Banks Taking Notice of Blockchain Technology
When investors think of blockchain technology Bitcoin is usually the first thing that comes to mind. After all, Bitcoin was the first cryptocurrency to enter the mainstream and blockchain is the technology that underlies all cryptocurrencies.
What exactly does blockchain do? Blockchain is essentially a group of connected computer systems that authenticate a transaction without the use of a third party (Central Banks, etc.) It’s entirely decentralized. Instead, these connected computers with access to the data confirm the records using complex mathematical functions.
Initially, blockchain cryptocurrencies were used as a way to skirt using banks. Investors didn’t like the way global currencies could be manipulated by central banks. For example, to combat the Great Recession, the U.S. Federal Reserve implemented three rounds of quantitative easing, flooded the currency markers with trillions of U.S. dollars, and sending the value of the greenback reeling.
Blockchain, by its very design, cannot be manipulated or seized by a government or foreign body. On top of that, the digital ledger cannot be altered. Initially, blockchain technology was treated with scorn by banks and financial institutions. But now, the banking community is starting to see that blockchain technology is a convenient, secure alternative to current time-consuming, expensive banking processes.
While global central banks are still weighing out the pros and cons of blockchain technology, the broader banking community isn’t waiting around for central banks to get on board.
A number of big banks, including UBS (NYSE:UBS), Goldman Sachs (NYSE:GS), and Morgan Stanley (NYSE:MS), have all published research on blockchain technology. Not many have actually created their own blockchain technology just yet. But it’s only a matter of time. A number of big global banks have started to patent their own blockchain-based systems.
Why are banks interested in developing their own blockchain technology?
Blockchain technology helps banks deal with rising costs of maintaining and replacing their aging infrastructure. According to one report, blockchain-based technology could cut costs associated with cross-border payments, securities trading, and regulatory compliance by as much as $20 billion per year by 2022.1
Compete Better with Startups
Financial technology startups (Fintechs) use blockchain to provide services at reduced costs, with greater speed, that is more user-friendly than what the big banks offer. To better compete with Fintechs, banks need to design their own blockchain-based technology.
New Business Models
Blockchain was initially developed to skirt central banks. Now banks can use this same blockchain-based technology to develop their own proprietary systems and business models that disrupt the broader global financial industry.
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Cryptocurrencies like Bitcoin and Ripple are hogging the blockchain spotlight but the fact is, blockchain technology will create a major shift in how banks and the financial services industry conduct their business. This will have a huge impact on how we save, borrow, and invest. To find out how the banks use of blockchain technology will affect your portfolio, talk to the professional traders at Learn-To-Trade.com.
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- “The Fintech 2.0 Paper: rebooting financial services,” Santander, last accessed February 20, 2018; https://www.finextra.com/finextra-downloads/newsdocs/the%20fintech%202%200%20paper.pdf
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