Blockchain replaces the need for third-party money transferring systems like banks
Blockchain is a new technology which is impacting so many other markets. These days, the effects of blockchain on the banking sector is one of the hot topics. To know the details first we have to understand what is the blockchain and what is the main objective of blockchain.
What is the blockchain?
Blockchain is something which we can relate to the chain of blocks existed digitally. It is a decentralised system which keeps records of all types of transactions made between two or more parties in scripted language with the help of cryptography.
The process behind this is the combination of people’s or distributors databases and some technology known as cryptography. Every transaction made in the blockchain is recorded with the combination of both of them.
The data is stored in the forms of records usually called as recorded with the identical information of the distributor and the cryptography. And when a decentralised ledger is readily filled with transactions done between two parties is named as their blockchain.
Two parties can have one blockchain and one party can have more than one blockchains. It is a type of digital ledger made with the cryptography to keep the transactions secure.
How are blockchain and banking linked with each other?
To describe the link of the blockchain and banking I would like to give the example of the internet and media. The technology is impacting banking so much in the case of data processing systems and payment functions. It is also proved effective in fraud detection and reduction.
These days, if we talk about money transfer, which is very essentially used by people, it is a sort of time-consuming processes. And if you are transferring money with the help of the third party then you have to pay some fee to them as well.
But, blockchain works to reduce the number of these third-party platforms to save time and money of the users. In so many cases transferring money also became a medium of fraud for thefts and hackers but with the increased security provided by the blockchain, this risk is also reduced by a huge percentage. This also helps to reduce the processing cost and e-commerce transactions.
However, if we talk about the back office of banks, it eliminated the traditional roles of the banking officials. (Read: Blockchain and Storage bridging the Gap)
Blockchain also won the trust of businessmen and e-commerce parties in terms of money transfer because of its security and shared records between two parties. Also, it increases the swiftness of money and keeps the real-time transactions for the flow of cash and capital.
According to some experts with the introduction of blockchain, the existence of physical money and cash will come to an end. It is also challenging the banks in terms of controlling the monetary policies, and maybe it is the star of the end of traditional banking.
Obviously, if people and business proprietors get a better system which is even more secure then why would they rely on the third party money transferring systems like banks.
The rise of blockchain is considered as the rise of non-banking as well as untraditional financial organizations with the ability to decrease the additional costs of the customer.
What are the major features that make blockchain better for banking?
So many banking organisations are adopting blockchain to provide their customers with better services with the factors of money transfer, transaction security and digital recorded keeping feature. Its high time to know why banks need to adopt this technology and how this is different from traditional banking.
So many banking organisations are equipped with blockchain development to provide their customers with better services with the factors of money transfer, transaction security and digital recorded keeping feature. Its high time to know why banks need to adopt this technology and how this is different from traditional banking.
1. Fraud Reduction
Blockchain is considered as the safest technology for money transferring and according to some facts with the boom of this technology fraud in the world’s transaction system reduces up to 40 per cent. With the help of blockchain hacking attacks on the banking system reduces a lot. This happens because blockchain cryptography is used to keep a record of the transactions made between two parties.
KYC is the abbreviated name of Know Your Customer. According to a survey financial institutions spend so much money in KYC to get the details of their customers. KYC is basically helpful to reduce the cases of money laundering and terrorist activities. Now in so many countries in the world, it is very important to approve KYC to buy even a SIM card. Blockchain is responsible for providing an organisation full access to verify the details of the customers through other organizations, which can also be described as repetitive KYC.
3. Smart Agreements
Blockchain is committed to recording all types of transactions digitally, even the IP of the computer system used to make a transaction. According to criteria, a transaction is only taking place when the system detects the IP address of the computer which is actually a smart move.
Blockchain is highly used in the cases of money transfer or we can say payments. It allows the banks and customers higher quality with reduced cost to process transactions between two parties which can be the bank and the customers as well. Blockchain says goodbye to all other payment processing systems.
5. Trade finance
This is known as the most helpful application of technology. You can make complex transactions through these features between one or more parties. Whenever specified conditions are met then this feature is all ready to show the details of transactions made between the parties automatically. This is a type of onboard network to share information between all the concerned people.
I guess this article has enough information to do justice to the topic and provide you with the right information.
As we can see, blockchain can make banking much better but there are so many other financial institutions which don’t want to adopt blockchain yet.
But, with the introduction of technology, we can expect many changes in the case of money transfer, investment and other mediums of banking. The above benefits of blockchain are not to push traditional banks down but to facilitate the transition of digital banks.
Muthamilselvan is a passionate Content Marketer and SEO Analyst. He has 4 years of hands on experience in Digital Marketing with IT and Service sectors.
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