Blockchain Technology, most commonly known to the masses as the central theme behind Bitcoin, is based on distributed ledger methodology. This innovative and sophisticated technology supports cryptocurrencies such as Bitcoin, and utilizes the principles of cryptography, game theory, and P2P networking, to function.
Blockchain, even though still in its nascent stage, has become one of the hottest topic around the world. Google searches related to “Blockchain” market intelligence shows that the keyword searches for “Blockchain” reported a growth of 1900% since 2013 which proves the point. The technology has gained massive traction worldwide, especially from global financial sector, recently. The primary reason is that blockchain has the potential to address some of the key challenges, and pain-points that have been witnessed over the many years in the financial sector.
Some of the benefits associated with the Blockchain Technology over traditional banking methods are presented below:
Single, Distributed Ledger to Simplify Auditing and Record-Keeping
By allowing all the transactions to be added to a single public ledger, blockchain can help in reducing the clutter, and complications associated with the multiple ledgers in the current banking environment. This will also enable financial institutions to accurately track funds related activities for any particular client, and thus will help in simplifying auditing and record-keeping procedures.
Secure, Distributed Database of Users’ Information
Being decentralized in nature, blockchain doesn’t have a central point of failure, and therefore is better poised to withstand malicious network attacks. In addition, blockchain can help financial institutions in reducing duplication of KYC procedures. It also proves helpful in curbing high expenses related to it by providing a secure, distributed and mutually agreed database of users’ information.
Higher Transparency and Immutability
Blockchain promotes higher transparency by enabling changes made by any party to the public blockchains, which can be viewed by all the parties on the network. It utilizes several network nodes to generate a collective agreement before any data can be written or updated. This makes the transactions processed through blockchains immutable in nature, i.e., they cannot be altered or deleted. As a result, it provides a highly reliable source of data longevity.
Faster Transactions at Lower Costs
In terms of clearing and settlement cycle for interbank transactions, traditional banking methods can be highly inefficient at times, as they often tend to take several days, especially outside of banking hours. In comparison, blockchain has the ability to reduce the transactions cycle to minutes and allows transactions to be processed anytime, from anywhere.
In addition, blockchain also has the ability to reduce transaction costs for users by eliminating any need for third party intermediaries and overhead costs related to exchange of assets.
Despite the growing popularity, blockchain has faced certain pitfalls in the recent times. Some experts are doubting that the technology may be too slow to facilitate a large volume of transactions. In addition, outdated regulatory norms continue to pose hurdles to the adoption of the technology worldwide. However, several financial institutions around the world continues to back the technology and plan to reap the benefits of the technology. This will allow them to adopt to the vision of “banking for the future generation”, and will help in improving efficiency and transparency of the global financial sector through technological integration.
