behind utilizing this is to create a transparent system to all.
Moreover, an economic theory predicts that low-cost competitors enjoy advantages only when high-cost competitors are involved. Following an adaption of blockchain by various banks, a pressure shall be created on the system to pass on the initial profit made back to individuals.
Blockchain can add value to the banking system and reshape financial system. Let’s see how-
- Banks can leverage the power of blockchain system to reduce costs and enhance bank-to-bank or international payment transfers. To start with, some of the banks, including the Bank of England, has started its own digital currency called RSCoin.
- Blockchain technology can also help in creating a decentralized client identification system. All credit organizations already perform “Know Your Client” (KYC) before accepting applications.
- The financial sector is interconnecting for securing deposits and loans, which can also be highly unreliable at times. A conventional system for loans and deposits is immune to bankruptcy since there is no control over deposits. Nevertheless, a blockchain system can avert the issue in minutes by creating a transparent system.
- With the intervention of block chain, traditional loan system might disappear. For example, the inclusion of newer technologies like Smart Contracts can avert bureaucratic delays by the bank. One can receive payment immediately for their purpose.
- Most of the financial institutions cannot carry out their work without a mediator, which makes the process expensive for customers. However, blockchain can abandon such mediators and provide cheaper banking services to customers.
- Blockchain can create a safer environment for all transactions, and it will make the present banking system faster and easier for both customers and banks.
What more to expect?
The bank systems around the world are already in the course of implementation of blockchain technology. For example, the British Fintech company Billion Group received EUR 1 million of investments from the European market in the year 2018. The company created an impressive blockchain-based data system to process such gigantic customer data. The company made sure that the blockchain solution complied with legal requirements and data protection system as well as increasing its efficiency and reducing time. This project has been a source of inspiration for other financial institutions that are on their way to developing such a unique system. We can expect more changes to many service like Credit Cards and online banking systems, the blockchain might demolish these service by bringing something new.
So far, we can conclude that blockchain technology shall enhance the banking experience for customers, and it will help in reshaping the banking industry. With Blockchain, we can expect to witness a more secure and transparent banking ecosystem in the coming years!