Benefits of blockchain in banking

Retail banks have made great strides in developing digital business models, introducing millions of people to mobile banking and becoming expert providers of data-based services. When it comes to blockchain, however, they have remained mostly on the sidelines. Governments, investment banks , and infrastructure providers are experimenting with the technology in the belief that a shared electronic ledger will help them cut costs and increase transparency. Investment banks, for example, envisage a world in which execution, post-trade processing, and settlement are instantaneous, eliminating numerous middle- and back-office processes.

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WATCH RELATED VIDEO: Blockchain in banking: the future is now

Top 5 uses of Blockchain in banking

Try out PMC Labs and tell us what you think. Learn More. FinTech Financial Technology and Blockchain are prevalent topics among technology leaders in finance today. This article describes the impact and revolution of FinTech and Blockchain in the financial industry and demonstrates the main characteristics of such technology.

Then, we present three critical challenges as well as three ethical issues about using Blockchain technology. Next, we discuss the development of Blockchain for the financial sector. In addition, we describe the real motivations for banks to explore Blockchain, and problems they face. In order to have a good understanding of the industry, a qualitative method was adopted, and sixteen experts were interviewed.

It was identified that knowledge hiding in Blockchain was common and the rationale behind was analyzed using the TPB Theory of Planned Behavior approach. The analysis results suggested that knowledge hiding was due to affective, behavioral and cognitive evaluations.

The interviewees also provided several recommendations and success factors to overcome current issues in Blockchain adoption. Therefore, four important propositions have been developed. Finally, this article suggests how financial services should respond to this new technology and how to manage knowledge sharing in a more structured way.

This article contributes to the literature related to the current entrepreneurial finance landscape for Blockchain. The key element of the business is trading, and trading activities are dependent on trust Tang, Through financial instruments and strategies, trust can lead to successful businesses. A trust-rating platform is one important part of the finance system and it is used to evaluate whether a user can be trusted. It rates a user based on his or her borrowing and repayment history, credit status, and other information to determine whether to approve the loan or credit limit or discount, etc.

For example, Alibaba proposes e-commerce platforms, Alipay and its trust-rating platform. Zetzsche et al. The first trend is the pace of change driven by Big Data, machine learning, commoditization of technology and Artificial Intelligence AI. The second trend is the fact that more new non-financial firms have entered and invested in financial services businesses.

Fintech is a key area in the development of Industry 4. FinTech can also be understood in two ways, as follows Tang, The first dimension is about traditional financial enterprise conducting transformation by using technology. For example, traditional financial enterprises, such as Pingan Group, Industrial and Commercial Bank of China, Morgan Stanley and Goldman Sachs, use big data and other new technologies to upgrade and transform their service.

The second dimension is that some technology enterprises try to take advantage of their technologies to develop financial services. But finally, they decided to develop their own versions of financial services to cover their customer's needs and create new forms of entrepreneurial finance landscape. FinTech has impacted the traditional financial industry.

After the Credit Crisis of , the landscape of the financial sector has changed due to overall financial regulation and financial technology innovation Anagnostopoulos, ; Brem et al. FinTech has three primary breakthrough directions. P2P lending is also considered as part of the smart contact category.

The third one, which is particularly popular, is called the Blockchain. The main characteristics of these three major topics of the FinTech industry are instant contact, live data, credit ratings and updates. The reason why the financial industry is fascinated by Blockchain technology is that the characteristics of the Blockchain allow people to build trust faster and have the potential to change the financial infrastructure Pilkington, However, the development of Blockchain is not mature yet.

Some challenges have arisen, such as scalability, security, privacy, latency, etc. It is important for financial markets to have a better understanding of the Blockchain industry and find robust solutions. Therefore, this paper can demonstrate an overview of the Blockchain and its development in the financial industry and investigate challenges for their development of Industry 4.

During the overview, critical challenges, as well as ethical issues about using Blockchain technology, were identified as well. After the overview, a qualitative method based on sixteen interviews with experts in the Blockchain industry was conducted in order to have a good understanding of the industry.

Information from experts was analyzed by the method of the Theory of Planned Behavior. Based on the analysis results and experts' recommendations, three important propositions were developed.

Blockchain has become popular due to the rise of bitcoin. However, this technology is not limited to the financial area.

A Blockchain originally means blocks of cryptocurrencies linked by chains. This new concept has received significant attention in FinTech Mu, Each block, bound by cryptography, contains a cryptographic hash of the previous block, a timestamp, and transaction data. The first Blockchain was conceptualized by Satoshi Nakamoto in , who used a Hash cash-like method to add blocks to the chain without a trusted third party Narayanan et al.

Blockchain, a rapidly evolving financial technology, revolutionizes the way people are dealing with businesses Antonio and DiNizo, Blockchain attracts attention as an underlying technology for bitcoin and other cryptocurrencies Nguyen, since it is seen as a new foundation for transactions in the world Staples et al.

A Blockchain is a continuous account database, which is complete, distributed and unalterable Yoo, The most excellent value of Blockchain is a decentralized system, whose security chain is very long. The essential advancement is the distributed trust offered by Blockchain technology — 1 removing the trusted third party to facilitate transactions and 2 decreasing the cost of trading and 3 reducing the time Staples et al.

Thus, Blockchain is expected to set off the industrial and commercial revolution and promote economic reform worldwide Underwood, Firstly, Blockchain uses encryption to produce a digital security code. Then the users can validate the transaction without private information. Because the record in the Blockchain is immutable, the transaction will be completed automatedly and distributed. Another approach is to use a conceptual framework to integrate important components together.

For example, Pazaitis et al. Decentralization: Zheng et al. Each party on the Blockchain can access to the database and check the history of the transaction without the third party Tapscott and Tapscott, The main advantage of this chain is its replication over a distributed network.

Therefore, if a criminal or abusive government organization plans to remain undetected, they have to simultaneously change all copies of the Blockchain. Besides, distributed ledgers record transactions automatically and in real-time, reducing the opportunity for fraud Rennock et al. Decentralized infrastructures, with its limited boundary conditions, can be proven effective in managing Blockchain and its related activities Pereira et al.

Each user on a Blockchain has a unique alphanumeric address, and they can decide to keep it secret or open to others Tapscott and Tapscott, Users can use the generated address to interact with the Blockchain network, and there is no longer any central party to store users' private information Zheng et al. This mechanism preserves some privacy. However, due to inherent constraints, Blockchain cannot guarantee perfect privacy protection. Consensus mechanism: As there is no central trusted agent in the whole network, a consensus mechanism is introduced into the network.

Its purpose is to achieve a unified agreement on the validation of every record. Hence, any distortion is easy to detect Huang et al. Execution: Users can make use of algorithms and rules to trigger transactions between nodes Tapscott and Tapscott, Blockchain can also execute programs if certain conditions are met. This can be referred to as a smart contract. The integration of property of Blockchain, such as decentralization, anonymity, immutability, makes this new technology valuable.

Blockchain technology has gone through three generations of technological development: Block 1. Block 2. Blockchain 3. According to Feng et al. As shown in Fig. Each block includes the transactions and smart contracts and then linked to its related one. At the application level, different services can query, analyze and interpret the meanings for each block of transactions, smart contracts and financial updates.

Blockchain has great potential but must face numerous challenges, which potentially stop the wide usage of Blockchain. The Blockchain is a distributed peer-to-peer system that everyone in the network can read the transaction records and add new data to the database.

The openness and the absence of central coordination are the foundation of the system, which has negative impacts and limits the use of Blockchain Drescher, In this section, we also interviewed two experts on Blockchain who could address interesting challenges in this area. Some issues can be raised, such as scalability, security, privacy, latency and financial markets still struggle to find robust solutions Underwood, The Blockchain becomes voluminous with the increasing number of transactions Zheng et al.

Marr mentioned that Blockchain transaction takes some time to implement due to their complexity, encrypted and distributed nature. Ethereum is a well-known computing platform, which is open-source, public, Blockchain-based, and Ether is also generated by the Ethereum platform Biais et al. According to Chen et al. Currently, thousands of entrepreneurs and developers are creating new projects and startups based on the Etherlane platform.

Jackson reports that while Visa manages 24, transactions per second, PayPal manages transactions per second, when Ethereum and Bitcoin can only handle 20 transactions per second. It means that the requirement of processing millions of transactions in a short time cannot be satisfied. The reason is due to the limited capacity of blocks, which often delay some small transactions as miners instead of preferring transactions with relatively high fees Biais et al.

According to Werbach , Blockchain-based systems are vulnerable. Since , the bitcoin and Ethernet platforms with Blockchain as the underlying technology have been stolen successively, with a loss of nearly million yuan.

The Rising Significance Of Blockchain In The Banking Sector

In the aftermath of a drought in North Horr, Kenya, people who are unbanked and without credit like Arbay, above, have been forced to sell their livestock to buy food. Credit cards. Bank accounts. These are simple tools that many of us take for granted. This is not the case in much of the world. The World Bank estimates that there are 1. Women are at an even further disadvantage, making up 55 percent of the unbanked.

In , a World Bank report (Global Findex) The potential benefits of the technology have In order to evaluate the benefits of blockchain.

Blockchain for next generation services in banking and finance

Will blockchain technology prove to be a reliable investment? Though cryptocurrencies offer a mixed ROI for every Bitcoin, there are dozens of failed digital fiat currencies , there are numerous instances where the advantages of blockchain in banking have proven practical for transactional and operational practices. Here is a glimpse at three ways multinational banks are implementing this technology — and what your organization should consider if you want to give distributed ledgers a try. The prosperity of small to mid-sized businesses depends on the timeliness of invoice payments. Traditional banks and financial services have an opportunity that can facilitate automatic transactions will not only acquire and retain more customers, but ensure that investments are protected. The Dublin based company launched a blockchain-based solution called Auto-Settlement which initiates automatic payments to prevent delays in the invoice payment process. Clients are able to specify settlement conditions upon which automatic payment actions are triggered. Built upon a distributed ledger, the we.

How is blockchain revolutionizing the banking and financial services industry?

benefits of blockchain in banking

While the term blockchain may conjure visions of The Matrix , the distributed ledger technology is slowly being incorporated into the finance operations of several companies. Although some middle market firms have been early adopters of distributed ledger technologies including blockchain, there is still disagreement — and confusion — about its best use cases. The terminology itself can be unclear: While all blockchains qualify as a distributed ledger technology, not every distributed ledger is a blockchain. Survey respondents, which included corporate treasury and finance professionals, are almost evenly split on the top impacts of blockchain, although 90 percent agree this technology will have a positive effect on the payments industry.

The paper is available online here. Often times these individuals live within extremely poor and rural regions, without the infrastructure to support a physical bank location, or provide the electricity or internet access to facilitate online banking.

Working Toward Financial Inclusion With Blockchain

And we can go on and on with these insightful stats relating blockchain with banking and financial institutions, as per Fortunately. Since getting conceptualized by Satoshi Nakamoto in in bitcoin cryptocurrency form, blockchain has witnessed remarkable new and innovative applications in software development. The fintech industry always looks for technology tools that enhance security, and blockchain has emerged as a viable solution. The technology is getting used in diverse ways by banks and other financial institutions to ensure the highest level of privacy and protection. Source: Statista. With the passing years, the number of deals has increased significantly as diverse industry verticals are exploring the technology.

Blockchain – 7 Benefits for the Financial Services Industry

The purpose of this paper is to help in providing a better understanding of the application of blockchain technology in the context of the banking and finance sectors. The aim is to outline blockchain's benefits, opportunities, costs, risks as well as challenges of the technology in the context of banking and finance services. Careful examination of the extant literature, including utilising relevant academic-based research databases has been carried out. It covered reviewing various research contributions published in peer-reviewed journals, academic reports, as well as technical reports to help in identifying related benefits, opportunities, costs and risks. The findings reveal that there are limited contributions in utilising blockchain in the banking and finance sectors when compared with other sectors.

Banking. Key facts. A business model deeply rooted on four principles: But overall, what are the advantages of the blockchain? Is it a.

What is the Future of Blockchain in Banking?

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Blockchain applications in banking

RELATED VIDEO: The Future of Blockchain \u0026 its Impact on Banking

It seems that people still associate blockchain mainly with BitCoin and other cryptocurrencies, while the potential of this technology goes far beyond that. We have already written about the opportunities it brings to logistics , healthcare , gambling , and the public sector. In this blog post, we want to speak about the advantages of blockchain in banking. Blockchain is a distributed ledger technology that holds encrypted blocks of records with all the digital transactions performed by blockchain users. When blockchain is used as a business network, it allows its participants to record their transactions and track them in the system.

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Top 8 Ways Banks Benefit From Blockchain Technology

Permissioned networks are the ideal solution for banks in building their own blockchain. In this article, we will detail the technical advantages of banking blockchains and how these advantages lead to financial advantages, as well. In what follows, we summarize the difference between public and private blockchains :. Permissioned blockchains have many technical advantages:. Get more technical details on permissioned blockchains. Permissioned blockchains have several financial advantages, with many of them coming from the technical advantages they provide. Generally, they reduce costs because they remove intermediaries, which becomes unnecessary in the blockchain protocol.

How blockchain technology is changing treasury

Fintech is transforming the financial industry, and the blockchain development organizations in this area have a considerable advantage from now on. The speed and scale of this change will depend mostly on users adopting this new economy. People have already given their verdict — they are tired of black boxes and want to determine how they pay for data and financial transfers.

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  1. Hunfrid

    you are right, this is punctual