• Global expenditure on blockchain solutions is poised to surpass 15.9 billion USD in two years from now. 
• 9/10ths of American and European banks are looking into blockchain solutions to obtain the competitive edge. 
• To this date, financial organizations on their own, have invested in excess of $522 million on blockchain-based developmental projects. 

These statistics could go on and on, as far as blockchain and banking/financial enterprises are concerned.  

Ever since it was formulated by Satoshi Nakamoto in 2008, blockchain has seen the proliferation of innovation with regards to applications within software development. 

The fintech domain is constantly on the lookout for technological tools that improve security, and blockchain has propped up as a relevant solution. The technology is being leveraged in various ways by banking firms and other financial organizations to provide increased protection and privacy.  

With the passage of time, the number of deals has appreciated considerably as disparate industry verticals are looking into the various uses of the technology. Investments made by the banking domain are also increasing due to the several advantages conferred by the nascent technology. 

Blockchain provides a lot in addition to high-security standards to financial enterprises. The following are the leading advantages that blockchain confers upon the banking and financial sector. 

• Minimizes running expenditure 

• Lightning quick transactions 
• Increased security standards 
• Smart contracts enhancing data management 
• Provides a high degree of accountability 
• Enhances efficiency 

• Is touted as the future of banking software 

What precisely defines blockchain? 

To put it in layman’s terms, blockchain is a variant of distributed ledger technology that documents information in a secure fashion with nil possibility of data modification. Due to being a distributed technology, it has the following incredible features: 

• Every node of the network maintains the ledger account. 
• The information recorded is immutable, which means it cannot be altered by a single user. 

• Every transaction holds time stamps. 
• The data record undergoes encryption. 
• It is programmable. 

Primary variants of blockchain leveraged by the banking domain 

Blockchain can be categorized into several variants, but for the sake of conciseness, we will restrict ourselves to four primary variants of blockchain. 

Public blockchain: A non-restrictive, permission less DLT system is the definition of public blockchain. A public blockchain is open to everybody, and anybody can become an authenticated user to access historical and present records. 

Best instances of public blockchain are the cryptocurrencies Litecoin, Bitcoin, etc. 

Private blockchain: A limited and permission-based blockchain is referred to as a private blockchain. It is intended for personal use in organizations, the degree of scalability, accessibility gets managed by the administrative department.  

Best instances of private blockchain consists of Corda, Fabric, etc. 

Consortium blockchain: A blockchain which is like the private blockchain but is leveraged by several organizations, is referred to as a consortium blockchain. It enables users from several enterprises this actively leveraged by government entities, banks, etc. 

Hybrid blockchain: As the name indicates, a hybrid blockchain is a mixture between the public and private blockchains. It enables users to avail of both permission-less and permission-based features. The enterprise can manage whether to let a specific transaction go for private or public use. 

The best instance of hybrid blockchain is Dragonchain. 

Let’s look at the advantages conferred by blockchain in greater depth. 

1. Minimizes running expenditure 

Blockchain essentially develops trust between the bank and its trading partners. The increased trust amongst the partners executing financial transactions eradicates the requirement for mediators and 3rd party software which is otherwise needed in the absence of blockchain. 

The immutable record of transactions reduces the degree of corruption, thereby enhancing the confidence of users. 

1. Lightning quick transactions 

The technology is the primary reason for basically minimizing the transaction times. It has been doable as it eradicates several middle men from the procedure. 

The outcome is a simplified transaction system with the absence of middle men. Additionally, the trades are executed with ledger entries which enable banks to immediately authenticate and enable processes with minimal time gap. 

1. Increased security standards 

Lightning quick transactions within blockchain considerably minimizes the time span for hackers to divert or compromise them. It also provides nil modification capabilities to the relevant parties, improving the degree of transparency for the end-users. 

It has become viable as blockchain records information in a decentralized and encrypted fashion over the total network. It means that as the information gets recorded on the network, a hacker cannot compromise or alter it in any form. 

Any data modification invalidates the signature, which improves the security level. 

1. Smart contracts enhance data handling 

Banking and financial enterprises enlist app developers to produce smart contracts leveraging blockchain. The technology enables the development team to ensure instant data authentication and swift execution of instruction and processes. 

It enhances the data handling capability of the produced software with increased security and minimal human intervention. 

1. Provides high accountability 

Each transaction executed online gets replicated throughout the entire network. It automatically eradicates the risk of missing out on transaction details or data. The user can easily trace any transaction which has been carried out. 

Therefore, banks find it simple to track and handle any problems taking place with transactions. Identifying the culprit becomes an issue of a few clicks in such a situation. 

1. Touted as the future of banking software 

According to AI development statistics, more than 20 countries globally have looked into developing a national crypto. With several nations formally and informally authorizing trading in bitcoins, cryptocurrencies are leading considerable impacts within trading and commerce. 

Blockchain is considered to be one of the leading disruptive technologies and has become a vital part of banking software development globally. 

1. Enhances efficiency 

According to the CEO of IBM, “Anything that can conceive of as a supply chain, blockchain can greatly enhance its efficiency – it doesn’t matter if its people, numbers, data, money.” 

Simple tracking of fraud, swifter transacting, increased security, etc. in conjunction assists in producing a positive work culture and environment for banking staff. 

Blockchain enhances the reliability and efficiency of the produced software and is a positive force for bank staff. 

Conclusion 

This blog briefly looked into the seven primary advantages conferred by blockchain on banking software.