Blockchain Potential Impacts on Banking

In this article, I will breakdown my view of the blockchain technology and it’s potential in the banking industry.

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Digital Assets

Firstly, let’s talk about digital asset. It is basically anything in computerised form which allows for rights given to owners. This ownership rights is done through tokenisation. For example, a piece of artwork can become a digital asset with ownership rights.

Blockchain

Before understanding blockchain, let us understand what a ledger is. As the name suggests, the ledger bookkeeps the ownership of these assets, and includes trails on the transfer of ownership of these assets.

A blockchain is then a digital distributed ledger which book-keeps digital assets transactions into data blocks which are linked together.

• There is no single owner for the data in a blockchain.
• These transactions are transparent to all.
• The transaction trails can't be changed.

Blockchain Potential in the Banking Industry

Unknown to many retail clients, when you submit an order for a bank's product (eg. credit card payment, loan requests, fund transfer, remittance, cheque payment, etc), there are many intermediaries involved (eg. merchants, your own bank, clearing house, counter parties, etc). This leads to a higher cost and a longer time to process / execute a transaction request.

With blockchain, the "middlemen" could be eliminated as the technology allows direct peer-to-peer transactions. This also means its outreach could go beyond many borders. All that is needed is the internet infrastructure and electronic devices. Less developed countries without robust financial infrastructure (eg. African countries) can benefit from this. Costs will also be reduced significantly and transactions will be faster due to absence of the need to pass through layers and layers of intermediaries and hence lesser fees incurred.

I hope the above write up helps provide crypto enthusiast a refreshed perspective on the potential of blockchain technology in Banking sector. Although there will be challenges for existing financial institutes to adopt this, it is good that regulators around the world are looking into this. Really exciting times which we are living in now!

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