Seldom is a technology invented that has the entire world and all its prestigious organizations talking. When it was introduced, Blockchain was one of these technologies. Even after its unveiling, its hype did not die down. To date, individuals and organizations continue to speculate about its future. From the Senates in the US to the government in the UK, from Goldman Sachs to R3CEV – everyone has made inquiries, released whitepapers, and put forward their philosophies.
But still, how will Blockchain change things? Before answering that, let’s look at what Blockchain is.
What is Blockchain?
Blockchain is a form of technology. It is a time-stamped series of records of data that is managed by a group of computers, not owned by anyone. These records are bound to each other using cryptographic principles. The data in these blocks is immutable, meaning it’s impossible to change it without hacking into thousands of computers which is further believed to be impossible.
The reason why Blockchain has commanded the world’s attention so strongly is because of:
- Decentralization. No one owns the technology. It was made by a mysterious Satoshi Nakamoto
- Transparency. One can track data if one so wishes.
- Immutability. No one can tamper with the data stored in the Blockchain.
How does Blockchain affect finance?
Out of all the sectors currently using Blockchain, banking is in the lead. 30% of institutions in the banking sector are using Blockchain already. This is because slowly but surely, banks are realizing the utility of Blockchain in spite of the fact that cryptocurrencies were originally created to bypass banks.
Here’s how Blockchain can improve certain aspects of banking:
Reduce infra costs due to KYC
KYC or Know Your Customer regulations are one area where banks lose a lot of money. An average bank spends £40m a year on KYC Compliance. Others may spend up to £300m. In a survey by Reuters, 70% of the 722 survey respondents said client onboarding can take up to 2 months. For others, the number exceeded 2 months more.
Thus, a lot of time and money is expended on KYC. This is because most banks still use paperwork to carry out the compliance process. Coupled with the ever-changing draconian policies, the compliance process turns out to be an expensive one.
Using Blockchain, a person can create a digital identity over which they have full control. When they go to a bank and the bank wants to carry out its KYC compliance procedure, it can simply ask to be given access to this identity instead of going to another centralized third party.
Your guide to understanding the technology of trust
If banks set up an intra-bank KYC protocol, then they can share the customer’s information and identity with another branch of the bank. This will ensure a smooth transfer of knowledge.
If banks set up an interbank KYC protocol, then the KYC done by one bank can be used by another.
Cut out middlemen
In the area of trade finance, the process is slow and the involved parties do not trust each other. The solution is found by involving more middlemen like banks and clearing parties.
Blockchain presents a solution in the form of smart contracts. These are a series of instructions that follow the IFTTT logic i.e. the If- This- Then- That logic. It is basically the domino effect in action. Smart contracts are used in the Ethereum ecosystem where one person, who wants to get a task done, initiates a smart contract with one or more people. No third parties are involved.
This will make it remove the need for getting special documents from the bank and will easily transfer title to goods and money. Middlemen and their extra fees are cut out.
This is perhaps the biggest benefit of Blockchain that will be felt by all.
Traditionally, transactions take 2-5 working days. The same thing happens using platforms like PayPal and SWIFT since they always close on the weekends. This is due to the involvement of middlemen.
Using Blockchain, transactions are settled almost instantly if a permission chain is used. The current transaction time has been reduced to 10 seconds! The career opportunities in blockchain are thriving in India due to the ever-increasing demand.
The usage and implementation of this technology is still in its nascent stage. It remains to be seen how it flourishes. Disruption is promised, though. Learning the technology which could disrupt the market will give you a positive edge. If you’re interested in mastering the blockchain technology, check out this blockchain PG certificate from IIIT Bangalore.