The world of banks has existed for centuries and it seems like over time their principles and methods haven’t changed much. Yes, we now have instant international payments, different types of loans, mobile banking etc. but the way they operate remained pretty much the same.
So, how the financial sector can evolve into something different just to be prepared for the future?
Well, this is where blockchain technology comes in handy. No, this is not about cryptocurrencies. It is about the technology that powers cryptocurrencies.
Ever since the release of blockchain technology, people have found numerous use cases for it. From NFTs to faster transactions, and lower fees.
So, can the blockchain technology be used in traditional banking? And how will this technology impact the financial services we use today?
Let’s find out.
What’s Blockchain Technology?
Investigating the true nature of blockchain technology is a necessary first step before implementing it in banking. The world was first exposed to a new form of money, the first successful digital currency, fourteen years ago. The purpose of Bitcoin is to enable individuals to take back control of their money from banks and other organizations by serving as an alternative to fiat currencies.
This new kind of money, referred to as a cryptocurrency, only lives online on a novel kind of network known as a blockchain since it lacks a physical form.
With the new technology, information is stored in blocks that are connected to one another to create a chain-like digital ledger. Every block builds upon the information in the one before it, thus alterations to one would have an impact on the entire chain.
Blockchain was originally intended to be a site where Bitcoin could be created—or “mined” in the jargon used in the cryptocurrency industry—and where its transactions could take place. Since a large number of individuals worldwide monitor the accurate fulfillment of actions on the blockchain, the users were granted authority over these processes. The technology’s applications grew beyond serving as a platform for virtual currency as time went on and it became more widely used.
Blockchain was reintroduced some years after its formal debut. Private blockchain, also known as enterprise blockchain, was developed to benefit businesses. With one significant exception, this new technological modification provided the company with the same advantages as its predecessor: security, traceability, and speed.
Is Collaboration Between Blockchain and Banking Possible?
It may have crossed your mind to hear that the purpose of cryptocurrencies and the technology that supports them is to displace fiat currency. Then, how would one ever talk about blockchain in the financial industry?
A business by the name of Surety unveiled the first blockchain technology prototype toward the close of the previous century. It served as a trustworthy means of storing data and proving ownership. Satoshi Nakamoto’s version of the blockchain, which accompanied Bitcoin, made use of technology for banking.
These various facets of the technology are precisely what allow us to discuss the link between blockchain and banking. For starters, banks may utilize it to store client data securely and encrypted. Financial activities may also serve this role, as money is money regardless of whether it is in digital or physical form.
Nowadays, banks and financial platforms offer many tools to users. Services like genome.eu for e-commerce, which streamlines digital operations and makes it easier for business owners to run international companies.
However, the introduction of blockchain technology to the world of finance, will add even more features and make the entire system more secure.
Benefits of Blockchain Used in Traditional Banks
Fast Transactions
Offering quicker transactions is one of blockchain’s key benefits for banks. Any transaction may be completed in a few seconds, which is a little quicker than with other conventional techniques.
Because they can now cut out intermediaries, banks can guarantee that consumers finish transactions more quickly. Customers and banks will be able to execute and process more transactions as a consequence.
Enhanced Safety and Security
Banks can improve the security of transaction information by using shared ledgers.
They will be able to swiftly finish a transaction and lower the possibility that someone may intercept transaction data or redirect funds. For every transaction, there are two security keys. A private key is shared by the participants in a specific transaction, whereas a public key is accessible to all users. After it has been validated, transaction data cannot be altered.
Central Bank Digital Currency (CBDC)
Central banks, as opposed to commercial ones, are another group of institutions that employ blockchain technology. Offering central bank digital currency would be a step further in the transformation of finance (CBDC).
Instead of being a brand-new form of money, this is only a national currency in digital form that can be utilized for legitimate transactions. Issuing it on behalf of a nation and its central bank, represents a significant advancement in the digital transformation of financial services.
System of Alternative Settlement
The simplicity of blockchain technology is one of its main selling advantages in comparison to conventional financial services. In the best of circumstances, you can transfer money via this kind of network in a matter of minutes.
Conversely, banks continue to have difficulties with drawn-out settlement processes that are hampered by several middlemen and intermediates. This is where one of blockchain’s most evident applications in banking occurs.
Blockchain technology can overcome laborious processes in place of centralized processing methods. This allows for speedier timings and simpler standards for both the bank and the consumer, enabling transactions to be completed and tracked in a matter of hours rather than days.
One-Way Ticket to the Metaverse
We talk about the Metaverse, where people will live virtually, but the financial sector needs to advance in order for the Metaverse to make sense. You cannot think about starting a Metaverse business, without having the ability to accept cryptocurrencies.
Therefore, the introduction of blockchain technology to the traditional financial industry is the only way to prepare for the future.
Verification of Digital Identity
Similar to the applications-focused use case previously mentioned, blockchain technology in banking may be applied to digital identity verification. The majority of banks already provide their clients with websites or mobile banking applications where they may do different types of transactions.