Advantages of blockchain in the banking sector
Everybody, who has been following any part of the financial industry over the last 5–10 years have already heard about blockchain and bitcoin. At first blush, it seems really complicated but the main concept is not so difficult. Most of the users say it’s quite simple. Do you want to know about BC-based technology? Continues reading!
Blockchain is a special type of database with openly and decentralized registry. It can be viewed, tried, checked and accessed by everybody.
Firstly, blockchain was used as a special service for secure accounting information systems and cryptocurrency trading. The main feature of the system is its ability to decentralize management. These units verify the transaction. All processes of verification based on certain algorithms that check all actions. It is monitored by all PCs to avoid different failures. Now we know 2 blockchain generations.
The 1st generation
The first one was a special registry. His main function was recording information about cryptocurrency exchange. The technology used the form of a chain of interconnected blocks. And everybody can contribute to the verification and participate in cryptocurrency trading. This type of verification is characterized by special pre-code rules.
Let’s see it by example:
Some data is sent to the blockchain registry. Then, when the transaction is confirmed and published, all records will be shared between the other chain. Also it will be cryptographically sealed. It makes nearly impossible for any destruction and tampering actions.
The first generation blockchain is characterized by strong protection against hacking, good authentication and decentralization.
Characteristics of decentralization
It is characterized by the ability for everybody to jointly control and manage the entry (login)system. In addition, it allows access to the list of operations for all users in this network.
Characteristics of strong authentication
Strong authentication — means that we can check and verify the identity of any part of different blockchain transactions. After that, data is placed on the system, it becomes irreversible and immutable. This technology makes the BC-system resistant to hacking.
According to the information, we can see that these key features serve as a foundation of a new accounting system. It prevents documents or accounts from being deleted, changed or shared.
The 2d generation
Second one is well-known as a “smart contracts”. That tool is a new type of application. Smart contract is “user-defined programs that define transactions that govern rules” (Kevin Delmolino, Mitchell Arnett, Ahmed Cosba, Andrew Miller, and Elaine Shea, “Step by step to creating a secure smart contract,” November 18, 2015).
Smart contracts perform certain tasks. It can run securely on the technology. More importantly, any part can be changed, verified, checked and moved according to the built-in rules. And all users can create their own rules.
The best advantages of BC-technology
Since 2008, technology has shown different positive changes in various industries. Its core features, such as transparency, immutability, security, speed, and decentralization, have helped various industries operate globally with maximum potential. Thanks to its advanced features and capabilities, blockchain has helped various industries to easily master the global market.
Finance is the leader of industry. All popular finance companies are testing the blockchain. It is interesting for this business, because it can be used for money transfers, accounting and other support functions.
The blockchain application changes the paper-intensive process of financing international trade to an electronic decentralized register that gives all participating organizations, including finance structures, the ability to access a single source of information.
More importantly, it allows them to track all documentation and confirm ownership of assets digitally in the form of an immutable Ledger in real time.
5 ways how banks can benefit from blockchain technology
First step: instant calculations
Actually, currently calculations can take a lot of time. Sometimes it can be during a week. Thanks to the Blockchan, operations can be executed immediately. For example, for one transaction we need 1 or 2 second, for a big transaction — 1 minute. It is a very short period. If we compare with standard bank transactions, we can see that technology can save a lot of money and time for clients and banks.
Instant calculations have another good reason for the finance sector. Thanks to speed of operations, most banks don’t need so many offices and employees. It helps savings into financial assets. That’s why banks have an important reason to explore blockchain to improve and optimize settlements.
Second step: increased security
Thanks to operations being carried instantly (almost all time), a significant part of the risk is eliminated. Because of the seed of transaction counterparty will have no time to fulfill obligations. When information is published to a block, nobody can change or delete it. Thanks to it the blockchain is very secure and safe. Another point — number of users. Since it is used by a lot of people from all over the world, it’s rather difficult to hack or disable the system.
Third step: Smart Contracts
If banks and other financial institutions use SC, it will significantly improve performance of terms, as SCs are executed immediately and automatically. It uses algorithms (pre-set conditions).
Another important thing — Smart Contracts are based on the law. In different countries, there are different regulatory requirements. It’s very important to follow state jurisdiction. Through automatic settlement, Smart Contracts use a strict set of business rules.
Fourth step: increased accessibility and transparency
Another advantage of blockchain technology is accessibility and transparency. All users of the system can get details of any operation. All they need — Internet access. The technology records all operations and saves data. So anywhere anybody anytime can easily get access to see history.
Fifth step: reduced cost
One of the most important advantages of the blockchain is reduced cost. It means that thanks to technology, banks and other financial companies can optimize processes. It offers company not only just excellent performance, it shows the new way for increased customer satisfaction, security, efficiency. That’s why blockchain save a lot of money. For example, in 2022 banks expect that technology will help to reduce costs by 15 000 000- 20 000 000$.
Conclusion
According to many different research it’s clear that in future we will use blockchain all over the place. The special role will take technology in the financial industry. Blockchain is a modern, real-time and robust platform with open-source code. It helps financial sector solve many problems:
1. Reduce cost.
2. Optimize processes.
3. Increase speed.
But the most important key is the joint efforts of different industries to make a best and powerful network that can solve most of the necessary and urgent problems. To develop technology banks and other non-fanatical organizations need to work together. Only joint development can help to build a powerful world system.
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