March 29, 2023

How Blockchain Could Disrupt Banking

How Blockchain Could Disrupt Banking

Blockchain is already having a huge impact on the banking and financial sector. It’s transforming the way people make payments, how they raise capital privately, and much more. While it’s still fairly new and in the infancy of adoption, the potential developments, opportunities, and threats lead us to ask the question – how could blockchain disrupt banking?

Banking is something almost the entire global population is reliant on for personal and business finances. The market is huge and is supported by what most deem a trustworthy and stable system.

However, using blockchain technology in banking has the power to take security, transparency, freedom of access, and individual financial control to the next level.

Let’s find out how.

How Will Blockchain Change Banking?

Removal of Unnecessary Fees

Currently, transactions require a trusted middleman to facilitate a transaction. This could be as small as paying for a single item using a debit card or a multi-million dollar cross-border business purchase. In both of these instances, the facilitator of the transaction would charge a percentage fee for their services.

While there are gas fees associated with some blockchain networks, they are much improved on banks, particularly for large transactions. There is work for blockchain to do to improve its handling of small everyday transactions – they can be expensive to facilitate currently.

Improved Privacy & Anonymity

Furthermore, they are obligated to complete thorough checks and verification, taking an array of personal data from individuals and businesses and storing them in their database. This action alone provides one of the main reasons blockchain technology is an advantage for many – privacy protection and anonymity.

Depending on the digital wallet you choose to use, very little information is required to establish a digital wallet address. Blockchain banking would enable anyone in the world to see all processed transactions, adding a level of transparency never-seen-before. However, no one would see any personal information. The closest the blockchain gets to personal data is detailing the wallet addresses that participated in a transaction.

Greater Control & Ownership Over Your Finances

Currently, it would be near-impossible to live without a bank account. Most people receive their wages directly, you can’t pay on a card without one, and you can’t easily transfer money to another person. Furthermore, you don’t really know what your banks are using the funds in your account for, and if the company gets into difficulty will your money be protected or frozen and unable to access it? Realistically, although it is your money in your bank account, there are situations where you retain little control over it.

The difference between banks and blockchains is that you retain complete control and ownership over your funds. By using a digital wallet, any individual or business doesn't need a bank account. By harnessing the power of blockchain technology, anyone can store their capital online or offline while being the only person/group with private keys to access it.

Rapid Transaction Speeds

At the minute, banks are reliant on their own internal systems, operations, and processes to verify and process transactions. This can be a lengthy and costly process. Blockchain banking would empower financial institutions to take advantage of distributed ledgers, meaning they can reduce their operational costs while increasing their ability to process transactions near-instantly.

These improvements are felt on a global scale. In many parts of the developing world, it is costly and time-inefficient to move money. We’re already seeing businesses in some countries, such as Kenya, Nigeria, and the rest of sub-Saharan Africa, turn to crypto payment facilitators to improve their banking processes.

Easier Access To Loans

There’s nothing more invasive than trying to borrow money from a bank. Furthermore, there are people across the globe who either have no access to a bank at all or would have zero chance of being accepted for a loan. What if you could borrow funds from someone you’ve never met before and could guarantee repayment of the funds by signing a smart contract? That's what blockchain can do.

Anyone, anywhere in the world, can provide a crypto loan to each other. Usually, these are collateral-backed, ensuring the recipient of the loan is incentivized to make the repayments required. This gives ultimate control and flexibility to both parties. Those who wouldn’t be accepted for a traditional loan have access to the fund they need and the individual providing the loan has a new way of generating income through interest.

These loans provide as much protection as traditional loans. However, you can borrow over just a few days, meaning interest is a small amount, and you don’t have to fit the criteria of any bank to access funds.

In Summary: How Could Blockchain Disrupt Banking?

Although in its infancy, using blockchain for banking has the potential to transform the financial system as we know it. It removes the restriction and limitations of the traditional system, such as expensive transaction fees, slow processing times, removal of privacy, and much more.

By removing control from centralized institutions, blockchain gives individuals and businesses complete control and ownership of their funds, meaning they can do whatever they want with it at their convenience. Furthermore, it allows people across the world to easily borrow capital, particularly those who don't have access to existing financial services.

There is much work to do for blockchain to become an integral part of banking. There needs to be mass adoption, improvements to KYC and AML, and legislative protection in place. However, there’s no doubt about it. Blockchain disrupting banking is just starting.

To get a head start, take a look at the most secure crypto payment processing systems available from Escrypto.

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