Tuesday, June 28, 2022

What Banks Are Using Blockchain

How Blockchain Is Revolutionizing The Banking Industry

Banks team with IBM for blockchain-powered trade finance

With an initial purpose of a mechanism behind cryptocurrencies, today the blockchain technology has stepped far beyond just powering the bitcoin or ether transactions. Blockchain is a powerful and secure technology that is getting into almost every industry, from banking and medicine to the government sector. According to Forbes, blockchain brings the following benefits:

  • Blockchain records and validates each and every transaction.
  • Blockchain does not require third-party authorization.
  • Blockchain is decentralized.

The most popular domain of blockchain use is the banking sector because security is of utmost importance for the financial domain. So in this article, we are going to talk about how blockchain can revolutionize banking.

We will share with you several use cases of blockchain technology finance, highlight the pros and cons of each of them, and illustrate them by some real-life examples.

Trend : Nonfungible Tokens

Although they are technically a form of digital token, NFTs have a critical distinguishing feature: each token represents a unique entity. These underlying itemstypically collectibles such as handmade luxury goods, signed works, and digital artworkare nonfungible in the sense that they cannot be exchanged for identical counterparts. After all, there is no identical counterpart to an artists or craftspersons visual creation.

An NFT uses blockchain to manage verification of a particular items provenance, which is typically a fraught endeavor for nonfungible assets. Websites such as Rarible.com and OpenSea.com maintain protocols in which collectors or creators register their assets, describe the work, and designate how it can be sold . Prospective purchasers must use a digital wallet equipped for cryptocurrencies. Many such wallets use the Ethereum platform, where sellers have offered a large number of NFTs. Another way to create NFTs is by coding a smart contract directly, rather than employing a service to handle the coding on the creators behalf. As standards emerge for this type of exchange, NFT use is on the rise the website NonFungible.com recorded sales of more than $2 billion in the first quarter of 2021.

Banks Giving A Seal Of Approval To Cryptocurrency

Bitcoin was pioneered as a peer-to-peer way to transfer value without intermediaries. So why write about how these intermediaries are getting involved again?

Cryptocurrency users don’t necessarily need companies to store the keys to access their coins for them, but some users do prefer it. Not everyone feels comfortable holding full control over their wealth, especially companies or institutional investors that hold large amounts. For them, a company to hold their cryptocurrency for them is an alternative option.

The fact that many banks are now trying to provide these services after years of warning their customers against using cryptocurrency and specifically Bitcoin, is probably one of the most ironic evolutions of the blockchain and cryptocurrency space.

Interested in our dataset that offers an overview of the banks and companies?

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Whats Blockchains Potential Roi In Financial Services

Discover the positive impact Forrester says IBM Blockchain can have on your business. This report includes:

  • Blockchain technology and market overview
  • Financial model framework
  • Projecting new revenue and savings
  • Expanded economic impact and analysis of costs
  • Sample organization calculation and financial summary

Five Ways Banks Are Using Blockchain

10 Use Cases of Blockchain Technology in Banking 2020

Well send you a myFT Daily Digest email rounding up the latest Fintech news every morning.

Barely a day goes by without a fresh announcement about how banks are seeking to use blockchain technology to transform sizeable chunks of their business.

Combining shared databases and cryptography, blockchain technology allows multiple parties to have simultaneous access to a constantly updated digital ledger that cannot be altered.

The technology, which underpins cryptocurrencies such as bitcoin, was initially treated with scepticism by banks. However, this has changed dramatically. Blockchain is the hottest buzzword in the sector, even if the recent flurry of cryptocurrency fundraisings via “initial coin offerings” is attracting intense regulatory scrutiny.

Blockchain firms raised more than $240m of venture capital money in the first six months of 2017, much of it from banks, including $107m raised by R3, the New York firm owned by 40 of the world’s biggest lenders. That follows an almost doubling of venture capital investment in blockchain firms last year to $367m, according to KPMG’s Pulse of Fintech Q2 report.

Many of the new ventures by banks involve them setting up a consortium of like-minded companies or carrying out a “proof of concept” to test the potential of the new technology. In almost all cases there is little to show in terms of commercial significance.

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Trend : Central Bank Digital Currencies

Central banks around the world are contemplating creating their own digital currencies as a way to counter the decreasing use of cash and the rise of private cryptocurrencies. Because a countrys central bank issues this digital form of exchange, a CBDC is not purely fiat money. Instead, it represents a liability against the countrys holdings, verified through a blockchain-based technological system.

Although no central bank has yet publicly released a CBDC, several are developing concepts and testing specific functionalities. For example, Sveriges Riksbank, the central bank of Sweden, is developing a digital currency called the e-krona, and commercial banks will be involved in the next testing phase. The Peoples Bank of China, which is that countrys central bank, is exploring blockchain at the issuance layer of its digital yuan pilots. It is also working on a shared project with the Bank of Thailand and the Hong Kong Monetary Authority to simulate the use of this CBDC for cross-border payments.

In addition, the ECB is reportedly considering at least four possible business models, all of which could use blockchain as an underlying technology.

Comprehensive List Of Banks Using Blockchain Technology

Blockchain has been around for a number of years but has only come to mainstream media attention in the last 24 months with the rise of the ICO and the massive price increases of 2017. This time last year, the market cap of all cryptocurrencies was under $75 Billion USD 1 year later it is over $280 Billion, and now we are on the brink of collapse with a market cap of $230 Billion. This is still a rise of over 300%, but with this success are other industries really taking notice?

One of the industries which have been the most opposed to blockchain technology is the finance industry, but specifically banks. Initially, they saw the concept of blockchain as direct competition, actively removing the control they have over the funds and accounts of their customers. However, major players in the finance industry have increasingly begun to warm up to blockchain.

Financial institutions and other major companies are inherently slow in adopting any new technology, but have actually been exploring various use cases for some time now. So lets take a look at which institutes have already implemented the change or are looking into it as we speak.

According to CEBNet, of the 26 publicly listed banks in China, 12 have already adopted blockchain technology for various use cases within their systems. These banks vary from state owned ones like the Bank of China, China Construction Bank and the Agriculture Bank of China, to privately owned ones, including China Merchants bank.

Banks

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Traditional Finance Embracing The Space

Banks currently transmit files to CLS and then get funds settled the next day between accounts held at CLS, said Mark Jones, co-head of macro at Wells Fargo Corporate & Investment Bank, adding that the funds are held up during the waiting period.

This new technology would allow us to settle funds on-demand with HSBC in any array of currencies we choose, Jones told Blockworks. also provides greater visibility into transactions and funds flow because both of our operations teams at and HSBC are utilizing the same dashboard at the same time.

Large banks sharing technology infrastructure with shared transaction visibility is a new concept, the Wells Fargo executive added.

David Tawil, president of multi-strategy crypto asset fund ProChain Capital, said that banks that do not look to implement blockchain and accept cryptocurrency more broadly could be hurt over the long term.

I know that right now its incredibly difficult for those banks to participate in cryptocurrency broadly because of the lack of regulation, he said. But certainly there should be education and development going on inside of those banks to be able to act and get involved once they are allowed to.

Tawil argued that financial institutions should work together to figure out how they can use blockchain technology collectively to facilitate transactions and perform other processes across their systems.

What Is Blockchain Technology

How Blockchain Work in Banking

Blockchain is a distributed database where storage devices are not connected to one common server. Instead, such database stores an ever-growing list of records called blocks. Each block contains a timestamp and a link to the previous block.

Use of encryption guarantees that users can change only those parts of the blockchain that they own. Owners have private keys without which writing to the file is impossible. In addition, encryption provides synchronization of copies of a distributed blockchain for all users.

Blockchain technology originally incorporated security at the database level. The concept of blockchains was proposed in 2008 by Satoshi Nakamoto. It was first implemented in 2009 as a component of the Bitcoin digital currency where the blockchain plays the role of the main common registry for all operations. Thanks to blockchain technology, Bitcoin has become the first digital currency that solves the problem of double expenses without using a central server.

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Goldman Sachs And Usdc

As one of the leading U.S. investment banking institutions, Goldman Sachs set up an educational microsite explaining the benefits of blockchain technology. One of the key features of the comprehensive site is the technologys security: it provides a simple, secure way to establish trust for virtually any kind of transaction, helping simplify the movement of money, products, or sensitive information worldwide.

Goldman Sachs believes companies dont need to develop proprietary software using blockchain technology to innovate financial markets. Transparency is a key feature and is also one of the cornerstones of blockchain technology. Therefore, theres no need to design proprietary software.

For that reason, adoption needs to happen on a larger, global scale to reap its benefits. However, blockchain technology is a new technology with no standardized implementation. Lawmakers will need time to resolve questions about liability and other legal issues. For instance, whos liable for losing money due to a fault in a blockchain protocol? What happens when a hacker steals blockchain-based digital assets due to a fault in an application? Lawmakers need to design a solid framework to reach full adoption of blockchain technology.

Where Banks Are Investing The Most: Crypto Custody

The most noteworthy example of where banks are investing is crypto custody.

Despite being very vocal about how bad Bitcoin supposedly is, many can’t ignore the potential revenue streams and importance of having a strong strategic position in the crypto economy.

Based on our findings, 23 of the top 100 banks by assets under management are building custody solutions, or investing in the companies that provide them.

Custodians offer financial services to look after their clients’ funds, for a fee. They either build their own technology to offer this service, or use a technology provider whose solutions they can integrate into their own systems.

There are 3 main developments that convinced many of the top banks to start providing cryptocurrency, and primarily Bitcoin-related services:

  • Seeing cryptocurrency exchanges with a fraction of their staff become substantially more profitable or valuable than many banks. This started as early as 2018, when Binance, the leading exchange at the time, recorded $54M more profit than Deutsche Bank, with just 200 vs 100k employees. More recently, Coinbase’s valuation was higher than Goldman Sachs, with just 4% of their employees.
  • Countless requests from their clients to provide Bitcoin solutions.
  • A change in regulations in 2020 that allows banks to offer crypto custody solutions.

If you’d like to read more about digital asset custody, check our recent research.

Recommended Reading: How To Do Taxes On Cryptocurrency

How Can Blockchain Revolutionize Banking

Blockchain is a decentralized, tamper-proof technology that securely stores the record of each transaction. It offers several opportunities to remedy the inefficiencies that have plagued the traditional banking sector for decades. Here are some ways blockchain technology can help banks:

1) Payments and Remittances: One of the most common uses of blockchain technology is cross-border payments. Usually, the traditional banking system takes days to process cross-border payments. This process is also quite expensive. Blockchain technology solves this problem by facilitating payments in a matter of mere seconds. It also reduces the enormous costs associated with cross-border payments. According to a recent report by the Juniper group, commercial banks using blockchain technology can save up to 3330% by 2030. With remittances, the transfer process through banks is quite complex, lengthy, and expensive. There are also other tax and legal issues.

3) Reduce fraud and improve efficiency: As discussed earlier, data stored on a blockchain is decentralized, which means all the parties on that blockchain will have access to that information. Unlike centralized bank ledgers with centralized databases accessible only to a limited number of people on the top, decentralized ledgers share information with everyone on the ledger. This means there is increased transparency within all parties therefore, any data breach or fraud will be immediately noticeable and traceable.

Trend : Decentralized Finance

Blockchain Activity of FIs &  Banks: Updated Analysis ...

The trend toward decentralized finance encompasses a broad range of emerging cryptocurrency products for lending, investing, staking claims, and creating mortgages. Such products have greater adaptability and more potential uses than smart contracts or tokens do. DeFi products may take many forms, but all of them have several common features. They transform traditional financial products into new variants that dont require an intermediary they enable peer-to-peer trading, so transactions dont have to go through a bank or other overarching entity and they rely on smart contracts to monitor activity and establish the transactions integrity.

The DeFi market is expanding rapidly, and DeFi innovations emerge continually. There is also a movement toward modular DeFi offerings that combine decentralized applications and protocols like Lego blocks, using smart contracts as connectors, similarly to specified APIs in traditional IT systems. So far, nearly all DeFi projects have been built on Ethereum, making it the standard blockchain for most dapps.

Many current use cases for DeFi involve pooling or dividing investments in innovative ways. For example, liquidity pools combine several investment funds in one smart contract, all sharing a single blockchain. This permits liquidity mining and tranching . DeFi also enables small-scale businesses or individuals to stake transactions or to hedge against risks .

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Blockchain By Country Stats & Facts

More than 20 countries have adopted, rejected, or researched the concept of a national cryptocurrency.

Tunisia was the first country in the world to issue a blockchain-backed national currency, back in 2015. In December of the following year, Senegal issued its own blockchain-based digital currency called eCFA, named after its regular currency, the CFA Franc. The Marshall Islands adopted another legal tender next to the U.S. dollar in March 2018, a cryptocurrency called Sovereign or SOV.

Among the countries that have considered but dismissed the idea of a central bank digital currency are Ecuador, Estonia, Switzerland, Hong Kong, and Germany. Japan says it wont issue its own cryptocurrency but it has recognized Bitcoin as an official means of payment.

Uruguay, Dubai, Singapore, and Iran are reportedly involved in ongoing experiments with central bank-issued digital currencies. Developed economies such as Canada, the United Kingdom, Norway, Sweden, China, and Israel are in the research phase.

Ten countries are leading the way when it comes to blockchain implementation.

In Australia, all taxes for transactions using cryptocurrencies have been removed. The Australian Securities Exchange plans to fully adopt blockchain technology after a two-year testing period.

Dubais government has set 2020 as a deadline for adding all government-related data and documentation onto the blockchain.

Blockchain Solutions For Banking & Financial Services

Blockchain is a game-changer in the industry and no financial services firm can afford to ignore it.

Anirban Bose, Global Head of Banking and Financial Services

Blockchain distributed-ledger architecture has the potential to enhance security, speed, and operational efficiency for banks in several business areas such as payments, asset management, loyalty, and loans. It can also be used to resolve bottlenecks within regulatory processes such as KYC, fraud and AML.

Capgemini has invested in the people, technology and processes to understand how blockchain can be used in core financial functions. We are already consulting with several major banking institutions and regulators to assess and implement a range of blockchain-related solutions across retail banking, commercial banking, and global markets.

We provide a range of consulting and technology services including: feasibility studies, business case assessments, operating model design, advisory services on systems architecture and full-scale systems integration. Specific services include:

  • Blockchain Strategy & Insights
  • Blockchain Technology Services
  • Partnership Support

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Alt Coin Stats & Facts

Alt Coin or Altcoin – A common term for cryptocurrencies other than Bitcoin.

The current Ethereum market cap is $149,123,341,483.

ETH is the second-largest cryptocurrency by market capitalization. In terms of crypto, market capitalization is defined as the circulating supply of tokens or coins multiplied by the current price. Ethereums creator is Vitalik Buterin, a Canadian programmer of Russian origin who entered the cryptocurrency world by writing blogs about Bitcoin.

What makes the Ethereum blockchain different from Bitcoins is that it allows developers to create decentralized applications and smart contracts. Smart contracts are computer programs that facilitate the exchange of money, property, shares, content, or anything of value between two parties without the need for an authority .

During 2018, cryptomining malware activity rose by more than 4,000%.

Cryptojacking is the use of a computers processing power to mine cryptocurrencies without the consent or knowledge of the owner. It typically happens when a user unknowingly installs software that secretly mines crypto.

BitShares is an asset exchange platform that works on blockchain.

BitShares and its native cryptocurrency were designed by American programmer Dan Larimar.

The Vechain platform is an example of the integration of blockchain and Internet of Things technology.

Ripple is the third-largest cryptocurrency by market capitalization, after Bitcoin and Ethereum.

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