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- Daily Deposit 3.3.2023
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We’re talking blockchain today! How can banks use blockchain? Check it out below
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Banking 101
How can banks use blockchain technology?
Well, what the heck is blockchain in the first place? By now, I'm sure everyone has heard of blockchain, especially in association with words like crypto, decentralized, Bitcoin and Ethereum. But the tech itself isn't Bitcoin, Bitcoin uses the tech.
Blockchain technology is a distributed ledger that enables the secure, transparent, and decentralized storage and transfer of digital assets or information. It's essentially a database with no need of parental oversight. Just a network of computers without a centralized authority.
The chain is made up of blocks that contain a timestamp and record of transactions or data. Each of these blocks is cryptographically inked to the previous block, forming the chain. Once a block is added, it can't be altered or deleted. The technology relies on consensus algorithms to validate transactions and maintain the integrity of the network. Those algorithms can be Proof of Work (PoW) or Proof of Stake (PoS).
Imagine a special notebook that many people can use to write important things like how much money they have or who they want to send a message to. Instead of invisible ink, they use computer code that's super hard to change or erase, making it really secure. Each new thing that's added is put on a new page or "block," and each block is connected to the one before it like a chain. This makes it easy to see everything that's been written and hard for anyone to sneak in something new. To add something new, everyone has to agree, so nobody can cheat.
What are the use cases in banking?
The traditional payment system has been plagued with issues like slow transaction times and high fees, leading to the loss of trillions of dollars. So am I riding the crypto rocket to the moon?! Not yet… Fortunately, blockchain technology has emerged as a potential solution to these problems.
Payments and Remittances
Blockchain can revolutionize payments and remittances by enabling fast, secure, and low-cost transactions through its decentralized network. The absence of intermediaries in the network makes transactions cheaper and faster, and the public nature of some cryptocurrencies eliminates transaction fees.
Asset Management
Asset management is another area where blockchain is making waves. The technology is being used to create digital assets like cryptocurrencies and tokens, making it easier to transfer assets through tokens that represent off-chain assets. Tokenized security enables the buying and selling of debt, stocks, or commodities without the need for intermediaries.
Loans and Credits
Blockchain can help underwrite loans and streamline the loan application process. The technology enables the use of a decentralized registry of payment history, making it easier for consumers to apply for loans without relying on credit reporting systems.
Fraud Prevention
The immutable and tamper-proof ledger of transactions on the blockchain makes it easier for banks to detect and prevent fraudulent activity like account takeovers and payment fraud. Storing customer information on the blockchain can speed up the know your customer (KYC) process, eliminating the need for the three-month lag that exists in the current system.
In summary, blockchain has the potential to disrupt the entire financial industry, making transactions faster, cheaper, and more secure. That said, I don't think we're there yet. I'll be on the sidelines until I can see some legitimate players emerge in the space…
LULZ
1% Better
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reply with a Cold Stone bowl score… did you:
a) like it
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c) gotta have it