How will blockchain technology affect the banking industry

At present, the traditional banking industry is facing an existential crisis, and Bitcoin and blockchain technology are gradually becoming options for the existing banking system. alternatives.

Table of Contents

• How does blockchain change the current landscape of the banking industry?
• What are the main advantages of blockchain in the development of the banking and financial industry?
• Use blockchain technology for fast fund settlement
• Raise funds through blockchain
• Tokenization of assets on the blockchain
• Loans through blockchain technology
• The impact of blockchain on global trade finance
• Signing more secure contractual agreements through smart contracts
• Zone Blockchain achieves data integrity and security
• Summary

How does blockchain change the current banking industry landscape?

The banking industry plays an intermediary role in the global economy through its internal accounting system management and coordination of the financial system. Since such accounting data will not be disclosed to the public, the public can only be forced to trust the banking system and its old infrastructure.

Blockchain technology has the potential to disrupt the global currency market and even reshape the entire banking industry by eliminating middlemen and establishing an easily accessible, borderless and transparent system without trust. system to replace traditional banking.

Blockchain has the potential to enable faster and lower-cost transactions, set access permissions for capital, establish greater data security, and enforce trustless protocols through smart contracts, enabling compliance Advantages such as smoother sex.

In addition, given the innovative nature of blockchain, new ways of interacting between financial components may give rise to new types of financial services.

What are the main advantages of blockchain in the development of the banking and financial industry?

• Security: Blockchain-based architecture completely eliminates single points of failure and eliminates the need to put data in the hands of middlemen.
• Transparency: Blockchain standardizes the sharing process and creates a shared source of truth for all network participants.
• Trust: Fully transparent ledgers make it easier for all parties to collaborate.
• Programmable: Blockchain can automate business processes by creating and executing smart contracts.
• Privacy: The privacy technology of blockchain supports the selective sharing of data between enterprises.
• High performance: Blockchain networks are designed to support a large number of transactions while supporting interactivity between different chains, thereby creating an interconnected network.

Use blockchain technology for fast fund settlement

Remittances in the current banking system can be a long process that will bring various problems to banks and customers. There are handling fees and require cumbersome verification and management. In the era of the Internet of Everything, the traditional banking system has been unable to keep up with the development of other technologies.

Blockchain technology offers a more convenient payment method at lower fees that is available around the clock, without borders, and with the same security guarantees as traditional systems.

If you want to learn more about this topic, we recommend reading our article "Blockchain Application Cases: Transfers and Remittances".

Raising funds through blockchain

Traditionally, entrepreneurs who want to raise funds usually External financiers, such as angel investors, venture capital, or bankers, will be sought. This can be a very complex and rigorous process, requiring lengthy negotiations on valuations, carve-outs, corporate strategies, and more.

Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs) provide emerging projects with the opportunity to raise funds without the need for banks and other financial institutions. With the support of blockchain, companies can sell tokens through ICO in exchange for funds, and the tokens will bring returns to investors. In the traditional model, banks usually charge huge fees to facilitate business securitization and initial public offerings (IPOs), but blockchain technology can eliminate these fees.

It is important to note that although ICOs are more democratized in terms of raising funds, they do bring some problems. Issuing an ICO is relatively easy and allows a project to raise large amounts of capital without the company having to provide any formal contract to deliver on its promises. The ICO market remains largely unregulated and, therefore, presents significant financial risks for investors.

Tokenization of assets on the blockchain

Buy and sell securities and other assets (e.g. stocks, bonds , commodities, currencies and derivatives), requiring complex coordination among bank brokers, clearing houses and stock exchanges. Not only does the process have to be efficient, it also has to be accurate. As complexity continues to increase, so does the corresponding time and cost.

Blockchain technology simplifies this process by providing a technological foundation layer that enables all types of assets to be easily tokenized. Most financial assets are bought and sold digitally via traders online, so tokenizing them on the blockchain seems like a convenient solution for all involved.

At this stage, some blockchain innovation companies are studying how to tokenize real assets in reality, such as real estate, art and commodities. This allows assets with real value to be transferred in a cheaper and more convenient way. In this way, it can also open up new investment methods for investors, allowing them to break through the limitations of previous investments and obtain more precious assets (which may be investments they could not obtain before).

Loans through blockchain technology

Banks and other lending companies have monopolized the lending business, often with relatively Loans are offered to users at higher interest rates and access to loans is limited based on the user’s credit score. This makes the loan process very lengthy and costly for users. When it comes to lending, banks are well-positioned to provide the necessary financing for high-cost items such as cars and properties.

Blockchain technology allows anyone in the world to participate in a new lending ecosystem, which is also known as part of the decentralized finance (DeFi) movement. In order to create an easier-to-use financial system, DeFi aims to put all financial applications on the blockchain.  

Peer-to-peer lending realized through blockchain allows anyone to achieve unlimited loans in a convenient, safe and cheap way. Through the competitive lending environment created by blockchain technology, banks will also be forced to provide more favorable loan terms to their customers.

The impact of blockchain on global trade finance

In international trade, importers and exporters A large number of international rules and regulations have been imposed, making it extremely inconvenient for both parties to engage in international trade. They usually need to track every aspect of the goods and handle related processes manually, including a large number of paper documents and ledgers.

Blockchain technology allows trade finance participants to gain greater transparency through a shared ledger that can accurately track goods around the world. Blockchain technology saves importers, exporters and other businesses a lot of time and money by streamlining the trade finance process.

Signing more secure contract agreements through smart contracts

When businessmen and enterprises are in the process of reaching an agreement , contracts are usually required for protection, but this type of protection is costly. Due to the complex nature of contracts, the process of creating them often requires extensive work by legal experts.

However, smart contracts can realize automated agreement signing through the tamper-proof, deterministic and other code functions of the blockchain network. Funds can be securely escrowd in third-party systems and can only be released when the conditions of the protocol are met.

Smart contracts greatly reduce the element of trust required to reach an agreement, thereby minimizing the risks of financial agreements and the possibility of disputes.

Blockchain achieves data integrity and security

In the process of sharing data, centralized institutions There is often a risk of being compromised. In addition, many financial institutions still use paper storage methods, which greatly increases the cost of record keeping.

Blockchain technology can streamline related processes, including automating digital verification and reporting, digitizing KYC/AML, recording transaction history, and supporting real-time identity verification of financial documents. This helps reduce operational and fraud risks and lowers the cost of processing data for financial institutions.

If you want to learn more about this topic, we recommend reading our "Blockchain Application Cases: Digital Identity" article.

Summary

The banking and financial industry is one of the important industries affected by blockchain technology. There are many potential use cases, ranging from real-time trading to asset tokenization and lending, as well as smoother international trade and more powerful digital contracts.

All technical and regulatory obstacles can be overcome, and it seems only a matter of time before this new financial infrastructure is realized through blockchain technology.

Banking and finance based on the characteristics of trustlessness, transparency and borderlessness will play an important role in achieving a more open and interconnected economy.