When blockchain technology was introduced in 2009, few regarded it as a threat because little was known about it, but it has now evolved into the next big thing in most sectors. The banking sector has not been spared, with some experts, such as CEO of JPMorgan Chase, Jamie Dimon, saying “it is worse than tulip bulbs.” There is a lot of scepticism as more stakeholders wonder whether blockchain will revolutionize the elements of the banking system. Here are the common fears for the banking system from the fast proliferating blockchain.
The Role of Decentralized Finance in Banking
Blockchain provides a method for untrusted parties to agree on the state of a ledger, call it a database that processes transactions without having to use an intermediary. This implies that by providing services, such as payments, it is now possible to operate without a bank. That is the emerging reality for most banks and is worrying them because there is a danger of getting run over.
Another blockchain service that could change things for the banking sector is the application of smart contracts.
These are self-executing contacts that can automate the manual procedures, from compliance to the distribution of content. Because they are self-executing, the process is cheaper, faster, requires no lawyers and there is no way for one party to short-charge the other. The time lapses, the contract executes!
A Deeper Look at Areas Where Blockchain Could Disrupt the Banking Industry
The core reason blockchain is gaining traction is that the banking system has been very rigid and expensive. Therefore, people have been suffering silently and anxiously waiting for a new solution. So, the truth is that the solution they have been looking for might be the blockchain. Here is how it is disrupting the highly conservative banking industry.
Today, people make transactions worth trillions of dollars using traditional payments, which are quite slow, expensive, and unsatisfactory. A person working in California who wants to send some money home in the UK might be charged a flat rate of $25 using wire transfer plus additional fees. To make the case even worse, the money might take days to reach the destination. Now, blockchain is here to crumble everything, allowing you to make transactions cheaply and at lightning speed.
The only thing that you need is to have the sender and recipient on the same network. This implies that the transaction is completed instantly, whether it is for an emergency or purchases on the market. Even the blockchain networks that take longer, such as Bitcoin, will only require a couple of minutes to get the transaction completed. Now, blockchain wallets are being used to make even micropayments or transactions of less than one dollar.
Well, we have just started drifting from the banks, and the shift is expected to keep moving even further.
Raising money, whether for personal reasons or investment, has been a reserve of a few entities, such as banks through loans and capital markets through the sale of shares. To secure a loan for your enterprise from a bank is a very complex process, which requires a lot of things, such as background checks, credit scores, and use of collateral. It also takes a long period and the loans come with a lot of charges.
Blockchain is about to change the concept of fundraising completely. Today, you can raise a lot of money through initial coin offerings (ICOs), which give access to a larger pool of investors. Some companies that successfully raised money using ICOs are Bancor ($153 million) and Status ($90 million). Now, you can also use Decentralized finance loans to borrow money against your coins.
These are only a few of the areas where blockchain has started causing disruptions for various sectors, especially the banking industry. Other services that blockchain is offering in a more convenient and cheaper way include securities, clearance systems, and credit. Simply put – you can now get the banking services on the blockchain faster and more cheaply. To learn more about blockchain and how to implement it in your system for higher efficiency and success, call Hi Dollar for assistance.