Major financial institutions all over the world have started accepting the idea that blockchain-backed cryptocurrencies like Bitcoin are the future of finance. However, widespread application of the technology is yet to be seen.
Currently, there seems to be a lot going on behind the scenes as far as the development of cryptocurrencies and experimenting with their applications are concerned. While the technology is still in its nascent stage, countries and financial institutions are making every effort to prepare for it. Its varied applications warrant the creation of new rules and regulations in order to ensure that the interest of people is kept intact.
Blockchain-backed cryptocurrencies are the most important topic of discussion, but there haven’t been too many functional applications of them seen so far. Major financial institutions and industries are spending billions of dollars to move blockchain from simply being a proof of concept to broader use. The banking industry has increased the budget allocated to blockchain by close to 70 percent in 2020.
The biggest banks are also investing billions of dollars in various blockchain start-ups as well. Blockchain is basically a digital ledger that records and publishes any transaction and forms a chain of stored information automatically. While it was primarily applied to cryptocurrencies, it is finding multiple use cases in various other industries including real estate, food tech, human resources, and many more. Investors are hoping to see its widespread application in technologies that facilitate any form of transaction like making it possible for individuals to make investments, buying and selling goods or services, storing wealth, etc. – all this with no involvements of intermediaries such as banks.
Benefits of Blockchain Technology in Banking
Blockchain presents several benefits to the banking sector. For starters, blockchain has been able to assist financial institutions in finding the best ways to reduce errors and complete transactions in a secure manner. Banks, therefore, are increasingly opting for blockchain technology to offer better results to their customers. The following benefits are offered by blockchain technology in the banking sector:
One of the main benefits of blockchain in the banking sector is its ability to reduce costs. It has been estimated that blockchain can effectively help banks reduce their infrastructure cost by up to a huge amount of $20 billion in the next couple of years itself. By implementing blockchain technology-enabled smart contracts, the banking sector can reduce the need for redundant interactions with counterparties as well as intermediaries. Blockchain can even help banks do away with the cost of maintaining and executing contracts. It can even help lower the bank-to-bank transaction costs.
Improved Speed of Transactions
Blockchain can enable faster transactions. A transaction can be completed within a few seconds, which is slightly faster than the time taken in traditional transactions. Over a course of thousands of transactions happening within a bank every day, it can add up to a significant amount of time saved for the banking institutions. The saved time can provide bandwidth for a greater number of transactions in the bank.
Shared distributed ledgers can efficiently secure the transaction information and ensure that the information does not get leaked or tampered with in any way. Blockchain technology, owing to its underlying decentralized ledger technology, does not store all the information in one central point. It distributes the information in thousands of shared ledgers, which is why it is next to impossible for any illegal body to alter the information about a transaction at any given point of time. Once verified, the data of a transaction is unchangeable.
Better Quality of Data
As blockchain better captures the information in any forum, the data thus generated is of much better quality than what is obtained through traditional methods. The smart contracts verify every type of contract and enforce it too. When the banking information is moved to shared ledgers, it gets the benefits of blockchain technology.
Banks can gain the benefits of digital currencies by adopting blockchain technology. Digital currencies can be used to complete a variety of transactions. Banks can leverage blockchain technology to clear and settle financial trades in a much more secure and faster manner. Blockchain can also pave the way for to banks adopting a completely digital currency and replacing the traditional physical currency in the future.
Accountability in a Transaction
Blockchain can help a great deal in eliminating fraud or misuse of assets in the banking industry. Since the blockchain-backed transactions are digitally enabled, banks will no longer have to worry about any error occurring due to computer systems or staff. At the same time, the banks will not have to worry about any important information being tampered with or shared with third parties that cannot be trusted. Blockchain will aid efficient record-keeping and help make it easy to verify every transaction consistently.
Compliance is one of the major issues that the banking sector faces. Since blockchain will allow complete transparency in transactions and the immutability of important information, compliance is not difficult to achieve. Auditors can have access to all the information and timely flag any suspicious activity with any account. Blockchain will help save time and make banking a much safer industry.
Since blockchain can detect errors in a timely fashion, it allows the bank to take remedial action immediately as well. Major blunders can be completely avoided as blockchain leaves no scope for human error.
Employing blockchain in the banking industry has several benefits. These benefits have helped the banking sector promise better service to customers. Blockchain, coupled with advanced banking solutions is a recipe for improved operations in the banking sector. Technology enthusiasts are projecting the adoption of blockchain technology in the banking sector to benefit the institutions as well as their patrons.
Vin Boris is a Social Media Marketer and Content Writer at SteemExperts.com, a Blockchain and Steem currency based development, consulting, and marketing firm. Vin Boris has been Outshining in Blockchain Tech. the industry for more than 10 years.