You may have heard “blockchain technology” in the news before. Perhaps you thought it was about cryptocurrencies like bitcoin. You may be wondering, “what is blockchain technology?”. You may know about it but need a deeper understanding of how it works and how it is vital in today’s society.
What Exactly Is Blockchain Technology?
Blockchain is a system that records information to prevent hacking or manipulating the system. It is a distributed ledger that copies and distributes transactions throughout the blockchain’s network of computers.
Blockchain technology is a framework that maintains public transactional information, also known as blocks, connected by peer-to-peer nodes in a network to numerous databases. It is sometimes called a ‘digital ledger.’
In a nutshell, the digital ledger is similar to a Google spreadsheet shared across several computers on a network, where transactional data are recorded based on actual purchases. The intriguing aspect is that everyone can view the data, but they cannot modify it.
How Blockchain Technology May Help Banks
1. Faster Transactions
It is not a secret that some banking processes and financial transactions are usually slow and take a long time to handle, approve or log; it is because some bank transactions are still manually conducted.
Blockchain overcomes that problem by enabling immediate authentication and verification, which helps financial procedures be done quicker, speedy cross-border payments, finance trade, and minimizing paperwork.
You can also use blockchain technology on your master, debit, and credit cards. It is also a way of purchasing things quickly and without the trouble of bringing cash with you. You can get a credit card with Sofi to experience safe, fast, and easy transactions.
This technology promotes transparency in every transaction. Detecting and preventing fraudulent activities would be easier if blockchain were integrated into the banking system. Banks utilize a shared digital ledger to record each transaction for blockchain members to track every movement.
As a result, banks can readily follow and closely monitor every transaction eliminating the possibility of money laundering scams and other fraudulent activities.
The banks have put great effort into enhancing digital transformation to make the lives of their customers easier. They have adapted to modern technology to improve their customer service efficiently.
3. Global Trading Procedures
Applying blockchain to the financial system can significantly improve global trade procedures and supply chain management.
Companies involved in the international trade transactions network can regulate financial liabilities effectively, verify the quality of goods, build trust, and make all necessary payments through smart contacts without requiring more time, money, and effort.
4. Faster Loans And Credit
Banks often approve loans depending on a credit reporting system. Blockchain helps expand the scope of peer-to-peer lending while assessing the risk that the bank may face in case the consumer fails to pay.
They base their decision on the consumer’s credit score, ownership status, and debt-to-income ratio. Credit reports provide them with information in a centralized system that might be unfavorable to customers.
Blockchain provides an alternative lending system that offers an efficient, low-cost, and secure method of obtaining personal loans. Consumers may apply for loans efficiently with a decentralized ledger of payment history.
5. Reduce Human Errors
According to several reports, human mistakes in accounting, record-keeping, and reconciliation are among the primary causes of fraud. Regarding security operations, it is usually an unintentional human error or plain neglect that has resulted in significant cyber security vulnerabilities.
Adopting this technology could reduce manual operations, which means lesser human error, enhancing efficiency and eliminating the effect of cyber risks. Blockchain technology uses an automated mechanism to record every transaction avoiding fraudulent transactions.
The Bottom Line
Blockchain technology is gradually but steadily entering the banking and financial services industries. It is also capable of altering the financial sector’s overall security. Blockchain technology will likely influence how international transactions and digital assets are secured, from remittances to securities trading to cross-border payments.