Banking or the financial side keep the economy of a country balanced, and currently, it’s too complex! The existing system is having too many loopholes and can be manipulated easily. The blockchain is perfect to replace the existing system, and the limitations shall be thrown away in the air. Here, in this article, we’ll discuss how blockchain technology is going to transform the banking and financial industry.
You might be aware of the present banking system, and certainly, you have faced difficulties in it. But the term “blockchain technology” might be new to you. So let us understand the basics first.
What Is Blockchain Technology?
Blockchain technology, in simple words, can be defined as a distributive ledger system backed by cryptography that emphasis on validating the transactions within the network without any failure.
- A Decentralized Platform: Not a bunch of people co-existing to look after and control things.
- A Trusted Network: Instead of a regulated team, it is a network that validates and verifies the transactions.
- Regulation-free: There are no particular rules or regulations to follow.
- Transparent: The entire network is open to the outside world and transactions are visible to anyone with a system and internet connection.
- Secure: Even though the system is transparent, the transactions cannot be altered by an intruder.
- Lightning Speed: The system is quick and reliable enough to make multiple transactions without any scalability issues.
The nodes or computers connected to the network validates each and every transaction and then updates to confirm whether the transformation is done or not.
So, how exactly this technology transforms the industry and alters it in the best way? Let’s see the existing system first and then go to the transformation part.
Banking – The Existing Model Explained!
The traditional banking or financial system currently follows an advanced version but with many limitations. Let’s see how traditional system works.
- Everything is centralized, and there are many regulations to follow in a strict manner.
- Government rules are applicable to the system.
- The government approved currency is used as a medium for transactions or any other money-related process.
- The financial system works in accordance with the regular fiat currency flow.
- Here, this fiat currency is considered as a reserve, and they’re printed as per the demand without any supply-cap.
Basically, this is how the traditional way of banking looks like, and it does have many flows too.
The Drawbacks – A Knot Of A Hitch In Economy!
The traditional system is not a failure, but it does have many loopholes and drawbacks. Here are some of the notable flaws in the current financial model.
- Manipulations and cheatings are regular visitors in the existing system.
- The figures of transactions can be manipulated easily and finding them are too difficult.
- Such incidents often happened in the past.
- Counterfeit money is another issue, and tunneling often causes the economy to fall under legal instability.
- A bank or a financial institution fails once a depositor withdraws an amount every single time.
- Hacking is an issue and needs physical money to balance the economy.
All these issues cannot be easily addressed using the present techniques and if one came up with a solution, it is not going to be reliable or scalable. Digital transactions came up and were promising. But still, the drawbacks keep on pushing at the doorstep.
So, what is the perfect solution?
Blockchain – Transforming The Banking Solution?
How exactly is blockchain a solution for the above concerns and drawbacks? If the banking sector is going to be integrated with blockchain, you may call it “a complete automated system” that doesn’t request transactions to be verified each and every time.
With blockchain technology, when you make a transaction, the nodes connected within the network will verify it with pre-set conditions, i.e., if you want to make a transaction to someone, the process looks like,
- You make a transaction request initially, and then it is broadcasted to the network of nodes.
- The nodes then check whether the sender has enough amount of money or is not using any previous transaction history.
- It then makes sure that the receiving end is capable of receiving the same amount as that of the concerned request.
- These aspects are highly technical in nature, and a blockchain technical guide can help you quickly.
- Then, the nodes again validate to proceed further with some complex algorithm.
- The conditions used to regulate a transaction can be written in the form of codes and added up as “smart contracts.”
- If the necessary conditions are satisfied and the nodes validate the transaction, the system accepts the transaction request and completes the transaction.
- The transaction is then completed and added as a new block.
- A block contains many such transactions, and these blocks add up as a chain linked to the pre-nodes to form blockchain.
A perfect model, Isn’t it?
Benefits That Must Be Noted!
With such an efficient system, the numbers cannot be altered, or an intruder from outside cannot hack into the system. Also, the system is transparent, if you make any change in the existing system, that change has to be approved by the nodes and validated again. If found any manipulation, that change will be canceled!
No need of a back-end team to check each and every transaction as the conditions are written in the form of codes. These codes will run each and every time a transaction is initiated. Only after these conditions are met, a transaction will proceed further.
No one to blame for, and it easily transforms the entire scenario. There are many such benefits for such an initiative and banks seem to be happy to adopt such a technology. Sooner or later, this might happen!
On the contrary side, it does have certain limitations, but those parts will also be cleared in the future. Currently, this is just a proposal under developing stage, and as you know blockchain is limitless, everything will settle up quickly.
Banking or financial sector is thus a perfect platform to plug in the new modules of the blockchain, and it’s effective!