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Blockchain, Featured

Applications of Blockchain Technology in the Banking Sector

Blockchain technology is largely responsible for the growth and popularity of decentralized finance. Cryptocurrencies such as Bitcoin, Ethereum, altcoins, and other stablecoins dominate the landscape of decentralized finance and blockchain facilitates it. Although blockchain technology is the bedrock of the current decentralized financial system that seeks to substitute traditional centralized finance, the technology itself has a lot of potential in retail banking too. Therefore, it is essential to highlight the potential applications of blockchain technology and how it can transform the sector.

Applications of Blockchain Technology in the Banking Sector

The banking sector has boomed in the last 50 years. It has played an important role in economic development. However, in recent years, the banking sector has been facing stagnation, causing inflation, and has become slow in adapting to the fast-changing realities of the digital age. In this scenario, blockchain has the potential to resolve many of these challenges.

Auditing and Accounting

Many banks rely upon old software and methods of accounting and auditing. Sometimes, auditing is not reliable because it is not transparent. Record keeping is also a cause of worry for many banks. Therefore, blockchain technology can be of great help as it can store vast volumes of data on immutable records. Data storage can significantly improve after integrating storage systems with blockchain technology. It can reduce both paperwork and make regulatory compliance easier to follow. The good news about the role of blockchain in auditing is that Ernst & Young, PwC, KPMG, and Deloitte have shown enthusiasm on the topic.

Settlement and Trading

Blockchain can dramatically improve clearing and settlement operations. Many crypto exchange platforms offer fast and safe settlement and trading facilities. However, currently, it may require certain policy changes as blockchain facilitates borderless transactions and settlements in the decentralized financial sector. 

Fundraising

Initial public offerings are the default forms of fundraising by the banks. But recently, the advent of initial coin offerings is putting up stiff competition to the traditional models. Many new companies issue and sell crypto tokens to investors. The ICO trend is disruptive as it offers a new avenue to the entire concept of fundraising. STOs or Security Token Offerings are some of the more evolved versions of this concept. Therefore, blockchain can compel banks in the future to adopt some of these fundraising methods.

Borrowing and lending

Blockchain technology can vastly improve aspects of traditional finance such as borrowing and lending. By using blockchain technology, accessibility may improve dramatically for retail consumers. The traceability and transparency features of blockchain technology can reduce the risks of bad loans. Moreover, blockchain technology can also ensure sophisticated identity verification techniques that are necessary for sanctioning loans. KYC and AML compliance can independently verify the genuineness of bank customers. Therefore, by reducing the risk of bad loans, blockchain can improve the prospects of many banks. 

Also Read- 2024 Blockchain Trends in Different Sectors.

Conclusion

Blockchain technology can improve the banking sector tremendously. This is even though the sector is aligned with the traditional centralized financial system and blockchain is the spine of the decentralized financial system. Speed, transparency, traceability, and better KYC authentication can dramatically improve the operational efficiency of banks. Moreover, there is a high possibility shortly that cryptos may become the most viable alternative to fiat currencies. Therefore, in such a scenario, blockchain technology because of its highly adaptive nature may become the default technology of the whole banking system. 

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