One of the most talked about topic in the banking and the financial industry is that of Blockchain. Blockchain a seemingly unassuming data structure has taken the worlds of banking and financial industry by storm – through the groundbreaking application of what is called the modern crypto-currency.
We find a constant evolution of cryptocurrencies and the popularity of the cryptocurrencies like Bitcoins and Ethereum are showing no signs of waning out. Before we proceed with the use cases of the Blockchain technology in the banking and the financial sectors in the USA, we need to concentrate on “What is Blockchain ?’.
What is Blockchain?
The cryptocurrencies like Bitcoins and Ethereum has at its core the digital and distributed transaction ledger known as Blockchain – that is cryptographically secure in nature. The identical copies of the ledger reside on the network member’s nodes or computers. This digital ledger is meant to store the cryptographic transactions – in a chronological manner as well as publicly.
The transactions in Blockchain are grouped in blocks. The transactions get recorded one after another through a chain of blocks. All the concerned parties can record new transactions and review previous ones. Cryptography ensures that the user will be able to change that part of the Blockchain that is owned by it – with access to the private keys necessary to write the files.
Now, we come to the various use cases of Blockchain Technology in Banking and Financial Sectors.
Blockchain Technology in Banking and Financial Sectors in the USA
Blockchain has a disruptive effect on today’s banking and financial sectors. Following are some of the examples on the application of the technology on the above two sectors:
Blockchain has the ability to store Digital Information including computer code. The concerned parties just need to enter the keys to allow the code to be executed once. The programmed code enables us to use Blockchain to create smart contracts. Moreover, a set of criteria need to be met for carrying out with the execution of the transactions.
A suitable example to cite in this case is the implementation of smart contract in case of big banks in the USA. Because of the public nature of the code and the agreements, there is no need to have any enforcement agencies. Lot many processes can be contracted – without any IT infrastructure.
The Know Your Customer (KYC) has become quite common among the financial institutions as well as abroad. The financial institutions reportedly spend about $ 500 million per year behind such activities.
These KYC activities help to reduce terrorism and money laundering activities. Blockchain enables the verification of one client by one organization, which then becomes accessible to other organizations – with no need to start the process, all over again. This actually helps to reduce the cost for compliance departments.
Blockchain helps to reduce fraud with land or corruption in the banking sectors in the recent scams in USA. The banking sectors which are built around a central database are more susceptible to cyberattacks – with only one point of failure. With Blockchain, this is not at all possible as each block has a timestamp with a set of transactions – the block remains linked with the previous block.
Axis Bank has recently launched with international payment services with the help of Enterprise Blockchain technology. Blockchain has helped the bank to bring innovative services to the bank and provide high value services to the customers. This also makes international remittances faster and transparent in nature.
So far as the banks are concerned, Blockchain reduces the costs for the banks and enhances security – between the banks as well as between the organizations and the clients. Finally, Blockchain will eliminate the need for existing intermediate players.
Finally, we come to the conclusion that the opportunities provided by the application of the Blockchain technology in the banking and financial sectors will only be achievable – while keeping in mind the safety of data and the privacy laws. Moreover, the large set of data requires the need for scalability. The questions on regulatory oversight need to be sorted out.