What is Blockchain?
Blockchain is a distributed ledger technology that facilitates trust among trading partners. If you’re familiar with Bitcoin, blockchain is the underlying technology that enables the transfer of currency and the confidence in successfully completing transactions. Banks and other industries are leveraging blockchain (with or without Bitcoin) in various ways.
Money Transfer
Sending money to another country is a field ripe for improvement, and banks are already using blockchain for transfer operations. Consumers and businesses transfer hundreds of billions of dollars across borders annually, and the process has traditionally been considered cumbersome and costly. Blockchain-based remittances save time and money for banks, but consumers also benefit. For example, a worker in the United States wishing to send money to their family in another country previously had to go to a money transfer office, wait in line for an agent, and pay cash and sometimes high fees to complete the transfer. The recipient might follow the same process. However, with blockchain technology, both parties can complete the electronic transfer using cell phones – and at a much lower cost.
Direct Low-Cost Payments
When sending or receiving a payment, money usually moves through banks, credit card processing networks, and other intermediaries. Each step adds complexity, and every service provider expects to receive fees for their role in your payment process.
Merchants can benefit from blockchain technology in various ways. For instance, when customers pay with credit cards, merchants incur processing fees, which affect profits. Blockchain-based payment networks may be cheaper for some merchants. If there are no other options, increasing competition should drive prices down.
Individuals also enjoy receiving payments with confidence. Online “buyers” may attempt to defraud you, but blockchain-based payments should be quick and irreversible, and likely easier and cheaper than bank products. For example, if you’re selling a high-value item like a vehicle, it’s crucial to receive payment before handing over the keys. The safest ways to receive payment currently include cash, wire transfers, or cashier’s checks, but cash can be risky, wire transfers require a lot of work, and cashier’s checks can be counterfeit. There are also electronic payment solutions like Zelle, but they may be limited to some countries and impose low limits on amounts.
Transaction Details
Banks can use blockchain for more than just transferring money. The technology is excellent for tracking transactions, which can be useful in several fields. Ownership details can help facilitate and enhance ownership tracking. Every transfer of ownership (as well as liens and other events) can be recorded in the ledger, leading to a reliable source of information about any type of property.
It may also be possible to automate activities that were adding costs, complexity, and delays to transactions. Smart contracts can be a way to achieve this. These computational protocol contracts can monitor when the buyer makes a payment, track when the seller delivers their part of the deal, and handle a variety of issues that may arise. Smart contracts don’t take vacations or make mistakes – as long as they are programmed correctly.
Smart contracts can be as simple as a neutral third party between the buyer and seller (similar to the reputable escrow providers we have today), and they can become much more complicated. Together with open banking, encrypted smart contracts can lead to faster and more automated loan decisions in the bidding market.
Inclusion
Financial Inclusion
By keeping costs low and allowing startups to compete with large banks, blockchain and other technologies can enhance financial inclusion. Blockchain-based solutions may serve best those who avoid bank accounts due to high fees, minimum balance requirements, and lack of access. Instead of needing assets and a stable income, they need a mobile device. In cases where it is difficult to identify individuals traditionally, digital identities can provide a widely applicable solution.
Fraud Reduction
Blockchain technology resists hacking, DDoS attacks, and other forms of fraud. It can also help banks and others quickly and accurately identify individuals through blockchain-enabled digital identity. With reduced fraud, the cost of doing business decreases, and everyone is expected to benefit from the savings.
Source: https://www.thebalancemoney.com/how-blockchain-is-changing-banking-and-financial-services-4174354
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