Blockchain in the Banking Industry

One of the most exciting technological trends right now is Blockchain. It is a dispersed, encrypted database architecture that may be able to address a variety of issues with online trust and security. The majority of them are aware that Bitcoin and other cryptocurrencies are supported by technology. Its potential applications, however, are much more wide-ranging and include “smart” digital contracts, supply chain management, security, and identity theft prevention. Numerous other blockchain evangelists claim that any technology that allows access to a database might benefit from increased security and integrity.

 It is doubtful that a financial revolution will undermine the influence and role of significant global banks as long as they continue to innovate and invest. To address complicated operational and financial difficulties, central banks are modernizing their digital infrastructure and implementing blockchain technology. Some central banks have expedited the integration of technology into daily operations, similar to the governments with which they are associated.

The Bank of England has been aggressively researching digitizing how it manages the economy, including developing a blockchain-linked version of the British Pound sterling, and in 2019 undertook a proof-of-concept assessment of how Blockchain can evolve real-time gross settlement. With digital currencies, central banks can reduce transaction costs for users and small businesses by limiting the power and influence that monopolies like Visa/MasterCard, CHAPS, and BACS have over private networks.

The appeal for banks extends far beyond cost savings or network effectiveness. Blockchain technology can support the expansion of RTGS by enhancing digital transaction security and reducing the possibility of bookkeeping mistakes, misunderstandings, double-counting, and fraud. Generally speaking, the accounting and auditing industries are good candidates for disruption by Blockchain.

Autonomous, or permission-less, Blockchain’s distinguishing features include:

• The capacity to guarantee transaction immutability and finality.
• On-chain liquidity-maximizing native tokens.
• And the transparency that can only be provided by a distributed, decentralized network.

These characteristics may result in a more intelligent and convincing solution for large banks in democracies. It has become evident that not all blockchains are the same as they develop and become more widely used by businesses, but the ones that succeed will be able to handle the needs for large data throughput volumes. The initial Bitcoin architecture was centered on lowering costs and boosting confidence while avoiding third parties that not only add costs but also cause time-related friction and costs. The blockchain protocol that succeeds must be reliable, scalable, and inexpensive.

The Spunta nodes network, for instance, was launched by the Italian Banking Association in October 2020 and has since incorporated the majority of the country’s institutions and processed transactions swiftly. The collaboration of banks has also resulted in a more uniform environment and activity within the Italian banking industry.

Compared to the internet in the mid-1990s, the Blockchain is accurate. Organizations and institutions, just like many sectors, will fall behind if they don’t see the potential and threats. Since banking and financial transactions represent only a small portion of the economy, the solutions that banks select must also be compatible with the hundreds of non-financial blockchain applications that will soon be available.