How blockchain is transforming traditional banking

The development of blockchain technology revolutionizes traditional banking practices through the incorporation of elevated levels of efficiency, security, and accountability in the conduct of financial services. The current banking system facilitates the occurrence of most of its transactions using third parties, which mostly delays and increases the associated costs. Blockchain makes it fully possible for bilateral transactions to occur as it eliminates the use of go-betweens by operating through a decentralized public ledger where all transactions are permanently saved. In the end, not only is the speed of transactions enhanced, but also the transaction price, especially in the processing of cross-border payments, which almost instantly happens in the blockchain network.

Unlike other areas, such as access to capital and the cultural and social environment, the most notable impact of the emergence of blockchain technology in banking is improving security. Transactions input to the blockchain network are ciphered and, therefore, are irrevocable once entered. This eliminates the possibility of fraudulent activities, as well as digital crime and other forms of crime associated with banking as is usually the case. Apart from this, the distributed nature of blockchain makes it easy to monitor transaction histories by all parties involved and this brings a trust component which has been significantly challenging in the past.

Through the help of blockchain, one can code these contracts, so that they may be automated in cases where there is an occurrence of specific conditions and this is where smart contracts come in. For instance, in financial institutions, this can reduce the amount of time it takes to make decisions such as approvals in the case of a loan as well as simplify the way from one stage of a certain activity to the next one without any manual intervention.

Even with the ongoing need for regulatory changes and technological improvements, it is highly probable that the banking sector will experience significant changes in the years to come, paving the way for a banking system that is faster and more secure while considering the consumer. Its applicability in the traditional banking sector therefore suggests a more effective, transparent and democratic financial structure in the foreseeable future.

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~ Nesaty