Blockchain has the potential to transform the entire finance industry, from payments and transactions to how money is invested in the market. Invented by Satoshi Nakamoto in 2008, blockchain technology allows is a decentralised public ledger platform that facilitates transactions between two parties securely and transparently. Through blockchain, individuals and businesses have complete control over their transactions because the technology lacks a central authority. Therefore, blockchain has the potential to the relationship between businesses and their digital assets. But how could traditional banking be affected by the rise of blockchain?

Transparency

One of the key benefits of blockchain is its transparency. Blockchain technology is a digital ledger of connected systems where every transaction is recorded and added to the “chain”. This means transactions are digitally distributed rather than transferred, which means users can review every single transaction in real-time, making for a much more efficient process. Major banks have adopted blockchain technology for electronic transfers to save time and money, and to create a better customer experience. And according to Swiss Info, crypto banks such as SEBA and Sygnum have attracted around $200 million from investors to expand their services. Blockchain makes data transparent in a way that hasn’t existed in traditional banking and financial systems, so it has the potential to redefine the transactional experience for businesses and customers.

Data quality

Blockchain technology greatly improves data quality and accuracy. In the finance industry, the security and quality of data are hugely important as any breaches could be detrimental. Because blockchain’s ledger system operates in real-time, it’s easier to tackle any errors and far less delay between a mistake occurring and the problem being solved. Therefore, the visibility and quality of the data will be far greater with blockchain technology, which is of huge benefit to financial institutions as they manage large volumes of data. Blockchain also uses smart contracts, which are self-executing programmable contracts that validate autonomously. This ultimately improves the data quality and any outside interference.

Lower costs

Furthermore, smart contracts minimize maintenance costs and reduce financial expenditures, and the blockchain technology itself reduces the cost of transactions. This is because all parties will be able to connect to a secure digital ledger, reducing the cost of completing transactions. Blockchain facilitates quick payments, so there’s no need for administrative costs and processing clearances. With blockchain creating an alterable record of transactions, finance companies can more easily avoid fraud, which would cost more time and money, and allow customers to make transactions with greater confidence.

What are the risks of blockchain in banking?

While blockchain has the potential to redefine the future of finance for the better, there are also risks associated with the technology. For example, there’s a lack of clarity around regulations when it comes to using smart contracts. The lack of regulation will limit the widespread adoption of blockchain in banks, which means many finance businesses won’t be able to utilise its potential. There’s also the problem with scalability due to the increasing number of transactions being made. Blockchain uses large amounts of transactional data, so in order to support the rise of everyday transactions, the platform needs to grow its network to handle the transactions. With blockchain increasing in popularity, the speed and network could be affected, which will impact the credibility of the platform for digital payments. Above all, blockchain could certainly be positive for the financial sector, as well as the job market but there are still concerns related to how financial institutions successfully implement the technology in the long term. As blockchain and the finance sector evolve, there will likely be more tools and solutions to create an even more efficient and effective financial landscape.

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