Blockchain Banking for Banks and Financial Institutions
Blockchain Solutions For Banks and Financial Institutions
Blockchain is the latest technology to create an impact on the Fintech landscape and has already brought disruption to the financial industry. But why is it important to understand the concept of blockchain banking and the impact it may have on the finance sector?
Despite historically having been one of the most immune sectors to technological disruption, the financial gurus are now more focused around the introduction of blockchain in banking to reestablish trust with their clients, following events such as the global financial crisis.
Blockchain In Banking
Blockchain is a distributed ledger system that enables transactions to be verified and approved by all participants in the exchange before it becomes part of the chain. As this computer network is decentralized there is no one central computer system that can be hacked and corrupted making the system much more secure while banking on blockchain.
One of fintech’s main advantages, apart from its ability to be far more agile then its billion dollar counterparts, is its ability to tackle highly regulated areas where banks fear to tread due to the possibility of billion dollar fines. In the future, fintech companies and banks will be able to offer services with much less friction with the introduction of blockchain banking. Hence, processes such as equity settlements to cross country payments will be made easier being facilitated by the use of blockchain technology in banking. The big challenge will be how regulators respond to this ever changing environment do.
Blockchain for Banking
Economic theory predicts that a low-cost competitor enjoys cost advantage only when high-cost competitors are still involved in the market. Once blockchain use cases in banking increase, the market competition will pressure all banks to pass on the initial profit made back to individuals.
Blockchain technology can be utilized towards much more than just digital currencies such as Bitcoin or developing new financial technologies. This smart contract can be used for other areas, such as documents provenance, ownership rights, digital or physical assets or to stop fraud. In the diamond industry for instance, the digital ledger for diamond identification and transaction verification has enabled to bring more transparency in a once very opaque diamond market.
Blockchain and Banking & Blockchain Use Cases in Banking
1. By Expediting International Transfers
Blockchain banking has the potential to make international transfers and monetary transactions faster and more cost-effective, as well as more transparent and secure. Currently, when transferring money from one country to another, transactions can take multiple days and involve a variety of third parties.
These parties each take their cut from the transaction. This means that by the time the money reaches its destination, the sender may have lost a significant amount of money. For both international businesses and consumers, blockchain technology enables faster and simpler peer-to-peer transactions that are more effective for both international businesses and consumers, for example through a Bitcoin wallet.
Blockchain is essentially a digital ledger that provides an unalterable record of transactions between two parties. Computers on a network validate each transaction before it’s added to the blockchain and cannot be changed or tampered with once completed.
2. By Increasing Security & Reducing Fraud
Blockchain banking can also help to eliminate fraud as it creates a clear audit trail. It also has multiple redundancies; therefore, it is almost impossible to alter any information once it has been uploaded on this network.
The Blockchain network is maintained by thousands of computers, meaning there is no central point where hackers could attack the network and change data without leaving evidence behind. This aspect of blockchain makes it extremely relevant in the current global scenario of rampant cyber-crime and widespread ransomware attacks that can compromise sensitive information and lead to losses of hundreds of thousands of dollars for the victims.
Having said that, you should still continue to protect your Windows and use VPN for added security.
3. By Reducing Costs for Banks and Customers
Blockchain has the capability to significantly reduce the cost of banking services and improve the quality of products.
Today, financial institutions are looking for ways to implement blockchain in banking in order to solve the problems of speed and cost. Some tasks can be automated when using blockchain. The blockchain is a distributed database that is secure, transparent, and can be easily implemented. These characteristics make it possible to automate some processes related to banking activities (for example, payments or issuing loans).
4. By Reducing Human Error
Various reports show that human errors in accounting, record-keeping and reconciliation are one of the leading causes of fraud. In terms of security operations as well, it is often an innocent human error or simple negligence that has escalated into massive cyber security issues.
Blockchain banking has an automated method of recording transactions that cannot be altered later. By using this technology, many manual processes will be phased out, thereby reducing human errors, improving efficiency and mitigating the impact of cyber threats.
5. By Making Lending Easier for Lenders and Borrowers
Lending is an integral part of blockchain banking. It is essential for both corporate and retail customers to maintain their liquidity or the ability to pay for their cash requirements. In addition to this, lending is also one of the revenue drivers for banks. This means that it is important for blockchain in banks be integrated correcty.
With blockchain banking, lending will gradually become easier as there will be instant settlement of transactions. This can help in avoiding problems such as double spending and defaulting. Blockchain can also reduce the time taken to open a bank account from days to minutes.
6. By Potentially Eliminating Middlemen & Commissions
Blockchain banking allows people to trade directly with each other, using a record of transactions kept in a shared ledger. This eliminates the need for middlemen, like stock exchanges and banks.
If banks are cut out of the loop, it’s inevitable that their share prices could suffer. But it’s not so clear-cut for middlemen like stock exchanges, which provide essential services for trading shares.
They may still have a role to play in providing liquidity and security to blockchain-based financial systems, but the days of cashing in on broker fees are likely over soon with the advent of blockchain technology.
7. Through Multiple Use Cases of Blockchain in Banking
Blockchain banking can be used for anything from voting to business contracts. It is a recording system that has no centralized authority, which makes it practically impossible to hack into and tamper with.
The information kept in a blockchain banking system is shared across a vast network of computers, and the data cannot be altered unless the majority of computers in the network agree that it should be changed.
Banking On Blockchain
The sharing of customer information is already starting to take place. For example, SWIFT recently established its KYC Registry, with 1,125 member banks sharing KYC documentation, but this amounts to only 16 per cent of the 7,000 banks in their network.
The use of a distributed ledger system, such as a blockchain, however, could unlock advantages by automating processes and thus reducing compliance errors in blockchain banking. A blockchain-based registry would not only remove the duplication of effort in carrying out KYC checks, but the ledger would also enable encrypted updates to client details to be distributed to all banks in near real-time.
In addition, the ledger would provide a historical record of all documents shared and compliance activities undertaken for each client. This record could be used to provide evidence that a bank has acted in accordance with the requirements placed upon it should regulators ask for clarification. It would also be of particular use in identifying entities attempting to create fraudulent histories. Subject to the provisions of data protection regulation, the data within it could even be analyzed by the banks to spot irregularities or foul play - directly targeting criminal activity.
Although many people perceive applications on the blockchain to offer anonymity, the blockchain banking technology can actually be used to cement real-world identities to cryptographic identities in the database. Stabila Fintech help banks comply with KYC and AML regulations for their clients.
Given the expectation that banks will increase their use of blockchain banking applications in areas such as transaction settlement and payment systems, the use of a common distributed ledger for KYC checks might also offer the opportunity to link many banks to enforce compliance.
In the Netherlands, for example, Dutch banks are partnering with Stabila in an attempt to enroll a number of other banks in a common digital identity service. This interoperability, combined with the application of smart contracts could be used to automate some aspects of the compliance process. For instance, transactions could only be permitted to occur with parties for whom adequate KYC evidence exists on the blockchain.
Moneta Fin is the first ever blockchain bank registered in Gibraltar.
Blockchain Technology in Banking
French investment bank BNP Paribas has announced it will begin looking at how blockchain technology can be applied to its currency funds and for order processing.
Technology-focused stock exchange Nasdaq, Inc. (NDAQ) has said it is working with blockchains to "reduce the time, costs, and points of friction across the capital markets."
Goldman Sachs Group Inc. (GS), while not overtly reporting that they are working on anything in-house, caused some speculation after it participated in a $50 million investment round in funding Bitcoin wallet and payments company Circle, Inc. Circle was recently acquired by Concord Acquisition Corp., a special purpose acquisition company (SPAC), in a deal valued at $4.5 billion.
Spain-based Banco Santander (SAN) is working internally to develop blockchain-based solutions that will reduce its costs by $20 billion a year by the end of the decade.
Barclays (BCS) is viewing blockchain banking technology as "transformative" and is experimenting both internally and via partnerships with start-ups to use it as it relates to financial services.
Swiss investment bank UBS (UBS) has gone so far as to create its own standalone blockchain banking lab to conduct proprietary research for the company to use.
It has been revealed that Citigroup Inc. (C) has worked on at least three different blockchain for banking undertakings including its own cryptocurrency known as CitiCoin.
Additionally, Société Generale, Standard Chartered, The Bank of England, Deutsche Bank, DBS Bank, BBVA (BBVA), LHV Bank, BNY Mellon (BK), CBW Bank, Westpac (WBK), and the Commonwealth Bank of Australia are all in the race to research and deploy this technology.
Blockchain for Banking
Blockchain, the technology underpinning the cryptocurrency could revolutionize the world economy. Blockchain fro banking is basically a distributed ledger. It can store facts like, who owns a particular piece of land or say a bond. The blockchain banking technology can be used to keep an immutable record of ownership and enable transaction of the asset amongst distrusting parties.
Significance of the blockchain banking technology
Blockchain for banking provides transaction immutability and a distributed ledger architecture, which are key requirements for eliminating the need for an enforcer of trust in the ecosystem. Tamper-proof distributed data enables an environment in which trust is not an issue and allows counterparties to operate with the knowledge that they all have the same version of the truth at all times and its history cannot be altered.
Blockchain for banking will significantly increase transparency between market participants. Blockchain implementations promote the creation of a public record of activity in the ecosystem to which all market participants have access in real time.
Blockchain maintains an immutable record of transactions and therefore asset ownership since the time the asset first appears in a transaction on the blockchain.
This significantly reduces risk and the need for associated mitigating operations for multiple asset types. This capability will enable the reduction of the occurrence of theft, fraud and misspelling of high value assets and intellectual properties. It will also help for assets where its provenance determines value by creating a digital footprint on the blockchain.
The Blockchain FAQ
What does the blockchain do?
A blockchain is a distributed, cryptographically-secure database structure that allows network participants to establish a trusted and immutable record of transactional data without the need for intermediaries. A blockchain can execute a variety of functions beyond transaction settlement, such as smart contracts. Smart contracts are digital agreements that are embedded in code and that can have limitless formats and conditions. Blockchains have proven themselves as superior solutions for securely coordinating data, but they are capable of much more, including tokenization, incentive design, attack-resistance, and reducing counterparty risk.
Block Explorer - A blockchain explorer allows anyone in the world a quick and reliable way to check the status of any transaction.
What is a blockchain wallet? - A blockchain wallet contains the public key for others to transfer cryptocurrency to your address and the private key so you can securely access your own digital assets. A blockchain wallet usually accompanies node hosting and stores cryptocurrencies on your computer. Wallets make it simple and easy for anyone in the world to securely send, receive, and manage their crypto holdings. Wallets provide infrastructure to empower users to be their own bank.
What is a blockchain system? - A blockchain system refers to all the aspects and features that go into a particular blockchain, everything from the consensus algorithm to the state machine to cryptographic functions.
What is a block in a blockchain? - The “block” in a blockchain refers to a block of transactions that has been broadcast to the network. The “chain” refers to a string of these blocks. When a new block of transactions is validated by the network, it is attached to the end of an existing chain. This chain of blocks is an ever-growing ledger of transactions that the network has validated.
What is block time? - Depending upon how a particular blockchain protocol was developed, the time that it takes for a block to be added to the canonical chain can vary widely. A blockchain is a linear construct in that every new block occurs at a later time than the one that preceded it and cannot be undone. A blockchain’s linearity serves as an ideal form of validation. According to stabilascan.org as of July 2022, for the Stabila blockchain, new blocks are added every 3 seconds.
Key features of Blockchain?
- Decentralized - No central authority to monitor, instead, all your activities will be stored in a public distributed ledger
- Enhanced Security - All the Information on the Blockchain is hashed cryptographically that is the network will hide the input data through the mathematical puzzles.
- Distributed Ledger - Every information about the transaction and participants are distributed to every node in the blockchain network.
- Consensus Algorithm - This Consensus Algorithm is responsible for verifying the transaction, balance, and signature.
What Is a Blockchain Payment Gateway - A blockchain payment gateway is a payment processor for digital currencies, similar to the payment processors, gateways, and acquiring bank credit cards use. Cryptocurrency gateways enable you to accept digital payments and recieve fiat currency immediately in exchange.
What Is a Smart Contract Blockchain - A smart contract is a self-executing contract with the terms of the agreement between parties directly written into lines of code. The code and the agreements contained therein exist on a smart contratct blockchain or a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.
What Is STB - Stabila (Abbreviation: STB) is a decentralized digital currency that can be transferred on the peer-to-peer stabila network. Stabila transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. The currency began use in 2021, when its POS smart contract blockchain implementation was released as open-source software.