The banking industry has been progressing towards digitalization, such as mobile banking, but Blockchain has received comparatively less attention.
In this blog we will see how Blockchain can completely transform the industry by making it more open, efficient, safe, and affordable.
Blockchain has been a popular topic of conversation in recent years. Also it is not surprising when looked at its profound impact on a wide range of businesses. The widespread use of blockchain technology promises to transform many industries, not just banking but also healthcare, government, retail, and more.
A blockchain is an immutable public database or distributed ledger of records that are freely shared among many users. This exchanging of data is encrypted using a secret key so they cannot be altered.
Let us put it simply, Blockchain is one of the most frequently used fintech tools. It often comprises cryptocurrency and enhances the safety of a broad range of financial transactions. Banks use Blockchain to record details of transactions like the time and cost of a recent purchase.
Table of Contents
- What is Blockchain Technology in Banking?
- How does Blockchain Work in Banking?
- Flaws in today’s banking system?
- What benefits has Blockchain brought to the banking industry?
- Wrapping up
What is Blockchain Technology in Banking?
Blockchain technology is a kind of distributed ledger that prevents any modifications, hacking, or manipulation of data. It records transactions twice on all computers that are a part of the Blockchain.
Blockchain technology is a structure. This structure holds transactional records of the public in numerous databases known as a block. And this whole structure is known as the “chain.” These databases are linked by peer-to-peer nodes in a network. This kind of database is often known as a “digital ledger.”
A digital signature generated by the ledger’s owner authenticates and protects each transaction against fraud. Therefore, the data stored in the digital ledger is very safe.
To put it another way, the digital ledger stores records of transactions based on actual purchases and can be accessed by several computers on a network, much like a Google spreadsheet. The intriguing aspect is that everybody can see the data, but nobody can alter it. This is the reason why many organizations are looking for reliable blockchain application development services.
How does Blockchain Work in Banking?
Blockchain technology relies on a multi-step process to function, which may be summed up as follows in its most basic form:
- A transaction is entered by a participant who is authorized to do so, and the technology then authenticates it.
- In doing so, a block is generated that records that particular set of business transactions.
- Each device in the network receives the block at the same time.
- Once authorized nodes have verified the transaction, the new block is added to the Blockchain. (Nodes in public blockchain networks are referred to as miners and are frequently compensated for this activity in the form of cryptocurrency. This payment is usually made possible by a mechanism known as Proof of Work, or PoW.)
- The transaction is completed after the update is broadcasted to all nodes in the network.
- These processes occur in real-time and include a variety of other elements.
Flaws in today’s banking system
Whenever we feel the need to protect & save our money, the primary duty of keeping it secure and safe falls on the shoulders of the nation’s banks and other financial institutions. This requires a lot of paperwork and intermediaries, which might slow down and increase the expense of the whole banking process.
In addition, the banking industry is vulnerable to mistakes, hazards, and fraud because of the prevalence of manual operations and human mediators.
With increased decentralization, transparency, and security, Blockchain has the potential to address problems plaguing the traditional banking sector. Let’s look at how different applications of Blockchain technology in banking might help us face these obstacles. Hence, you should also look for some good blockchain development service for your organization to keep your data safe.
What benefits has Blockchain brought to the banking industry?
In particular, Blockchain app development can help the banking sector address its most critical problems. Let us go through some of these issues and how Blockchain technology might help:
It provides better protection & lessens fraud
Since Blockchain generates an accurate audit trail, blockchain technology also assists in combating financial fraud. Due to its various layers of redundancy, it is challenging to modify data after it has been posted to the system.
Because of such decentralised structure of the Blockchain network, a hacker cannot alter data without leaving a trace since a different computer maintains each block. This feature of Blockchain makes it particularly relevant in the present global context of severe cyber crime and widespread ransomware attacks that may compromise sensitive information and lead to the loss of thousands of victims.
Banks & consumers both save money
Blockchain assists banks in saving money in a number of ways. Banks discovered that if they start using blockchain technology, it could help them save up to $20 billion on infrastructure expenditures.
As we know, the traditional banking industry employs many intermediaries and mediators to facilitate transactions and interactions. Hence, blockchain technology is being used in the banking industry to facilitate the execution of administrative tasks and the maintenance of contracts. The use of intermediaries in this way raises transaction costs to their maximum. The need for communicating with intermediaries is thereby reduced. As a consequence, this contributes to general cost savings.
It mitigates human error
Reports from various sources indicate that human mistake is a popular argument for fraudulent behaviour in accounting, record-keeping, and reconciliation. In security operations, innocent human mistakes or neglect frequently lead to enormous cyber security vulnerabilities.
Thus, Blockchain automatically records transactions to prevent them from being changed later. As a result, many manual procedures are eliminated with this technology, which reduces human error, boosts productivity, and lessens the effects of cyber risks.
It speeds up money transfers across borders
Blockchain offers the ability to streamline and reduce the fees associated with international wire transfers and other monetary operations while increasing transparency and security. International money transfers may be complex, time-consuming ordeals involving several intermediaries.
Blockchain technology allows for more efficient and expedited peer-to-peer transactions between companies and customers on a global scale, such as using a Bitcoin wallet. Each of these parties receives a portion of the profits made by the transaction. This implies that the sender may lose substantial money before the money reaches its recipient.
Blockchain may be considered an immutable digital ledger that records financial transactions between individuals or businesses. After being verified by a network of computers, a transaction is added to the Blockchain and can never be altered.
We can say that Blockchain technology is slowly entering the banking and financial services sector also. This technology can help improve financial security as it is projected to increase the safety of digital assets and the efficiency of international banking operations across the board, from remittances to stock trading to cross-border payments.
The primary benefit of Blockchain for the banking sector is that it provides the highest degree of security and accessibility that any financial organisation could hope for. For this reason, Blockchain technology is expected to eventually alter the nature of the banking sector.
Now this shows that blockchain technology is not only something that banks or financial institutions require. As security of data is the major element every organization needs. Incase you are also in need for a trustworthy blockchain app development company, look no further than Master Infotech.