Blockchain technology was developed by Satoshi Nakamoto in 2008 to offer a publicly distributed record of Bitcoin cryptocurrency transactions. In the year 2022, this decentralised ledger will be a technology with many financial applications in addition to being the foundation for cryptocurrencies. Many financial organisations are already seeking for blockchain development services to utilise this technology, even if blockchain still has to be adopted by a larger audience. We will examine possible blockchain applications in the banking industry in this blog. But first, it’s crucial to understand how blockchain may help this industry.
Blockchain Benefits in Finance
The finance sector has been dealing with a number of problems, including inefficiencies and security challenges. The majority of these problems in the banking industry can be solved by blockchain. These are just a few of the financial advantages of blockchain technology.
Transparency and Traceability
Transparency is lacking in the existing financial system. Customers and financial organisations both benefit from transparency. Effective communication between banks and their stakeholders is facilitated by it. Blockchain maintains a public ledger that contains all transactional information. As a result, it offers visibility into a transaction’s whole lifespan. The system uses both private and public keys. The public key of a network will be available to all users, but the private key will only be available to those involved in the transaction. The private key will provide precise transaction information, while the public key will display the transaction history. The blockchain maintains the anonymity of transaction holders while also giving users transparency.
Risk Management
When offering services like loans, financial service providers like banks must identify and assess the risks. They must then decide which risks to incur and which to forgo. These dangers might include credit risk, trusting middlemen, a counterparty breaking their contract, and more. Additionally, consumers must rely on middlemen to keep an eye on and oversee how their loans are being used in commercial banks. It increases the financial systems’ risk.
With precision, visibility, dependability, and timely transactions, blockchain technology helps control risks. The peer-to-peer (P2P) blockchain network also does away with the need for any middlemen. Blockchain lowers the risk connected with cash and credits since it archives every transaction. Due to the network’s immutability of data, dependability is increased. As a final solution, smart contracts speed up transaction settlement.
In summary, blockchain improves decision-making, transparency, accountability, and risk management sturdiness.
Reduced Costs
Value transfer systems, intermediaries’ commissions, and procuring and maintaining central databases all cost a lot of money in the financial sector. Companies must routinely cover these expenses. The system becomes more expensive due to all these elements without data protection guarantees.
All additional expenses related to the financial system may be eliminated by using blockchain technology. Institutions do not need to acquire a separate central database since the blockchain is a public ledger in and of itself. It keeps the system’s security up to par. In between parties, bookkeeping, and value transfer may be done without them thanks to smart contracts, self-executing software based on blockchain technology. These blockchain characteristics all help financial institutions save money overall.
It’s time to explore some of the most common blockchain use cases in the world of finance.
Popular Blockchain Use Cases in Finance
Numerous blockchain use cases in finance are made possible by blockchain’s effective identity protection, traceability, immutable transaction record-keeping, document management, and affordability. The most well-liked blockchain use cases in the banking industry are included in the list we’ve compiled below.
Identity Verification
Many financial organisations utilise a labor-intensive manual document verification method. This identification verification frequently suffers from inefficiency and human mistake. Customers gain from speedy, safe, and efficient processes when businesses use blockchain in the identity verification process. For identification verification, for instance, clients only need to register once.
Borrowing and Lending
The traditional financial system often requires a middleman for both lending and borrowing. Blockchain, however, may develop a system that is intermediary-free and trustless. A blockchain-based bespoke smart contract may be created between a lender and borrower. They have control over the transaction’s term, interest rate, and payment schedule. Blockchain-based lending apps have been adopted by certain reputable institutions, including Credit Suisse and ING.
Cross-Border Payments
Banks impose high transaction fees on each international payment. Before reaching a recipient, these funds often go via one or more banks and clearing institutions. Blockchain also reduces the number of parties engaged in international transactions. It also does away with deadlines for processing payments. As a result, the processing time is sped up. Transparent distributed ledger technology also offers guarantees against any fraud in cross-border payments.
One of the biggest Australian banks is Westpac. Through the use of blockchain technology, cross-border payments were accomplished. BNP Paribas, Barclays Bank, and Deutsche Bank are other banks adopting blockchain for payments.
Trading and Stock Exchange
Currently, brokers, regulators, and the stock exchange are all needed as intermediates when buying and selling stocks. They raise the system’s cost. However, because smart contracts can be used by developers to create rules, blockchain technology eliminates these middlemen. As a result, the stock market enables quick transactions, which greatly increases system efficiency. Blockchain automates and decentralises stock exchange and trading systems.
Conclusion
Blockchain technology can increase productivity, offer an unchangeable audit record of all transactions, and do away with any central authority. It offers the chance to completely alter the present financial system. By working with a blockchain solution provider like Oodles Blockchain, financial institutions can take advantage of the promise of blockchain and change the way they conduct business. Your company’s demands will be met by our blockchain engineers.
Author Bio:
Glad you reading this. I’m Yokesh Shankar, the COO at Sparkout Tech, one of the primary founders of a highly creative space. I’m more associated with digital transformation solutions for global issues. Nurturing in Fintech, Supply chain, AR VR solutions, Real estate, and other sectors vitalizing new-age technology, I see this space as a forum to share and seek information. Writing and reading give me more clarity about what I need.
