Blockchain technology is versatile, and the list of its use-cases is growing every year. Different industries and sectors are adopting blockchain for their operations. Banking is the sphere that, perhaps, benefits the most from blockchain because this technology perfectly fits the needs of banks, brokers, and exchanges. The initial reaction of major financial institutions to blockchain and cryptocurrencies was less than enthusiastic.
Yet, today, a decade later, some of them consider blockchain an indispensable part of their infrastructure. Banks realize that accepting cryptocurrencies is only one step towards securing their place in the future. Therefore, more organizations in the industry are seizing all opportunities which blockchain presents.
- The banking industry became one of the primary beneficiaries of blockchain technology
- Blockchain provides a number of advantages for financial institutions including transparency, security, and high speed of transactions
- Companies such as IBM and J.P. Morgan are already actively using blockchain and it shows that the technology can transform radically the banking industry
- NOWPayments helps clients start accepting cryptocurrencies and thus be better prepared for the future
What is Blockchain?
Blockchain is a digital ledger that keeps records of every transaction that occurred on it. Blocks are the containers for transactions. Each block joins the previous one, thus forming a chain of blocks. Decentralization is the key idea of blockchain. Essentially, no one governing entity stores the ledger containing information about transactions. Instead, blockchain is distributed and duplicated across every single node (computer) in the network.
Blockchains use different mechanisms which let them verify transactions in order to avoid the problem of double-spending. A Proof-of-Work protocol is the most popular one. This protocol implies mining, a process when the user with the highest computational capacity gets the right to verify a new block and receives a reward for it.
Blockchain Benefits for Banking
As mentioned earlier, Blockchain stores information about every single transaction that it processes. Therefore, any person can view the history of transactions and determine when they took place and who the parties were. Such a feature is crucial for ensuring accountability among financial institutions. For instance, banks can report the history of their transactions to regulators to prove that they comply with all the laws and stay within the established rules. Blockchain transactions are immutable. In other words, no one can change any data stored on a blockchain. This helps to track and eliminate any attempts of fraud or poor management of assets. Thanks to blockchain, banks and other financial institutions can stay aware of all activity that happens within the organization.
Blockchain does not require any substantial investment since there are already existing platforms that let banks deploy their private networks. Usually, when organizations need to store large arrays of digital information, they build massive data centers which entails enormous costs. Financial institutions can save large sums on infrastructure investment and maintenance by switching to blockchains. Moreover, if banks choose to use blockchain platforms, the cost of their transactions will be extremely low. Since blockchains are fully peer-to-peer, when handling bank-to-bank transactions, financial institutions will not have to use services of third-party intermediaries.
Speed and Scalability
Blockchain technology has evolved over the past decade, and one of the main consequences of this evolution is the faster processing of transactions. The pioneering Bitcoin blockchain can process only seven transactions per second which means that users should wait at least ten minutes for their transfer to get verified. Yet, blockchains such as Ripple and Stellar can process thousands of transactions per second, and their users’ transfers are verified almost instantly. Banks can considerably improve their settlement times by using blockchains and thus ensure fast processing of transactions for their clients.
In addition to the immutability of transactions, blockchains employ reliable mechanisms for maintaining the security of their networks. For instance, decentralization helps blockchains avoid the problem of a single-point-of-failure, and therefore hackers will struggle to interfere with their infrastructure. Of course, there are still risks of possible security issues. Nevertheless, banks can always implement additional means of ensuring security and prevent any possible attacks.
Blockchain Banking Projects
Major financial institutions are rapidly adopting blockchain, making it a part of their business model. For instance, J.P. Morgan developed a blockchain-based platform called Liink which helps improve funds transfers between banking institutions worldwide. There are more than four hundred banking institutions globally that use Liink. One of the Liink top features is Confirm. It lets banks request information on beneficiaries’ accounts from other banks who are Liink partners and receive it almost instantly. This blockchain solution helps decrease the number of transactions which were rejected due to mismatches in payment details. Additionally, it significantly lowers costs for all banks, both sending and receiving ones.
Ripple is one of the most prominent blockchain projects in the banking sphere, which provides a variety of instruments for financial institutions. RippleNet is the blockchain-based payments network that lets its partners connect with hundreds of banking organizations around the globe with the help of an API. It ultimately enables banks to move their funds in a more reliable and faster way. Additionally, Ripple offers the On-Demand Liquidity (ODL) service, which helps significantly reduce costs and improve the speed of cross-border transactions. Those who use this feature can utilize XRP, the native currency of Ripple, as a bridge between two currencies. As a result, organizations do not need to pre-fund destination accounts.
We.Trade is a joint-venture organization, and its owners are twelve European banks, including Deutsche Bank, Erste Group, HSBC, and IBM. We.Trade is a blockchain-enabled trade finance platform for enterprises that uses a distributed ledger and smart contracts for allowing sellers and buyers to trade worldwide. Small and medium enterprises are the primary clients of We.Trade. With the help of the platform, they get access to invoice financing, credit insurance, bank guarantees.
NEXXO is a company which employs IBM’s Hyperledger blockchain to provide a platform for small businesses. Essentially, NEXXO offers a payment gateway system for such enterprises. NEXXO has its native token, which grants several rights to its owners, including being able to buy products from NEXXO’s small-business partners at a discount.
How to Accept Cryptocurrencies
Blockchain is a technology whose initial intended use was virtual payments. NOWPayments can help you utilize this feature and start accepting cryptocurrencies.
NOWPayments has several effective crypto payment tools which you can employ at your businesses. For instance, crypto invoices can feature all of your crypto payment details and thus make it easy for your clients to pay with Bitcoin or altcoins.
Charities and bloggers can benefit from accepting crypto donations through a widget, link, or button. NOWPayments’ solutions are flexible, which guarantees that any person or organization will find them beneficial.
The banking industry was one of the primary beneficiaries of blockchain. The fact that organizations such as J.P. Morgan and IBM are actively using blockchain in their operations proves that the technology has a lot of potential. Blockchain has a host of benefits for financial organizations. Blockchains are secure, maintain a high speed of transactions, extremely versatile, and absolutely transparent. More banks every year adopt blockchain as they recognize its real utility for the future banking industry. With the help of NOWPayments, you can take your business to the future by starting to accept cryptocurrencies.