How Bitcoin is Disrupting Banking
Bitcoin and blockchain technologies are changing how the conventional banking industry works. Blockchain technology is the basis of Bitcoin and other decentralized currencies. Over the past decade, Bitcoin has captured the attention of many people across the world. That’s primarily because of its underlying technology and benefits. However, this cryptocurrency is yet to go mainstream, although it has sparked conversations amongst investors and banking experts.
Today, companies and businesses accept Bitcoin as a payment method. Some brokerage companies have this currency as one of their tradable assets. Thousands of people use platforms like the Crypto Genius to purchase and sell cryptocurrency. With such exchanges, people no longer struggle to acquire Bitcoin. That’s why more people are turning to this decentralized currency instead of traditional money. And this is affecting the banking industry in several ways.
DLT’s Role in the Financial Services Sector
Untrusted parties can use blockchain technology to reach an agreement on database status without involving intermediaries. That’s because this technology provides a ledger without administration. As such, a blockchain can provide financial services like securitization and payments without involving banks.
What’s more, blockchain allows people to use things like Smart Contracts. These are self-executing contracts whose basis is blockchain, and they can automate a manual process like claim processing and compliance. They can also distribute a will’s content.
Bitcoin and blockchain can essentially disrupt the banking industry through the disintermediation of the industry’s critical services.
Bitcoin uses blockchain technology to offer a cheap and secure way to send payments. And this cuts down the costs that traditional banks charge their customers. Bitcoin payments take a shorter period because they eliminate third-party verifications that come with conventional banks. Thus, more people turn to Bitcoin payments, especially for online and international transactions, to minimize the time. And this will disrupt the banking industry as the revenue for most financial institutions will reduce.
Settlement and Clearance Systems
Blockchain technology enables Bitcoin to use a distributed ledger that allows people to settle transactions directly. It also maintains a record of every transaction. And this is better than SWIFT and other existing protocols.
Some crypto companies are currently working with conventional banks to enhance efficiency. That means traditional banks that don’t find ways to embrace cryptocurrencies and the technology behind them may not compete effectively in the future.
Entrepreneurs raise funds through the sale of coins or tokens during the initial coin offerings. And this allows them to raise funds without involving traditional investors. They also don’t go through a VC firm or due diligence involved in this investment. As such, Bitcoin and blockchain technology enables people and companies to avoid the arduous fundraising process.
Blockchain technology eliminates intermediaries in the transfer of asset rights. The technology lowers the cost of asset exchange while allowing users access to larger global markets. It also reduces the traditional security markets’ instability. Using blockchains to move security can save a lot of money in the processing costs for the global trade.
Fraud Prevention and Customer KYC
This technology utilizes different blocks to store customer data. And this helps in preventing customer information attacks. For KYC purposes, blockchain technology can lower the banking sector costs by a significant percentage annually.
Bitcoin and blockchain technology won’t disrupt the banking sector overnight. That’s because people and companies are yet to test and perfect both cryptocurrency and technology. However, Bitcoin and blockchain might replace traditional banks altogether. Nevertheless, some individuals believe that Bitcoin and the underlying technology can only supplement the conventional financial infrastructure or improve its efficiency. Overall, how the future turns out is a matter of wait and see.
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