Over a million developers have joined DZone.
{{announcement.body}}
{{announcement.title}}

Using Blockchain and Cryptocurrency for an Improved Banking System

DZone's Guide to

Using Blockchain and Cryptocurrency for an Improved Banking System

Blockchain and cryptocurrency may be the future of secure banking needs. Read more in this article about the benefits of blockchain in banking systems.

· Security Zone ·
Free Resource

Discover how to provide active runtime protection for your web applications from known and unknown vulnerabilities including Remote Code Execution Attacks.

The finance industry is always looking for ways to explore the use of blockchain and cryptocurrencies in banking. They are looking for a new innovative technology that can challenge some of the traditional business models (processes/operations) of banking that could bring the progress to a halt. Many prominent banks, like CitiBank, Santander, and UBS, have already begun embracing the fact that disruption caused by cryptocurrency technology can bring a positive change in the banking sector in the near future.

Due to the blockchain’s ability to store encrypted transactions in an authenticated shared ledger system, it makes it an excellent solution to secure banking demands. Afterwards, it enables banks and individuals to send assets all over the world in a credible, secure, and traceable way. Security concerns are always paramount to Fintech, especially global and national banks.

In blockchain, the block that stores data gets protected using public-private key encryption. This makes a user access data, if he holds the private key. It is what confuses the information stored within cryptocurrencies and, therefore, helping in the prevention of data theft.

Now, read on to know how blockchain and cryptocurrency in banking can be used to create an innovative form of the banking system.

Blockchain and Cryptocurrency in Banking: No Need for Intermediaries

It’s the area that Fintech experts are looking to explore new ways to use cryptocurrency technology in banking to get rid of intermediaries, due to its standard cryptography-based security infrastructure. It brings an automated intermediary system into existence, removing the need for existing centralized ledger systems that play the role of a custodian.

In the blockchain, there is no need for a centralized ledger system — it’s based on a decentralized trust model that’s not controlled by even a single entity. According to expert market researchers, we can expect blockchain syndicated loans soon; however, the finance industry will need to align with these standards. They will need to set up checks and balances beforehand so that the blockchain technology can make its way into the sector.

Voting

Another disruption from cryptocurrency technology can be found in the finance sector while expecting ‘voting management.' Using the blockchain technology as a proxy voting mechanism can maintain the stability of electronic voting along with increased security measures. In fact, the NASDAQ chief announced that the Estonian NASDAQ market will incorporate the use of blockchain based technology to enable proxy voting at AGMs.

Shares and Dividends

Cryptocurrency developers are modifying cryptocurrency technology to accommodate the issuance of dividends and shares. In 2017, the U.S. Security and Exchange Commission (SEC) allowed the use of blockchain technology to enable Internet Trader Overstack.com and issue the company shares.

Use Blockchain as a Proof Chain

A group of users verifies the transactions stored in the blockchain database and not by a single entity, thus, increasing the level of trust and leaving no single point of failure. Additionally, the technology individually timestamps and cryptographically signs each of part of the block in the chain.

So, if any process is asking for a proof-of-validity and documentation, banks can, instead, use individual blocks for identity verification. Companies can use blockchain to create certified and verified entities that bring a level of assurance to the fore when executing financial transactions.

What Type of Blockchain to Use?

There are various types of blockchain, mainly falling into the category of either private and public. Although companies like Ethereum and Ripple could propose to use their blockchain, blockchain communities and banks don’t like to depend on a company to transfer their assets.

Conclusion

Indeed, cryptocurrencies’ underlying technology, the blockchain, is being taken into consideration by the banking industry. Analysts have found that 94 percent of financial professionals involved in the survey believed that cryptocurrency in banking has the potential to bring about effective outcomes.

Find out how Waratek’s award-winning application security platform can improve the security of your new and legacy applications and platforms with no false positives, code changes or slowing your application.

Topics:
blockchain ,blockchain technology ,security ,cryptocurrency ,fintech

Opinions expressed by DZone contributors are their own.

{{ parent.title || parent.header.title}}

{{ parent.tldr }}

{{ parent.urlSource.name }}