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By Gleb Kostarev
In recent years, the financial industry has made significant investments in new-age technologies in response to increasing security breaches, cyber threats, network downtime issues, and other relevant operational challenges. One such investment includes blockchain technology, which has become extremely popular in banking.
In India, banks are collaborating to use blockchain technology to solve several problems
associated with traditional banking. Leading public and private banks in India, including State Bank of India, ICICI Bank, Kotak Mahindra, Axis Bank and 11 other financial institutions have joined forces to create the Indian Banks Blockchain Infrastructure Company Private Limited (IBBIC), which seeks to transform the banking sector by integrating blockchain technology. This creates a new regulatory sandbox environment and indicates that the Reserve Bank of India recognizes the value and is taking initiatives to drive blockchain adoption in the country. All of this indicates that blockchain technology could very well be a key driver of the next phase of banking transformation.
Blockchain, a key tool in the banking sector
The adoption of blockchain technology in India is more imminent than ever. More than 50% of businesses in India are turning to blockchain technology. Web 3.0 technology is also expected to propel the value of the digital asset economy from $5 trillion in 2021 to $262 billion within 11 years, resulting in a $1.1 trillion contribution to GDP. from India. Currently, institutional investors have poured billions of dollars into the industry, and the sector now employs thousands of blockchain professionals in various job functions.
Blockchain is a powerful driver of the future of banking as it powers new economies and forms of commerce. The World Bank estimates that 1.7 billion adults do not have bank accounts or any other means of protecting their money and assets, which is a phenomenon more commonly seen in developing countries. Blockchain technology has enormous potential to foster financial inclusion. It offers an alternative funding infrastructure that is borderless, secure and accessible to anyone with an internet connection. In India, there has been a growing trend in the use of mobile phones and the internet. According to a Deloitte study, India will
will have one billion smartphone users by 2026, with rural areas driving the sale of internet-enabled phones. By leveraging blockchain technology, financial services can be offered to the unbanked population through their mobile devices, allowing them to have easy access to banking services. Blockchain also eliminates the need for a central authority and produces an immutable transaction log. This offers better transparency, improved security, reduced transfer costs and translates into lower total costs.
Reconciliation of blockchain technology and banking systems
Blockchain technology can change the way we access financial services today, with the potential to improve and streamline people’s banking experiences. While some of these improvements are more noticeable, others are more related to users’ banking experience. As younger generations become more digitized, they may be more attracted to blockchain-powered virtual services. Here are some ways blockchain technology can dramatically change the way the financial industry works today.
Faster transactions
Currently, banks can take at least 1-3 days to verify and settle transactions involving 2 parties, making the process long and tedious. The blockchain removes the need for any verification by a centralized intermediary, allowing easy ledger entries for the transfer of money.
Integrating blockchain-based solutions into banking institutions can help speed up transaction verifications and resolution, even enabling instantaneous transactions. By capitalizing on blockchain technology, banks can significantly speed up processing while enabling their customers to access cheaper and faster borderless payments.
Robust Protection Blockchain is more secure than traditional record-keeping systems in several ways. Before a transaction is recorded on the blockchain, it must first be approved. Following approval, the transaction will be encrypted and connected to the previous transaction. Besides the fact that the data is stored on a network of computers rather than a single server, it is extremely difficult for hackers to corrupt transaction data. This makes blockchain technology an effective solution against fraud and illegal behavior, and an invaluable tool in industries where protecting sensitive data is critical, such as financial services, government, and healthcare.
Reduce errors and costs Transactions are automatically and permanently recorded using blockchain technology. As a result, many manual processes can eventually be replaced by blockchain, mitigating common challenges such as human error and cyber threats. Blockchain technology can significantly reduce the cost of banking services, improve product quality, and solve speed and accuracy issues.
Powering the banking industry with blockchain
The use of blockchain technology in banking can be a game-changer and pave the way for new technological breakthroughs in the sector. So far, it has proven to be a powerful tool that improves processes, enhances security, and enables a wider variety of asset classes to become more accessible to end customers. In India, the rollout of central bank digital currency is underway. This marks a significant step forward in India’s transition to a digital economy and also potentially opens up more opportunities for blockchain adoption in the country.
The author is the TVP, Regional Head of Asia, Binance
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