Blockchain & the banking sector
- 3 mins
Blockchain technology has received a lot of recognition since its invention and it has gained a lot more in recent years. Thus launching it into conversations amongst banking experts and investors. Because of its transparency and flexibility, blockchain is being adopted by many industries for its growth and development.
The question of whether blockchain and decentralised ledger technology (DLT) will replace or change aspects of the financial sector remains unanswered. And banks’ vocal and public opposition to cryptocurrencies raises the question, “What do banks have to be frightened of?”
The simple answer is “quite a bit.”
Challenges faced by banks.
1 . Continuous Monitoring
As the world is becoming digital, every transaction and payment is becoming digitalized, increasing the responsibilities of banking sectors to monitor and record details periodically.
2 .__ Time Delay__
The presence of external parties during transactions might cause the payment process to take a few days to finish. The time needed to execute each transaction is excessive, resulting in user discontent.
3 .__ Payment Costs__
The involvement of third parties and the long duration of transactions results in high costs for every transaction. These payment costs are enormous and this creates a challenging situation for the Banking sector to engage its users.
4 . Difficulty in Managing Records
Day by day the number of users of the Banking Sector increases at a huge rate and maintaining the complete ledger for storing all the transaction records is becoming a complex task. This leads to an increase in payment time.
The primary advantage of blockchain is its method of verifying and tracking transactions it enables individuals and organizations to process transactions without needing a third party or a central bank.
Many banks have begun to use the technology to provide a viable replacement for systems that rely on intermediaries and third-party transaction confirmation.
This helps in reducing the risk of a counterparty. Users can be assured that transactions will be implemented per the contract, eliminating the need for a trusted third party.
The moment data is stored in a block, it cannot be changed in the future, making blockchain fundamentally secure. It is impossible to shut down or hack since it is shared by many people, and everyone using the system can access it, assuring accountability.
Blockchain is better equipped to survive attacks because of the decentralized nature of the networks, which prevents it from having a single point of failure.
Leveraging the distributed ledger approach to form a system that decentralizes trust, banks can decrease transaction fees significantly by eliminating third-party intermediaries and overhead costs for exchanging assets.
The removal of the intermediary has allowed procedures like cross-border payments, trade, and settlement to become faster, more reliable, and less expensive.
The removal of mediators reduces the settlement time to mere seconds and transaction time to minutes.
This also allows transactions to be processed 24/7. As blockchain helps banks to store data in blocks using a tamper-proof format, it lets them improve the mobility of data and decrease the time put into KYC efforts.
It also allows transactional processes from payment to settlement to be fully automated and removes documentation delays caused by duplication. Blockchain data is complete, accurate, and reliable.
Additionally, adding all transactions to a single, publicly available ledger eliminates the disorder and complexity associated with multiple ledgers.
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