Blockchain is a technology that’s creating a lot of buzzes. Fintech firms like R3, Chain, Ripple, Coinbase, etc. are carrying out relevant research and development. Not far behind are financial institutions like ING, Citi Bank, Visa, NASDAQ, DBS, and Commonwealth Bank who are experimenting on blockchain either on their own or in partnership with Fintech firms.
Blockchain, based on distributed ledger technology, is available to all parties engaged in transactions. It helps to store all the transaction details including transaction history in a block format. Being a distributed ledger, it benefits the financial systems—right from providing transparency, immutability, security, reliability, robustness to fraud prevention.
The following benefits of blockchain are making it popular not just among the financial institutions, but across many sectors:
- Distributed ledger: Blockchain involves a public ledger which is available to all parties involved in the transaction. This means that the moment any transaction is completed, it is entered into blockchain in blocks and a copy of the same is available to all the parties involved.
- Minimize role of intermediaries (central authority/third party): Since blockchain works on the principle of peer-to-peer transactions, the role of any intermediary (central authority or clearinghouse) is minimized, resulting in faster and smooth transaction processing.
- Reduced transaction cost: As blockchain is built on the concept of sharing information across parties and consensus during transactions, it helps save on reconciliation costs between banks and losses because of documentary frauds.
- Traceability of transaction: Blockchain has the capability to trace the entire chain for a particular transaction which helps control fraud and black money.
Blockchain is secure, transparent, reliable, robust, and a trusted source of truth. And these benefits have a vast potential for adoption in banking and other industries.