Decentralized Technology is Poised to Change the Banking Landscape

Blockchain was invented in 2008 and is now banking at a fast pace and has since taken the Internet by storm. 

However, as Blockchain continues to draw new followers, can the banking industry adapt or will blockchain totally replace it?

We have been seeing that several major financial institutions are publicly showing their interest in the blockchain. For instance, the BNP Paribas, a big investment bank, has announced that it will start to check the way blockchain can be used for order processing.

NASDAQ OMX Group, a tech-focused stock exchange, has already said that they are using the Blockchain technology to minimize the time and costs in various capital markets. Another is the BlockLoan model, which is a decentralized crypto platform that offers lending solutions to borrowers.

But these are not the only example. Goldman Sachs, together with other leading banks, has been showing growing interest in Blockchain as well.

How Blockchain Could Affect Traditional Banking

Blockchain will no doubt affect almost every part of the banking system. Let’s have a look at the various aspects of the banking system and how Blockchain could potentially disrupt them.

• Payments

The most important bank functions are to keep funds, transfer money, as well as send and receive payments. By removing the need for transactions to be approved, blockchain can help push faster payments forward at a much lower fee unlike the technology used in traditional banking.

• Traditional Loans

Acquiring a mortgage or a car loan could usually take several months to be approved. Just imagine securing a loan almost instantly and with a strong contract to go with it. With blockchain, there’s no longer a need for underwriters since there will be smart contracts that will handle all the issues.

• Settlement

Let’s consider trading stocks, for instance. It will normally a lot of time to sell an order you’ve made. However, with blockchain technology, the transaction will be almost instant.

Overstock is an ideal example. They announced that they are developing an asset exchange known as the T0 to issue corporate bonds to investors directly. A Bitcoin exchange known as the Coin setter has also announced recently that they will release a platform that’s blockchain-based to be used in clearing transactions that could possibly be settled in as low as 10 minutes.

With blockchain, the settlement could be done immediately. Banks have estimated that using the Blockchain technology in settlements can save up to $20 billion.

• Account Deposits

Consumers would prefer to keep most of their funds in a bank account, but what they don’t know is what the banks do with the money you have in them. As soon as you deposit your money, the bank will loan most of it through reserve banking.

This is the reason why there’s often a huge panic if customers would choose to withdraw their money all at once.

However, with the Blockchain technology, traditional banks will have an alternative solution when panic arises since the blockchain serves as a ledger for several accounting entries.

Which Blockchain Companies Are Disrupting Banking

Like startup companies, Blockchain companies are looking into creating innovation to make an impact in traditional financial tech and banking.

Among the biggest benefits that traditional banks can get in using the Blockchain technology is the cost.

BitPay is a good example. It’s a company that functions as a Bitcoin payment provider and helps sellers accept Bitcoin. The company has significantly increased its payment volume by more than 350 percent in the past year, where merchants are getting more than $100 million each month. Another company, known as Stripe, also functions by processing payments, but they charge close to 3 percent while BitPay charges only 1 percent for every transaction.

If traditional banks consider adopting the blockchain technology, they will be able to reduce their costs significantly.

Another example is the TenX, a cryptocurrency. This platform has a wallet, bank account, physical debit card, ATMs, and more.

The biggest advantage of TenX is that it provides free spending and they don’t charge any exchange fees. They only require payment for their physical cards. The platform itself supports Ethereum, DASH, and Bitcoin.

The platform will also allow you to use blockchain assets and enjoy the same convenience as when using local currencies. This will also allow you to conveniently send money all over the world in a fast and secure way without paying any fee.

It’s not possible to come up with an article about Blockchain disrupting the traditional banking system without mentioning Ripple (XRP).

For instance, you want to transfer money to a family member abroad. In traditional banking, the process will require going through the SWIFT system.

SWIFT protocol doesn’t send the money. It merely sends the payment orders, and the money will be processed by another system. Every order made will add additional cost to the transaction, and this leads to a high risk of failure.

On the other hand, the blockchain technology, which uses a decentralized “ledger,” will be able to disrupt this process and entirely eliminate the need to use the SWIFT system. This is where Ripple comes in. This company is looking to partner with banks to eliminate the need to use the SWIFT system, resulting in a faster clearance.              

The current product of Ripple gives banks a two-way communication protocol that allows real-time settlement. This is not just another theory or gimmick. In fact, Ripple has already worked with more than 100 banks that are mainly based in Europe to implement the technology.

Stellar, Ripple’s competitor, is thinking of doing something similar. Stellar used to be part of Ripple, but not anymore. It has now become a direct competitor of the company and does the same path-finding process of the best cross-asset combinations. However, there are a few differences in the consensus algorithm, and that’s how both are offered.

Industries That Blockchain Will Disrupt Next

Although the mainstream financial institutions in the United States have generally been reluctant in taking a leap towards cryptocurrency head first, a lot of industries and companies have been more likely to explore the possibilities of using the blockchain technology.

Businesses have already explored the various ways in which Blockchain can revolutionize the way cross-border payments are made and the way in which data secrecy and data identity is enhanced. They have also looked into the manner in which smart contracts could extend the functionality into the mainstream world of business.

As a distributed ledger technology, blockchain allows cryptocurrencies to work as they normally would. It might even extend its effect beyond the realm of cryptocurrencies.

We’ll explore below some of the industries that blockchain may soon revolutionize.

• Insurance

The insurance industry is primed for the integration of the Blockchain technology. With the use of the distributed ledger’s unique verification process, insurance companies would be able to independently verify data within contracts to allow for a smoother process in every stage.

• Voting

It’s a major concern all over the world to ensure that the process of voting is fair and accountable. Blockchain can greatly help enhance the process and increase the security and reliability in the voting process. With the help of the Blockchain technology, the process of voting will be greatly improved including the registration process and vote counting. Above all, since the distributed ledger of Blockchain is accessible to the public, this can help enhance the transparency of the voting process.

• Forecasting

Some companies, including Augur, have already been using blockchain in developing a decentralized market. There are several forecasting applications applicable to Blockchain aside from these types of wager systems. Indeed, blockchain can help streamline the organization of data in forecasting, ranging from weather updates to traffic.

• Government

Many consider the government to be synonymous with bureaucratic slowdowns and red tape. Also, several aspects of the government are not transparent and efficient, and this means that they are highly prone to corruption. With the help of blockchain, several procedures in the government can be streamlined, which decreases bureaucratic holdup while improving transparency and information security.

• Crowdfunding

Crowdfunding has become significantly popular in the recent years and has become one of the most popular means for people to gather funds for various types of projects. The source of crowdfunding is a relationship of trust between people who are willing to contribute and those who are seeking funding to support their goals or projects. Crowdfunding sites sustain themselves by charging fees for their services and acting as a middleman between the givers and the developers of the projects. The blockchain technology can help minimize the need for a middleman in crowdfunding, which easily connects givers and project managers more efficiently.

• Retail

Individual shoppers, whether they shop online or in a regular store, place their trust in the retail system. With the Blockchain technology, buyers and sellers could come together directly and eliminate the need for a middleman, while keeping the prices highly competitive. Smart contracts can also be developed to improve the process and enhance security as well.

• Real Estate

The real estate industry is seen as both fraud and bureaucratic due to a lack of transparency. Blockchain can help speed up the process within the industry and keep their public record honest. By eliminating the use of paperwork and speeding up the process of verifying and tracking ownership, the blockchain technology can help improve the real estate industry in many ways.

Could Blockchain Be More Secure than Banks?

One of the issues that have plagued blockchain since its inception is predictability. Since the transactions within the technology are limitless, and there’s no single governing body that will oversee its maintenance, the technology itself is prone to lack of predictability, which some users would find disconcerting. Not only that, but there’s an inherent point of view of vulnerability if you look at it from a security perspective.

Possible Solutions to Security Issues

Several attacks on blockchain have already happened. These attacks have temporarily and permanently separated users from their assets linked to the blockchain.

So how can these issues be avoided?

Transaction limits and adjustable spend are currently being put in place in various bank accounts to prevent illegal transactions that could sabotage these accounts.

There are several ways to this – verification of user identity is the most critical step and can be accomplished through voice authentication and via a two-step verification. This process of verification makes use of vocal passphrases and voice authentication in verifying the identity of a user before allowing a transaction to take place.

These security measures can lead to many potential benefits. Additional security within the Blockchain technology can precipitate the degree of predictability and in return, earn users’ trust. When the trust of the users is earned, there will be increased confidence in Blockchain, and new business opportunities will open up.

Conclusion

The blockchain is still in its early stages of growth. Slowly, the traditional banking industry and the average consumers are slowly adapting to it, but many believe that such technology will be here to stay. 

A lot of people believe that blockchain will soon be taking over the traditional banking by storm and will disrupt the entire banking industry. Others also believe that blockchain can be only used as a support or as an addition to the current banking solutions. But regardless of which path blockchain will end up with, there will soon be a significant change in the traditional banking industry, thanks to the upcoming blockchain solutions.