How Blockchain is going to change Banking and Finance Industry?
The massive global interest, over the last half a decade, in a path breaking disruptive alternative financial system, based on a paradigm changing currency system called "Crypto Currency", especially the cryptocurrency named "BitCoin" and the market buzz around it, has grabbed the attention of the world and brought sharp focus towards the futuristic technology underlying cryptocurrencies - the "Block Chain" technology.
People have understood the great significance of this technology and that has generated interest in its potential utilization in finance as well as non-finance domains. The majority of the world population has heard about blockchain but very few know about its vitality as a safer, cheaper, and futuristic transaction mode that the world is moving towards.
What is Blockchain?
Blockchain is best defined as a decentralized and secure data storage and retrieval technology in which data is secured through cryptograhic means and stored by replication over a distributed network of computers across the world. In blockchain parlance the data is called "transaction" and the storage mechanism is called a "distributed ledger".
Cryptocurrencies like Bitcoin run on blockchain technology, but the use of blockchain in banking and finance is not just limited to it. Blockchain eliminates the requirement of an intermediary or a third party in the transaction process and provides a secure interaction that is practically impossible to be deceived by attacks or hacked.
Utilizing Blockchain in Banking and Finance:
Blockchain is innovatively transforming the finance industry by providing a distributed record of transactions. Whenever a new transaction is added, the entire network gets updated with a copy of the transaction while ensuring that no false transaction is added to the record.
Security, authenticity, and accuracy are very crucial in the banking domain. Blockchain provides a robust solution to banking needs by counteracting the above vulnerabilities. The transaction reliability offered by blockchain technology attracts its use in this domain.
The banking and finance industries are revolutionizing with the inclusion of blockchain and hold a huge scope of future innovation in record keeping and transactions. Following are a few use cases that highlight the utility of this modernistic technology in banking and finance domains specially in Financial engineering:
- Static Registry: Distributed Database for Static Data The Blockchain ledger can be used to store data that changes frequently or is immutable and can be verified. Example use cases are land title, patent, transportation registration, food safety, and origin.
- Identity: Storing Identity-Specific Information The Blockchain distributed database can be used with identity-related information for identity-specific use cases. Examples include civil registry and identity records, voting, and identity theft.
- Smart Contracts: Recorded Conditions triggered on Actions The distributed database provided by blockchain technology can be used for storing a set of conditions for triggering automated, self-executing actions when these conditions are met. Its banking and finance domain use cases can be insurance claim payout, cash equity trading, etc.
- Dynamic Registry: Distributed Database for Dynamic Data Blockchain technology can be used to store dynamic data that gets frequently updated when information gets added or assets are exchanged dynamically. Fractional investing and supply chain are the best examples of blockchain employment for the dynamic registry.
- Payment Infrastructure: Cash or Cryptocurrency Payments This is the most vivid use case in the banking and finance industry where Blockchain has gained huge popularity. Blockchain provides a distributed ledger that gets updated whenever any payments in cash or cryptocurrency are executed amongst participants. The smart contracts combined with this payment infrastructure can settle contracts using cryptocurrency. Example use cases include cross-border peer-to-peer payment, insurance claims, etc.
- Other: There are many standalone use cases of Blockchain and use cases composed of the above groups which are being used by financial institutions like initial coin offering, blockchain as a service, and many more.
The above use cases of blockchain in the banking and finance industry reflect upon the vitality of this technology integration in these domains. Many big banks hold a positive outlook toward adopting this technology and many big businesses are running their transactions on the blockchain. Billions of dollars have been invested in projects that will be utilizing this technology. Financial institutions can employ blockchain for transactions, record keeping, reporting to regulatory agencies, and much more.
Summing up:
Blockchain has the potential to revolutionize the banking and finance industry by providing faster and safer transaction settlements. This technology will stir up the banking and finance domain just like the digital revolution. This fusion of blockchain in banking and finance will bring innovations for the betterment of the world economy.