The initial reaction of major financial institutions to blockchain and cryptocurrencies was, how should I put it mildly, less than enthusiastic.
However, today, ten years later, some of them consider blockchain an integral part of their infrastructure. Banks understand that the adoption of digital currencies is only one step towards securing their place in the future. Therefore, more and more organizations in the industry are using all the opportunities that the blockchain provides.
The banking industry has become one of the main beneficiaries of blockchain technology.
Blockchain provides financial institutions with a number of advantages, including transparency, security and high transaction speed.
Companies such as IBM and J. P. Morgan is already actively using blockchain, and this shows that the technology can radically transform the banking industry.
NOWPayments helps customers to start accepting cryptocurrencies and, thus, better prepare for the future.
Blockchain is a digital registry that stores records of all transactions that have occurred in it. Blocks are containers for transactions. Each block joins the previous one, forming a chain of blocks. Decentralization is the key concept of the blockchain. In fact, no governing body stores an accounting book containing information about transactions. Instead, the blockchain is distributed and duplicated on each node (computer) in the network.
Blockchains use various mechanisms that allow them to verify transactions in order to avoid the problem of double spending of funds. The Proof-of-Work protocol is the very first of the existing consensuses. This protocol implies mining, the process when the user with the highest computing power gets the right to check a new block and receives a reward for it.
Advantages of blockchain
As mentioned earlier, the Blockchain stores information about each individual transaction that it processes. This way, anyone can view the history of transactions and determine when they took place, and who the parties are. This function is crucial for ensuring the accountability of financial institutions.
For example, banks can report their transaction history to regulatory authorities to prove that they comply with all laws and comply with established rules. Blockchain transactions are immutable.
In other words, no one can change the data stored in the block chain. This helps to track and eliminate any attempts of fraud or improper asset management. Thanks to the blockchain, banks and other financial institutions can be aware of all the activities taking place in the organization.
Blockchain does not require significant investments, since there are already platforms that allow banks to deploy their private networks. Usually, when organizations need to store large amounts of digital information, they build massive data centers, which entails huge costs. Financial institutions can save large sums on investments in infrastructure and its maintenance by switching to blockchains.
Moreover, if banks decide to use blockchain platforms, the cost of their transactions will be extremely low. Since blockchains are completely peer-to-peer, financial institutions will not have to use the services of third-party intermediaries when processing interbank transactions.
- Speed and scalability
Over the past decade, blockchain technology has evolved, and one of the main consequences of this evolution is faster transaction processing.
The innovative Bitcoin blockchain can only process seven transactions per second, which means that users must wait at least ten minutes for their transfer to be confirmed. However, blockchains such as Ripple and Stellar can process thousands of transactions per second, and their users ‘ transfers are verified almost instantly. Banks can significantly reduce the settlement time by using blockchains and, thus, provide fast transaction processing for their customers.
In addition to the immutability of transactions, blockchains use reliable mechanisms to maintain the security of their networks. For example, decentralization helps blockchains avoid the problem of a single point of failure, and therefore it will be difficult for hackers to interfere with their infrastructure.
Of course, there are still risks of possible security problems. However, banks can always implement additional security measures and prevent possible attacks.
Large financial institutions are implementing blockchain, making it part of their business model. For example, J. P. Morgan has developed a blockchain-based platform called Liink, which helps to improve the transfer of funds between banking institutions around the world. Worldwide, more than 400 banking institutions use Liink.
One of the main functions of Liink is confirmation. This allows banks to request information about recipients ‘ accounts from other banks that are partners of Liink, and receive it almost instantly. This blockchain solution helps to reduce the number of transactions that were rejected due to inconsistencies in the payment details. In addition, it significantly reduces the costs for all banks, both sending and receiving.
Ripple is one of the most famous blockchain projects in the banking sector, which provides financial institutions with various tools. RippleNet is a blockchain-based payment network that allows its partners to communicate with hundreds of banking organizations around the world using the API. Ultimately, this allows banks to transfer their funds in a more reliable and faster way.
In addition, Ripple offers an on-demand liquidity service (ODL), which helps to significantly reduce costs and increase the speed of international transactions. Those who use this feature can use XRP, Ripple’s own currency, as a bridge between the two currencies. As a result, organizations do not need to deposit funds to target accounts in advance.
We. Trade is a joint venture owned by twelve European banks, including Deutsche Bank, Erste Group, HSBC and IBM. We. Trade is a blockchain-enabled trade finance platform for enterprises that uses a distributed ledger and smart contracts, allowing sellers and buyers to trade around the world. Small and medium-sized enterprises are the main customers of We.Trade. With the help of the platform, they get access to account financing, credit insurance, and bank guarantees.
NEXXO is a company that uses the IBM Hyperledger blockchain as a platform for small businesses. In fact, NEXXO offers a payment gateway system for such enterprises. NEXXO has its own token, which grants its owners several rights, including the ability to buy products from NEXXO’s small business partners at a discount.
How to accept cryptocurrencies
Blockchain is a technology that was originally supposed to use virtual payments. NOWPayments can help you use this feature and start accepting cryptocurrencies.
NOWPayments has several effective cryptocurrency payment tools that you can use in your business. For example, cryptocurrency invoices can contain all your cryptographic payment details and, thus, make it easier for your customers to pay with Bitcoins or altcoins.
Owners of online stores using plugins such as WooCommerce, PrestaShop and others can automatically accept cryptocurrency.
Charities and bloggers can benefit from accepting donations in cryptocurrency using a widget, link or button. NOWPayments solutions are flexible, which ensures that any person or organization will find them useful.
The banking industry has been one of the main beneficiaries of blockchain. The fact that organizations such as J. P. Morgan and IBM are actively using blockchain in their operations, proving that this technology has great potential.
Blockchain has many advantages for financial organizations. Blockchains are secure, support high transaction speed, are extremely versatile and absolutely transparent.
Every year, more and more banks are implementing blockchain, as they realize its real usefulness for the future banking industry. With the help of NOWPayments, you can take your business into the future by starting to accept cryptocurrencies.