Also read: What is the Purpose of Altcoins?
Blockchain technology is far more useful for banks to implement and incorporate in their business models. Bitcoin itself can easily be replaced by an “altcoin” that is created by a bank. Besides, these modern forms of “bank money” can be traced back to the early days of the Italian an Swiss banks in the 15th and 16th centuries .
So what does the blockchain offer the banks? Transparency is one of the most obvious answers. All transactions that occur within a certain bank can be recorded using a blockchain implementation. This ensures that there is a record of every transaction made by the bank and its customers. Such an implementation will make it easy for governments to monitor the banks and make sure they are not engaging in illegitimate activities.
By using Blockchain-like technologies, CEOs and other bank employees can be held accountable if something goes wrong. This will have a positive effect because there will be a permanent, tamper-proof record, which will help keep the banks honest.
Another positive effect that blockchain technology can bring to banks is an increase in transaction speeds. By implementing blockchian-based technologies, banks will be able to streamline their services. For example, consider a transfer from bank customers A’s account to customers G’s account. With the blockchain, this transaction can be instantaneous. Furthermore, if every bank has its own “micro” blockchain, all of them can work together in a “macro” blockchain, designed only for financial and banking data. These so called “micro” blockchains are far easier to search than one, massive blockchain. The most simplistic way to envision something like this system is a medieval chainmail vest that is unending. The chain-links, representing banks or financial organizations, are connected to one another in the “chainmail.”
We will demonstrate this system with an example. Miss X’s bank informs her that she has an outdated savings account and that she would have a higher interest rate if she opened a new savings account. X accepts the bank’s offer, and everything is arranged and the funds are transferred from X’s old savings account to her new account. When X uses her online banking service to check on her bank accounts, she is horrified to notice that there isn’t any money in either savings account. She goes to her bank and addresses the issue, but the bank records show that the transfer of funds took place. According to the bank, there was a “communication problem or glitch” between the bank and the online service. With the aforementioned never-ending “macro chainmail” blockchain, this “glitch” would not have occurred .
Security is also a priority for banks, and blockchain-based technologies may offer vast improvements. Banks might introduce any number of security measures, like multi-sig (ranging from 3 to any number of keys), master keys, and inferior keys that allow access to certain parts but not others, etc.
Negative Side Effects of Blockchain Technologies?
There will always be some central entity that is vying for control over technology and information. So how do we preserve the spirit of decentralization on which Bitcoin and the blockchain is built? Should we even attempt to integrate blockchain technologies with current existing banks and financial industry?
A possible solution might be the example we’ve already given about the “micro” blockchains that are interconnected with each other and are active in a “macro” blockchain environment. This system will involve a lot of actors within the macro blockchain environment and also preserve the accountability and tamper-proof aspects that the blockchain technology offers. This kind of setting also ensures that the highest possible transaction speeds are maintained.
Another problem that might arise is the sheer number of records that might accompany the use of the blockchain, which will make the data searching and accountability difficult. The previously micro and macro setting would alleviate some problems, but there are other solutions. For instance, the blockchain can be set up so that one block contains the data from a certain time period. This will make the data search much easier and will allow banks to avoid drowning in unorganized data. Other search tools can be developed to speed up the search, such as an application that searches for certain activities on accounts that are illegal.
Security and privacy are another concern. How far will we go in securing our data, and how will privacy play a role in this blockchain-based banking system? Will we have to sacrifice most of our privacy to be safe? Can we decide who may view our personal banking and financial data?
Maybe the macro blockchain environment with micro blockchians, multi-signature, master keys, and inferior keys will be an adequate solution. Whatever the case, security and privacy are very important aspects that we as a community need to keep a close eye on if blockchain technology gets implemented in the financial sector.
Do you have any ideas for how the blockchain can improve existing financial institutions? Let us know in the comments below!