We all have visited the bank at least once and faced many problems ranging from the minute to severe. Let us elaborate it with an easy example, consider you and your friend went to the bank to transfer money from your account into your friend’s account. For that, you’ll be requesting the bank officials to initiate the transaction procedure, which is a bit lengthy procedure. Now once the transaction is successful, the bank keeps a record of all the steps that were involved during the transaction. This record has to be updated on both the sender and the receiver's end, every time a new transaction takes place. But these entries are not well encrypted and can easily be tampered. But we don’t want such mishaps with our transactions, right?
This is where Blockchain saves the day. Blockchain technology is a collection of data, representing a financial ledger, holding a list of transactions. The ledger is visible to all the users of the connected network, but cannot be manipulated by any, which makes it a more secure way of transactions.
Let us now discuss some of the basic advantages of Blockchain over the procedures of traditional transactions.
Democratic System: The Blockchain is free from a central authority. This ensures the direct flow of data between individuals, without any external influences.
Equity: All the members of the connected network possess a copy of the financial ledger, and any changes made in the original ledger will be updated in each copy. This ensures that the transactions are clean and authentic.
Security: BlockchainTechnology consists of two cryptographic keys, a private and a public key. When the two keys combine, a digital signature is generated. All the transactions made are well protected by such a digital signature and is further recorded with a time slip, to ensure authenticity in every transaction.
Add-only feature: The data once entered in a Blockchain cannot be erased, i.e., it is generally immutable. Data in a Blockchain system can be entered in a time-sequential order.
Use of Consensus: This can be termed as a decentralization feature. There’s no central authority to update the ledger. Any member of the connected network is allowed to update the ledger, after proper validation made against the Blockchain protocol. The updates are reflected in the ledger only after a consensus is reached among the nodes of the network.
Banks and Finservs have forever controlled and monopolized everything related to finance. This control does not go along with the digitized globalization and has somehow garnered blockchain unprecedented support.
When we look at how Blockchain technology disrupts the financial institutions, we cannot ignore the features it offers:
- Decentralization - While decentralization is often related to ridding consumers of restraints, a compelling feature they offer in the banking sector is 'intermediary-free' eco-system. With blockchain assisting the flow and completion of transactions, systems can comfortably rule out third-party mediation.
How does this work?
It develops consumer confidence and saves them valuable money.
- Tracking and Security - With rising cyber-security crimes there is a growing need for stable systems that are both accessible yet safe. Blockchain offers irrevokable ledgers and data protection through its consensus protocols and immutability. While it's still premature to rule out any transgression, blockchain does offer better solutions to safer financial transactions.
Blockchain is gaining acceptability due to its ability to integrate with almost every supply-chain we know of. Thus, banks and financial services will soon need it to be able to function and communicate with global markets and exchanges.