Blockchain has emerged as the most promising technology that can transform the way we store data, make transactions, shop goods, and ensure data security. In an array of ways, Blockchain is already transforming the business world. While it started its journey as the technology behind bitcoin and similar cryptocurrencies, over the years, it has been embraced by numerous industries including finance and banking, healthcare, manufacturing, enterprise IT solutions, and many more.
Particularly in the banking and financial industry, Blockchain continued to make a bigger and better impact in a multitude of ways. Here through the length of this post, we will explain how Blockchain works and the key advantages of this technology for the banking and financial industry.
What is Blockchain and How it Works?
Blockchain refers to a distributed and decentralized database system that stores data in disintegrated blocks and secures data through cryptographic protection and a protocol that allows no deletion or tampering, but only add new data. This database technology is unique in the way it protects data by preventing all sorts of tampering efforts while allowing completely decentralized access. As for the accessibility of the data can only be accessed by solving a cryptographic equation.
In the context of various industries, the technology offers an era-defining impact as it transforms the way accessibility to crucial data was ruled and the way data security measures used to work for data tampering. The app developers are increasingly using Blockchain technology for creating niche-cryptographic database controls across sectors. Whether in the healthcare sector or the banking sector, making data available across several end-points became easier thanks to the Blockchain powered database while the data security threats could be minimized to the optimum level.
Let us now explain some of the key benefits of Blockchain technology for the banking sector.
Distributed Trust
The most important benefit of Blockchain is the way it verifies and tracks financial transactions. Thanks to distributed verifications spread across a network of institutions, banks no longer need the stamp of a central authority such as the central bank. This tremendously reduces the dependencies on third-party intermediaries or central institutions for verifying and tracking transactions. While this ensures optimum efficiency and productivity, Blockchain’s move Blockchain also helps banks reduce the risks emanating from central authorities or third-party verification processes.
Preventing Frauds and Data Breaches
According to various estimates, data tampering and data breaching are the biggest factors to push the increase of bank frauds. This is where the decentralized ledger system of Blockchain can play a great role. As most of the banking services worldwide rely on central databases, they also remain vulnerable to data breaches and fraudulent activities more frequently. Blockchain completely prevents data tampering efforts with a protocol that allows no change or deletion with the already registered data, banks, and financial companies can enjoy relief from such activities.
Efficient Know your Customer (KYC) Processing
Banks and financial institutions around the world spend millions of dollars on Know your Customer (KYC) processes. It is crucial for the banks and administrative point of view to prevent money laundering and terror funding activities. Thanks to Blockchain based database systems, several other banks and institutions can access the verification details of one customer while the customer’s data will remain secure and out of the reach of any malicious attempts.
Facilitating Safe and Smooth Payment
One of the biggest draws for an increasing number of financial companies and banks to embrace Blockchain is the smooth and frictionless processing payment process. Blockchain technology allows us to opt for a highly secure way of making payments at a reduced cost since all the verification processes involving third-parties can be reduced to nothing. On the other hand, this will also help reduce the load of transaction fees and charges that banks need to take from customers.
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As the situation stands, Bitcoin transactions time may vary from 30 minutes to few hours, which is still a lot of time compared to the lightning-fast speed of transactions we enjoy through mobile banking apps or mobile wallets. But when you compare this transaction speed with that of regular traditional bank transfers, there is considerable time-saving. A lot of new applications and hi-tech solutions are cropping up to make cryptocurrency transactions faster for tech-savvy investors and traders.
A Solid Boost in Performance and Efficiency
Lastly, the biggest overall advantage of Blockchain adoption for the banking and financial companies are the solid performance and efficiency boost they receive. Thanks to Blockchain, the banking data is now less exposed to errors, duplication, and tampering, and this saves a lot of time spent on data tracking efforts. This efficient data management also helps banks and finance companies to refurbish their customer-focused digital solutions. Moreover, thanks to Blockchain based databases and transactions, payments, and all kinds of transactions can be processed round the clock.
From quick verification of KYC data of customers to repackaging the digital processes with adequate measures, from reducing transaction times to removing security glitches and risks, Blockchain technology brought for the banking and financial industry a fresh promise of efficiency.
Conclusion
Blockchain technology has taken its flight from Bitcoin, the world’s first cryptocurrency that brought an innovative way to make transactions. Naturally, Blockchain has its core rooted in the banking and finance industry. No wonder almost all leading banks and financial companies around the world have already jumped on this bandwagon.
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A good addition to this intelligently written article could an introduction to Smart contracts. The smart contract is an essential aspect of blockchain and can play a crucial role in future banking transactions.