Blockchain Technology To Revolutionize Banking System
The year 2015 has been truly crucial for blockchain technology. From governments to banks to tech companies, blockchain has started to garner interest from all around the globe. The R3 blockchain consortium, Open Ledger Project led by IBM, blockchain-focused internship of the Bank of England and several other such initiatives further validate the notion that blockchain is here to stay.
Blockchain is a decentralized public ledger that underpins bitcoin. Its most important feature is that it cannot be manipulated and offers promise for secure transactions. The technology has potential applications much beyond the digital currency – it can track the exchange of anything else that carries value such as stocks, bonds, securities and much more.
It is widely believed that the technology will disrupt traditional banking system. Phys.org says that the blockchain offers potential to the traditional finance sector due to its ease of transaction with verification from any point on the platform.
Leah Gerstner, a vice president for public affairs at American Express, said, “You can imagine a number of potential use cases for this technology in financial services across both business-to-consumer and business-to-business transactions—from international money transfers to stored value”.
In a report published last month, the Bank for International Settlement said that blockchain technology could reduce the role of central body (such as banks) and in extreme cases, it may obviate the need for a central body entirely for certain functions. For example, settlement might no longer require a central ledger held by a central body if banks (or other entities) could agree on changes to a common ledger in a way that does not require a central record-keeper and allows each bank to hold a copy of the (distributed) common ledger.
According to Banco Santander, the banking industry could save $15 billion to $20 billion in transaction costs for international payments by using the technology, Phys.org reported.
A recent survey conducted by Euromoney showed that more than half of the respondents (151 institutions – comprising banks, their issuing and investing clients, tech companies, law firms and regulators) think that blockchain will transform banking “fundamentally”. One third of the respondents think that blockchain will be a crucial technological tool for improving efficiency, though perhaps not utterly disruptive.
According to latest estimates from financial services research firm Aite Group, the investment in blockchain research by these big banks will be around $400 million by 2019, Quartz reported. This year, financial institutions spent $75 million on the technology.
“Blockchain’s inherent cryptographic nature makes every transaction more transparent, secure, and irreversible, mitigating clearing and settlement risk,” the Aite report said.