Blockchain Set to Revolutionize Banking Sector
Blockchain Set to Revolutionize Banking Sector
Blockchain is an all-inclusive solution that can transform the banking industry.
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The banking sector forms the backbone of any economy. With the technology innovations making way into the arena, the banking sector has been moving away from traditional methods. It has shown steady acceptance of modern age banking methods for the faster and more dependable outcome. On the other hand, blockchain technology has gained popularity on a large scale since its introduction in 2008. This development has presented the impending benefits of blockchain technology in the banking sector in terms of transparency and security.
Concerns Related to Present Day Banking
One of the primary aspects of the banking sector is security. Though in India, with more than 90 percent of the transactions are performed in cash, digital channels are increasingly popular nowadays. This has increased the scenario for cybercrime. Cyber attacks are prominent in recent times. The massive data breach of over 3 million debit and credit cards that occurred around 2 years back has shown the prominent security gaps in the banking segment. Another area of concern is the increased occurrence of fraudulent transactions. Reports and sources reveal that there has been approximately a 20 percent increase in bank fraud cases over the past five years.
What Is Blockchain?
Blockchain can be referred to as a shared distributed ledger. It is capable of storing business transaction details through a series of the unbreakable chain. This information can be viewed by the parties involved in the transaction. It is a permanent information footprint of financial business transactions within a distributed network that cannot be altered or tampered. It is already being used as a digital currency in many countries. Its usage has also been preeminent for cross border remittance and trade finance.
The blockchain system can be characterized by permissionless and permission-based systems. The permissionless system refers to an open infrastructure. Any associated party can run a node in this system. New protocols can be implemented and there are no boundaries involved. The transactions in this system are smart contract based.
Permission-based blockchain can be defined as a closed ecosystem. In this infrastructure, information sharing is controlled through a set of authorizations. The information cannot to accessed or viewed by unauthorized persons. This setup can be very effective for centralized organizations like banks. They have full control of the network and the information stored within. Some noteworthy banks have already begun working on the blockchain technology. Bank of America and HSBC are to name a few.
Hyperledger in Blockchain
There are some of the known frameworks for implementing blockchain technology. Hyperledger is the most prominent of them towards implementing a permission-based blockchain. It is an open-source initiative that has been taken up for the advancement of cross-industry blockchain mechanism. It can be referred to as a blockchain-based framework for implementing permission-based blockchain platforms. This will collectively ensure the transparency and longevity of this entire infrastructure.
Blockchain Technology as an Effective Solution
Blockchain can be effective in managing security concerns related to the banking sector. It is a safe and transparent network system that can be effectively used for storage and transmission of financial information. It is also decentralized in nature and there is a lower operational cost in maintaining this network.
Elimination of Mediators
Blockchain technology effectively eliminates the need for mediators within the credit or financial transactions. This result in a significant reduction in costs and banks can provide services to customers at cheaper rates.
The distributed ledger technology of blockchain can be useful for building a dependable client identification system. This can be very useful in performing KYC for customers. The verification is done once and the information is stored permanently and securely for future use.
The verification processes related to the banking procedure can be fast-tracked with this approach. Since the details are already stored in the ledger, the relevant parties can access and verify information easily. It reduces the paperwork to a significant level.
Blockchain has functionalities that can be very instrumental in improving the banking processes. Some of the key areas of implementation of this technology can be information networking, transaction system, and ledger accounting. The network in the blockchain allows comprehensive communication among the participants within the system. The transactions are accounted for through the ledger accounts. The records of these transactions cannot be manipulated. The transaction system allows evaluation of funds based on a universal measurement unit that is independent of all other parameters.
Thus, it is an all-inclusive solution that can transform the banking industry. The transformation will not only make the entire system more secure but also cost-effective. It can be predicted that blockchain is set to positively reform the banking sector on a large scale.
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