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Impact of Blockchain Technology on Banking Sector

By Aditya Alamuri & Mounika Duvva 

What is Blockchain?
A blockchain is a chronological and logical sequence of transactions that are recorded in blocks. A block is a sum of all recent transactions and once completed, the block gets added to blockchain in a permanent database. They behave like bank account statements of an individual. Therefore, we can infer that a full ledger of transaction details can be obtained via blockchain of every bitcoin transaction that has ever taken place. Now, what is Bitcoin? Bitcoin a mechanism through which currency is encrypted and is also virtual in nature thus enabling bitcoin to use the Blockchain technology to complete financial transactions.

Advantages of Blockchain technology – emphasis on payment systems of banks

1. The blockchain technology eliminates all the intermediaries in a financial transaction – elimination of sites such as PayBill etc.

2. Transactions authorized by Miners – thus eliminating the threats of hacking

3. Superior Risk Management – counterparty risk, settlement risk etc.

Transactions that might get disrupted

Blockchain technology is evolving from an experimental phase to usability and adaptability phase in the payments world. Payment companies, financial institutions, have started with research on the real-world payment products and services which integrate blockchain technology. If successfully implemented, financial transactions like Domestic Payments, International Payments, Remittances have the highest probability to get affected.

Regulatory concerns and Security issues

If an economy wants to adopt the Bitcoin technology, then it must make sure that the right set of regulations are passed. Also, if countries decide upon using bitcoin as a medium of exchange (Inter country), thus eliminating cash transactions, then appropriate policies and guidelines must be ratified between the same. The primary goal of these regulations is to promote transparency and increase the security of the transaction. The problem with crypto-currency is maintaining anonymity with respect transactions. To what extent can these operations be monitored by the government of any country is a major concern. Uncontrolled transactions might be exploited by money launderers to fund anti-social activities, whereas micromanaging these transactions rules out the very basic characteristic of crypto-currency.

Questions that Industry is still working upon

Though there are several plus points for implementing blockchain technology, questions like what will happen to the current structures such as SWIFT and CHIPS are still left for open discussion until there are regulations put into place by regulatory bodies.

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