How Blockchain Technology Disrupts Traditional Banking Architecture
The modern electronic currency, Bitcoin functions as a robust alternative to traditional currencies. The software behind the digital currency, Blockchain technology provides an innovative direction to modernize banking infrastructure and customer interactions by eliminating the need for a lot of manual processing. With increased number of advantages being owned, the power of blockchain is implemented by big banks and few government organizations to revolutionize the way transactions are processed.
Blockchain and Banking
Blockchain is a distributed global ledger which leverages the resources of a large peer-to-peer bitcoin network to verify each transaction. Every single transaction conducted is stored and verified in a block that is linked to a preceding block, creating a chain. By ensuring integrity and trust, blockchain focuses on its potential to fundamentally change the banking industry. Of all the start-up initiatives, classified under Fintech, blockchain has received the most attention.
Blockchain does not require a central independent party as banks to play a mediator in payment transactions. This distributive ledger technology is soon expected to shake-up the present centralized systems. Being less vulnerable to frauds and involving the use of a centralized electronic ledger, bitcoin transactions ensure quick and secured identity authentication without requiring warehouse data at third-party repositories.
- Payments and transfers - Bitcoins acts as a digital money to send payments in money-form around the globe. These transactions take place in a matter of minutes and in a much cheaper way. When applied to cross-border payments, the benefits could result in a real-time settlement. Bicoin initiates a simple, digital, transparent and trustworthy system for money transfer.
- Smart contracts - Blockchain’s smart contracts could shrink the time between loan approval and loan funding. They also streamline syndication, counterparty management and other lengthy processes.
- Less space for cybercrime - Finance industry is particularly at risk due to the growing number of cyber threats. Blockchain is again gaining attention because of its distributed structure and core encryption technology that keeps it secure. The further development of blockchain entails significant enhancements such as homomorphic encryption and multi-party computation. It not only plays a role in altering the way payments and transactions in the capital markets are undertaken but also in the way next-gen financial systems are secured.
- P2P Lending - With its ability to create public decentralized ledgers, Blockchain technology is also used by companies in P2P lending industry. It allows the borrower to define their own rates and other parameters with optional soft credit checks.
Blockchain - The Future of banking
Heightened security, reduced cost, reliability and speed in processing trusted transactions are all the major reasons which make blockchain a preferred technology. By offering potential solutions addressing the current challenges, the future of this technology looks bright regardless of anti-money laundering (AML) risk management. As more and more banks test and create their own blockchain systems, it is possible that this technology will soon become the standard in finance.
Although, the technology is still in its incunabulum, the popularity and interest are on the rise. If it’s about satisfying the needs of consumers, banks should definitely adopt the bitcoin technology to get rid of their legacy IT systems and renovate business processes. The advantages of real-time services across digital IT structures enabled by blockchain would turn banks as improved business facilitators and more accessible to people.
