Blockchain in Banking

. 3 min read

Blockchain tech is of particular interest to the banking and financial industry, thanks to its ability to streamline processes and increase profits. Blockchain allows financial institutions to automate labor to a greater extent than many other types of institutions.

Blockchain Banking Technology

For a technology that was first intended to destabilize the global order, the global order seems oddly excited about the potential of blockchain technology. Large global institutions from JPMorgan Chase to the National Bank of China are investing heavily to push the technology forward, and the phrase “financial technology” (or “fintech”) is a major focus at every blockchain event.

So why does the financial world care so much about blockchain?

The simple answer is that, just like Bitcoin cuts out the need for banks in very simple funds transfers, other blockchain technologies can remove the need for intermediate steps in more complicated financial maneuvers. So, if a bank can offer to handle a customer’s investment portfolio with a smart contract, suddenly the bank has no need for the broker who would previously have done that job. For contracts with simple, recurring terms and finite life-spans, such as mortgages, it could grant borrowers lower fees and let them interact with the terms of their loan directly.

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But the advantage of an automated platform isn’t just that you don’t have to pay it a salary; blockchain smart contracts can be totally vigilant about market trends, never failing to act the instant its set of conditions are met. It won’t get lazy, forgetful, or simply miss a set of obvious signs. Blockchain platforms might not have a broker’s intuition but, for typical investments, simple reliability is turning out to be far more important.This would make blockchain tech a natural fit with the practice of so-called high-frequency trading ( HFT), but at present the speed constraints of blockchain tech mean distributed HFT platforms are still in the pure research phase.

Banks also have interest in the blockchain for the inherent security of the platform, so they can keep small, incredibly important pieces of information safe. The goal is to make the network resilient to attempts to modify its contents (ie: hacking), as well as to brute force maneuvers like the now-ubiquitous distributed denial of service (DDoS) attack.

All of this has to do with the manipulation of traditional fiat currency and fiat marketplaces, because that’s the world that banks and financial institutions control. The cryptocurrencies that made blockchain tech famous are nowhere to be seen, since cryptocurrencies were always the component of blockchain tech that was most likely to undermine large institutions. Used as a networking tool irrespective of any particular token, the blockchain can be a powerful tool for continued centralization of assets, and thus of power.

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Banks are interested in the tokenization of value, however, because it could allow them to sell a wider array of investment products, and to conduct business across borders much more easily. The main impediments to this sort of progress has generally been legal and social, rather than technological; the bodies of law surrounding investment and global finance are some of the most arcane and difficult to master. That’s one reason that fintech has seen more success from large, established actors than from new entrants and startups.

Blockchain is almost guaranteed to revolutionize the back-end processes of banking and fintech in general, but what’s currently less clear is whether these changes will do more than increase profit margins within existing power structures. Many early blockchain boosters hoped for a quick and easy open-source blockchain revolution that would shift power away from centralized interests. It’s turning out that the blockchain can be just as useful to those interests, as to anyone else.


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