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How Blockchain Technology is Changing the Banking Industry Forever

By far the biggest threat to banking in, well, living memory, has been blockchain technology. More specifically, cryptocurrency, but we’ll focus on the technology as a whole since this is what has been driving the movement.

All the tech companies in the world have been using it, including Google, Facebook, Apple, and Amazon, and a vast number of FinTech services, which is why it’s being seen as such a threat to traditional banks, but why is this happening?

What’s so important about blockchain?

In today’s post, we’re going to explore how and why blockchain technology is making such a big difference to the traditional banking format, and how the future of this industry is looking.

How Blockchain Technology is Changing Payments

First and foremost, and by far the biggest form of change that blockchain is bringing into the world, is how financial payments are made and the way modern-day payment systems work. Whereas traditional banks can take a few working days to make a payment, meaning some international payments can take a very long time, blockchain payments are instant.

Since all you need is an internet connection to make the transaction, most will be handled and completed in a matter of minutes. These transactions can happen across borders to anywhere in the world, are extremely secure (especially when compared to traditional methods) and happen pseudoanonymously.

Due to the nature of blockchain technology, the costs involved in these transactions are usually very small, typically only several cents per transaction. This means that sending money across to the other side of the world is far cheaper than traditional wire companies, such as Visa or Western Union.

In the same way, remittances are also changing. Whereas overseas remittances are expensive and long-winded, with high processing times and the fact the money can be stolen, taxed, or subject to legal issues along the way, a blockchain process basically eradicates all these issues. There are dozens of companies already set up and operating to offer these services.

The Way Account Managing and Deposits are Handled

In the traditional way the world works, consumers tend to use banks to hold money in either their savings or checking accounts. Then, the bank will loan out the money being held to make money on top of the money you’re saving, and the cycle continues. This means when you look into your bank account, much of the money you have isn’t actually being held by the bank, but instead is out in other people’s accounts as loans.

If every customer of a bank went to the bank and withdrew everything they had, the bank would collapse. It’s a very fragile system that many consumers are unaware of. However, while this system isn’t going to change any time soon, blockchain technology can make the management of this system far more effective.

Due to the benefits that blockchain technology provides, these account ledgers are far more secure, far more reliable, and far more accessible. This means banks can accurately manage their ledgers to ensure that they aren’t taking out too many loans and will actively help reduce the risk of bank run, or the system crumbling.

A Reduction in Fraud

Fraud has always been a problem in the financial industry, and it costs people around the world billions of dollars every single year. However, for the similar benefits, we’ve spoken about above, blockchain is making things far more secure.

Since the vast majority of traditional banks are set up and organised around a centralised system, malicious people can target the centralised system to commit the acts of fraud. While there have been many measures to make the system as secure as possible, this isn’t fall-proof, and statistics show around 45% of all financial institutions are prone to fraud attempts.

Blockchain is a decentralised system, which means it’s everywhere and nowhere at the same time, which makes it incredibly difficult to fraud and theft to take place. There’s no single point of access like there is with a centralised banking system and trying to get into such a system means diving into layer upon layer of encryption, all spread out in hundreds of thousands of locations.

What’s more, every single change that takes place on the ledge is capable of being seen by every other person and system that has access to the ledger. This means if any fraudulent activity takes place, everyone can see it instantly and correct it. This will help protect people’s money and keep the system afloat.

Katherine Rundell is a finance writer at Academic Writing Services and Essay Writing Services. She writes about blockchain and banking and aims to help the world get educated about finances in a time where they can seem so out of control.

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Kazakhstan’s Central Bank to use Blockchain for Debt Notes

The National Bank of Kazakhstan announced it is looking to test blockchain technology in order to sell short-term debt notes.

In an official statement published today, the Kazakhstan central bank revealed its plan to launch a new mobile app that to sell the short-term debt notes to investors– denominated in amounts worth 100 tenges (the national fiat currency) – without relying on third-party brokers.

At the moment, this app is being tested within the bank, and its launch is expected by the end of 2017.

In the long term, the Kazakhstan bank commented that the app could be used to make initial public offerings (IPOs) easier.

Also, the financial institution explains it wants to work with the country’s banking industry on possible future versions and uses.

“In this area, the project will continue to search for additional solutions, including the involvement of commercial banks,” the statement explained.

The Central Bank explained that it has been looking at the distributed ledger for potential applications since 2016.

A few months ago, regional news source called Tengri News reported that officials were studying possible blockchain use cases, especially those focused on payments.

Read more about blockchain-related projects developed by banks.

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Amelia Tomasicchio
Dutch Central Bank Tests Bitcoin Blockchain

Dutch Central Bank Tests Bitcoin Blockchain

 
Dutch Central bank presented the results of their digital currencies tests whose goal was to better understand the Bitcoin blockchain to adopt it within the main bank institutions.
After this test conducted in 2015 by De Nederlandsche Bank (DNB), the bank presented the results earlier this month.
On 20th June Ron Berndsen, head of the bank’s market infrastructure policy department, explained to Coindesk:
“The general idea was that by adapting the Bitcoin software ourselves we could learn deeper how an actual implementation of the blockchain really works than if we would only perform desk research and go to conferences such as these, no matter how interesting.”

Dutch Central Bank test number one

To do the first test the DNB created a working group who acts as fictional participants in the digital currency world, as they want to replicate how the bitcoin environment seemed in the first two months of its existence.

Also, they sent each other several coins, testing the process.

DNB Second test

“The second DNBcoin prototype takes the other extreme of bitcoin by jumping to the year 2140, the year when the last fraction of the 21 million bitcoins will be issued,” said Berndsen.

For this second test, the team mined all of the DNBcoins in advance, beginning with a block reward of 1 billion of DNBcoins.

“In doing so we were able to generate 3 billion DNBcoins in 30 seconds. In addition, we observed that after all DNBcoins had been generated, blocks could still be mined and added to the blockchain. The reward was reduced to zero but transaction fees were still collected by the miner who finds the next block.”

Blockchain central bank adoption

Central banks are increasing their interest in the blockchain.

Recently, in fact, we talked about several central banks who studied, tested and adopted the blockchain.

For example, you may be interested in the news related to the Central Bank of Canada that revealed its new digital currency called Cadcoin.


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Amelia Tomasicchio