Generations after generations, conventional banks have been serving the public as financial intermediaries. However, after the advent of blockchain technology, their fate of existence in service of more coming generations has become skeptical.
Banks, since their earliest prototypes were created more than 4000 years ago, have been serving the general public, private corporations, and governments. Throughout history, they have encountered several challenges which they successfully overcame. However, nowadays, traditional banks seem to face threats because of blockchain technology. This is mainly due to the concerns of transparency that are associated with conventional banks. We are in a time where the public lacks confidence in major bank operations. On the other hand, blockchains provide publicly accessible operational transparency.
Why Are Blockchains Gaining the Trust of the Public?
Blockchain technology was first developed by a person under the pseudonym ‘Satoshi Nakamoto’ in 2008. The intention was to create a system that acts as a public distributed ledger. Since its first launch in 2008, the growth of the entire network of blockchains is remarkable. Even though it has become one of the most fascinating technologies, the majority of people still don’t fully comprehend how it operates. However, people are joining the network of blockchains at staggering rates. But why is that?
A blockchain is a collection of chronologically ordered, publicly accessible ledgers. The whole blockchain information is controlled and stored in a decentralized manner. Therefore, no single central authority makes all the decisions by itself. Instead, choices are made by networked nodes which are dispersed all over the world. Due to the decentralized system users can also have power over their accounts without the need for dependency on a third party.
By eliminating the middlemen from the main services that banks offer, the blockchain technology provides faster payments at cheaper costs, save operational expenses associated with settlement services, has the potential to build more efficient financial securities, can offer low-rate loans and more secure credits, has the capability to build a global trust, and has safer information sharing.
Major Features of Blockchains that Conventional Banks Lack
Conventional banks have centrally located databases that could be susceptible to fraud and hacking. This is not the case with blockchains. A large number of computers all over the world work together. Information is always circulated via several distributed networks of nodes. Any threat that could jeopardize the integrity of data can’t possibly exist due to the decentralized controls. There is no access that leads to leakage of information that would compromise the integrity of data.
Furthermore, a copy of the digital ledger is stored on each of the networked nodes in the system which is then subjected to verification of authenticity at each node. Unless the majority of nodes submit confirmation of the legitimacy of data, it wouldn’t be recorded in the ledger. Moreover, once data has been recorded in the digital ledger, it can’t be altered by anyone. It is due to these levels of transparency that attracted a majority of people to the blockchains.
Unlike conventional banks, since everything is managed by algorithms in blockchains, there is no risk of being a victim of fraud, scam, and bias. Moreover, conventional banks can take up to days to complete a settlement which makes them sluggish as compared to the speedy processing of the blockchain.
On top of all the above, the blockchain has tight control over any vulnerabilities towards corruption. In a world where corruption is a serious concern and the public has trust issues in financial institutions, blockchain technology is using transparency as a core commodity to win the public’s trust.
The Fate of Conventional Banks in the Coming Years
In the present day, people put their trust in a system that is publicly open and transparent in its entire operations. Public blockchains are an ideal illustration of this. The public has an access to view transactions. On the other hand, conventional banks offer a closed system.
According to the forecasts of the Gartner Report, the business value generated by blockchain will grow rapidly in the coming years reaching up to $176 billion by 2025 and $3.1 trillion by 2030. This is a huge amount of capital that can be seen as a threat to the services of traditional banks in the coming recent years.
As conventional bank systems and middlemen are becoming less and less trustworthy these days, security breaches, lack of transparency, and vulnerability to corruption are driving more people to turn their backs on conventional banks. Therefore, it would be safe to adopt and integrate blockchain technology into bank operations.
Blockchain technology is transforming everything from financial transactions to how money is generated in the private market. Will the traditional banking industry embrace this technology or be replaced by it? It’s hard to accurately predict now. However, the magnitude of the public and capacity of capital in the blockchains will steer the fate of the conventional banks.
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