Resham Karira highlights the benefits of blockchain technology, despite the challenges it faces from regulators.
Blockchain technology will have a much wider impact on the financial industry than payments alone. The shared public ledger has the potential to radically simplify banking itself.
The blockchain – or the ‘distributed ledger’ – is a record of digital events that’s shared between many different parties. It can only be updated after consensus from a majority of the participants in the system and, once entered, the information can never be erased. The blockchain therefore contains a certain and verifiable record of every transaction ever made, demonstrating that digital records can be held securely without any central authority.
A number of banks, including Citigroup, Barclays, and UBS Bank, are exploring blockchain technology for cross-border payments and plan to integrate it into their existing systems. Fintech startups such as Ripple and HyperLedger are also developing new ways to exchange data through blockchain technology.
While it’s likely to have broad potential, a few benefits are particularly worth highlighting:
- Security – The fact the blockchain ledger is distributed across thousands of computers means that hacking is almost impossible, reducing server maintenance requirements and improving security for banks.
- Transparency – The sender and the recipient of every transaction are recorded and all transactions are publicly available for inspection. The blockchain reveals how money flows around the financial system, and into which markets.
- Privacy – Users are anonymous and can move money around instantly and securely. This allows banks to save time and reduces costs on international transactions.
- Risk – No single authority has control, which means that if there’s a fault, the rest of the network will continue to function. Currently, if a bank’s system goes down, users are unable to perform transactions; using blockchain technology, the bank’s system would continue as normal.
The technology faces some challenges in terms of regulation, access, and ownership. However, it’s difficult to ignore its potential to simplify banking by reducing costs, improving product offerings, and increasing speed for banks.
– This article is reproduced with kind permission from Datamonitor Financial. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Photo: Patrick Fore, CCO