Andrey Sharov, a vice president at Sberbanks, a Russian bank, recently told journalists that blockchain technology would render banks redundant within a decade. However, in a recent interview with CNBC, Brock Pierce, the chairman of Bitcoin Foundation, a cryptocurrency advocacy organization based in America, said, although blockchain technology will have a negative impact on some aspects of banking, especially areas that do not offer much value, it will ultimately create new opportunities for banks. Below is some more information on how blockchain technology will affect the future of banking.
An Overview of Blockchain Technology
Brock Pierce comments on the future of blockchain resonate with some players in the banking industry. Specifically, banks generally feel that the technology may have myriad applications in the banking space, from remittances to securities exchanges to improving efficiency. In fact, some of the world’s biggest banks, including Goldman Sachs Group Inc, Citigroup, and JPMorgan Chase & Co are developing banking products based on blockchain technology.
Blockchain is basically a distributed ledger that accepts input from a group of people. This means that it is a continuously growing list of transactions or data records. The four components of a typical blockchain include an ID (“hash”), hash number from the previous block, transaction(s) and public key (sender/receiver identities). To change an entry on the ledger, the group has come reach a consensus. For these reasons, a blockchain creates secure and verifiable records. On the digital front, a blockchain prevents the duplication of information and keeps information/data secure.
Potential Benefits of Blockchain-based Banking Technologies
Blockchain technology is synonymous with smart contracts. A smart contract is essentially a computer protocol that can verify, facilitate, or enforce the negotiation or performance of a contract. While it is generally difficult to into a computer program, it is relatively easy to incorporate it into a blockchain, enabling it to execute contracts easily and conveniently.
In the banking space, blockchain-based smart contracts could be using myriad processes including trading debt securities, improving KYC processes and issuing bonds. In fact, blockchain-based smart constructs can save mortgage consumers up to $960 per loan, according to Capgemini Consulting. Moreover, a recent report from Autonomous Research, a research company based in New York, NY, indicates that smart contracts can help banks cut their bank-office costs, as well as labor costs.
The R3 Consortium
It is worth noting that Goldman Sachs Group Inc, Citigroup and JPMorgan Chase & Co were among the founding members of the R3 consortium. Founded in September 2015, the R3 consortium aims to explore and develop blockchain-based products for the banking industry. The R3 membership currently consists of more than 70 banks and financial institutions from across the world.
Some of its members include Credicorp, Bank of America,Royal Bank of Canada, Toronto-Dominion Bank, Skandinaviska Enskilda Banken, BNY Mellon, HSBC, Mitsubishi UFJ Financial Group, Citi, Commerzbank, Deutsche Bank, Morgan Stanley, National Australia Bank, Soci”t’ G”n”rale, SBI Holdings of Japan, Toyota Financial Services,Bank Itau of Brazil and Hana Financial of South Korea. Since its inception, R3 has tested various blockchain-based banking products, but it is yet to launch its own blockchain-based banking product.
Conclusion
Blockchain technology will likely have a positive impact on the banking industry. This is according to Brock Pierce comments on the future of blockchain. In particularly, the technology will improve security, efficiency, as well as boost profits for bankers. Some of the biggest banks in the world are already exploring this blockchain technology.