Blockchain is one of the main trends applied in today's financial services industry. Join us to learn about blockchain and discover 10 outstanding applications of Blockchain technology in the field of finance and banking.
What is the definition of blockchain in banks?
Blockchain technology is a distributed ledger that effectively records transactions between two parties and is permanently stored. A blockchain is composed of many separate data blocks comprising related transactions and linked together in a certain order. All stakeholders can share via digital "ledger" on the computer network without any intermediaries. That is why transactions through blockchain are faster than normal transactions.
Speed is just one of the benefits that blockchain technology brings in banking and finance. Also, it offers better business efficiency with greater transparency and transaction security.
How does the bank benefit from blockchain technology?
Banking institutions were created to connect and authorize commercial transactions with each other. And blockchain is a tool that can make them globally secure and transparent. This means that the bank will be one of the leading sectors in applying this technology.
It holds the potential of global trade. It makes trading more efficient by eliminating manual processes on paper, instead of automated and streamlined processes. Besides, blockchain is a great collaboration tool because of decentralization and no entity can own it.
1. Fast payment
Today, traditional banks can compete with fintech companies by offering more convenient new products to customers. For example, establishing a decentralized channel (such as cryptocurrencies) for payment, banks can provide their customers with faster payment services with lower costs. Thanks to blockchain technology, banks will be able to cut the need for third-party verification and speed up traditional bank transfer processing times. Already in 2016, 90% of the European Payments Council members believe that blockchain will change the industry by 2025.
2. Interbank transactions
In the past, without Blockchain technology, transactions between banks averagely took several days to resolve.
For example: If you want to send money from an account at a German bank to a bank in the United States, that transfer will be made through the Global Interbank Financial Communications Association (in short, SWIFT ). Every day, SWIFT members send 24 million messages to about 10,000 different organizations.
Centralized SWIFT protocol only processes payment orders. Real money is processed through an intermediary system. Each additional phase takes an additional cost and usually takes quite a bit of time. When you apply Blockchain technology to your bank, you can allow banking transactions to be directly addressed and better track them with an existing protocol like SWIFT. Because a decentralized ledger of transactions like blockchain can allow banks to track all transactions openly and transparently. Banks will not need to rely on a network of depository services and regulators like SWIFT. They can simply handle transactions directly on a public blockchain.
3. Trading property
By eliminating middlemen and transferring property rights, blockchain reduces asset exchange fees and reduces the volatility of traditional stock markets. According to one source, moving securities on the blockchain could save $ 17 to 24 million per year in global trade processing costs.
The financial market trades assets such as stocks, commodities, etc. through a complex network of exchanges, brokers, clearing centers, central security depository and banks. monitoring goods. And all the different parties built paper storage systems, which led to more time processing the transaction and risked being stolen.
Blockchain will revolutionize financial markets by creating a decentralized database of digital assets. A distributed ledger allows transferring the rights of an asset through encrypted messages and it can represent those assets externally. Currencies like Bitcoin and Ethereum accomplish that with pure digital assets, but many blockchain companies are currently researching solutions that help us encrypt real-world assets like gold or real estate. movables. Cutting middlemen will help reduce exchange costs and speed up the implementation process.
Increasing corporate capital through venture capital is a complex process today. The process of calling for investment goes like this: Entrepreneurs combine exchanges, conduct countless meetings with partners, negotiate valuations and equity and ultimately hope to receive money from investors.
Today, blockchain companies are speeding up the process of fundraising with several alternatives. These include: Initial Exchange Offerings (IEOs), Equity Token Offerings (ETO) and Security Token Offerings (STOs). Security Token Offerings (STO) is currently the most popular option because it is legally protected and secured by business assets. To benefit from this model, enterprise projects need to go through an extremely rigorous evaluation process. The pioneers of Security Token Offerings (STO) are companies like Scerri & Concise Ltd and the most prominent Equity Token Offerings (ETO) trading platform today is Neufund.
5. Credit and lending
Traditional banking institutions guarantee loans using a credit reporting system. Banks typically process these loan applications by assessing risk through factors such as credit scores, asset ownership or debt-to-income ratios. To get all that information, they need to request customer credit reports provided by specialized credit agencies.
Such centralized systems are often harmful to consumers because they contain false information. Moreover, the concentration of such personal information in a small number of organizations makes it very vulnerable. Last year, Equachus, the credit records agency, was hacked and disclosed credit information for more than 145 million Americans. By applying blockchain technology, the lending process will be faster and safer because loans are programmed complicated, structure estimates and mortgage lending are reasonable. This will make businesses and customers more secure in providing and using the service.
6. Commercial finance
Another application of Blockchain is set to revolutionize commercial finance. Trade finance is a field that refers to all financial activities related to international trade. Today, many financial activities are still relying on paperwork such as invoices, letters of credit, etc. Many management systems allow these tasks to be done online, but the process takes quite a bit. time.
Blockchain-based trade finance will streamline the transaction process by eliminating such paper-based manual processes.
We can consider the following example:
In traditional commercial financial systems, all participants need to maintain their database of transaction related documents. And all of these databases need to be constantly collated with each other. Therefore, if an error occurs in a document, it will be copied into copies of this document in different databases of each person.
How does Blockchain technology help? With blockchain, there is no need to keep several copies of the same document. Because the information has been integrated into a digital document, updated in real time and can be accessed by all members. So participants can edit on it without any copies
7. Verify digital identity
Banks will not be able to conduct online financial transactions without verifying the identity of the customer. However, the verification process involves many steps and takes a long time to annoy users.
With blockchain, users and banks will benefit from faster verification processes. That's because blockchain will help to use identity verification securely for other services. Users only need to sign in once and don't need to login multiple times - as long as that provider is also powered by the blockchain. Users can choose how they want to identify and whom they agree to share their identities.
The most popular innovation in this area is the Zero Knowledge Proof. And some countries and large corporations are currently researching ZKP-based solutions.
Some countries and large corporations are currently researching solutions based on Zero Knowledge Proof (ZKP). Some countries and large corporations are currently researching solutions based on Zero Knowledge Proof (ZKP).
8. Accounting and auditing
Accounting was a relatively slow field to digitize. One of those reasons is the strictness of the requirements and regulations to ensure the integrity and validity of data. And that is also why accounting will likely be converted by blockchain.
Experts believe the technology will simplify compliance and streamline traditional double-entry bookkeeping systems. Instead of keeping separate records based on transaction receipts, businesses can add transactions directly to the general register. A blockchain will act like a digital notary verifying all transactions. Therefore, the records will be more transparent and secure. Also, this technology can be used in applications to pay bills automatically
9. Protection fund
Hedge fund is a type of investment cooperation with the participation of a fund manager and a group of private investors. The objective of hedge funds is to maximize investor returns and minimize risks. These hedge funds are usually controlled by fund managers who work in a single entity.
According to Autonomous NEXT, the number of crypto hedge hedge funds doubled from October 2017 to February 2018. A decentralized cryptocurrency hedge fund offers an open platform that allows multiple investors and participating strategists. This will create a decentralized decision and will be the potential of blockchain for the financial services industry. Because decentralization in decisions can bring more benefits to investors when following the principle of "Do not put eggs in one basket".
Apex Token Fund is currently the largest hedge fund using cryptocurrency-based transactions.
10. P2P transaction
Peer-to-peer (P2P) transaction allows customers to transfer money from their bank account or credit card to another person's account or credit card online. Currently, there are many P2P money transfer applications available in the market and most of them come with certain restrictions.
Example: One of them allows you to transfer money to within a certain geographic area. Other service providers do not allow you to transfer money if both parties are in the same country. Moreover, P2P services may charge a premium for their services and are not secure enough to store customers' personal information.
All of these problems can be solved with blockchain. This technology will help decentralize applications for peer-to-peer (P2P) transfers. With the outstanding advantage that blockchain allows money transfer globally and has no geographical limits. Moreover, blockchain-based transactions will take place in real time, so the recipient will not have to wait 4 days until receiving the money.
P2P peer-to-peer transfers based on Blockchain technology that enables money transfers globally and without geographical limits P2P peer-to-peer money transfers based on Blockchain technology allow global money transfers and no geographical restrictions
When widely deployed, the blockchain is expected to allow banks to process payments faster and more accurately, while reducing transaction costs for customers. Banks that apply blockchain technology will bring better experience to their customers and can easily compete with fintech companies today.
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