Blockchain technology has been on a decade-long journey to serve people in a transparent manner. From the beginning of Bitcoin, the peer-to-peer transaction network, blockchain has made it all possible.
Not only cryptocurrencies and web3 use blockchain technology, but also banks, large financial institutions, healthcare sectors and even government systems are entering the market. According to research, the global market for blockchain technology was worth $10.02 billion by 2022. It is estimated that there will be a compound annual growth rate (CAGR) of 87.7% between 2023 and 2030.
The crucial need to implement blockchain technology in the financial sector is to strengthen security and transparency. The banking sectors are all doing everything they can to make the most of it.
How banks deal with Blockchain technology?
First of all, banks are centralized bodies and are regulated by the central government. Then why do they need decentralization? Well, the answer is security.
Decentralization can improve security by reducing the chance of a single point of failure or cyber attack, thereby strengthening the financial system. Furthermore, decentralized finance (DeFi) can promote fintech inclusion by providing access to banking services in underserved or remote areas, without relying primarily on traditional centralized institutions.
In terms of demographic adoption, insights from the 2021 Deloitte Blockchain Survey show that 86% of people believe blockchain technology will help our transition to more autonomous business operations.
Respondents from different sectors participated in the survey. According to the survey, 76% of respondents, including an even more optimistic 85% of financial services industry pioneers (FSI), believe Blockchain will play a significant or moderate role in reducing risk for organizations or projects.
According to Mastercard’s New Payment Index survey, 40% of respondents want to use cryptocurrencies in the next year. Furthermore, 77% of millennials are interested in cryptocurrencies and want to learn more about them.
Investment banking giant JP Morgan is an active participant in the blockchain ecosystem. The company always speaks regularly to the media about Bitcoin and other related blockchain projects. The bank claimed on April 12, 2021 that they are using blockchain technology to help improve money transfers.
The Swedish central bank is testing the release of its own digital money, the e-krona. The project uses R3’s distributed ledger technology solution Corda. They are currently continuing their testing phase by involving Riksbank and Handelsbanken.
With this, it is clear that the disruptive mechanism of blockchain technology is something that everyone will want to take home with them. But there are also many hidden challenges.
Also read: Singapore’s MAS comes up with new rules to eliminate crypto speculation in retail
What is causing banks to take a step back in the field of Blockchain?
Although blockchain transactions are immutable, some potential risks make the system prone to failure.
In a blockchain report published by IT company Infosys, the blockchain in the fintech space is susceptible to counterparty and systemic risks, privacy and security, conduct and transition risks, settlement risks, technology risks, and regulatory and governance risks.
The report shows that achieving interoperability remains a formidable task for financial institutions (FIs) venturing into the blockchain space.
The report highlights the critical need for regulatory clarity in the blockchain industry. Challenges include issues ranging from dispute resolution processes to the legal status of documents stored in blockchain. Blockchain adoption is hampered by fragmented regulations, exorbitant costs and concerns about existing regulatory frameworks.
Overall, the blockchain industry has come a long way, whether in crypto or finance. In the future, banks may or may not adopt blockchain, but the underlying technology will remain the same.
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