Will blockchain kill traditional banking as we know it?
The technology industry is obsessed with blockchain and bitcoins. Everybody’s talking about it and everybody is developing solutions based upon it. While most of the big banks have dismissed the bitcoin threat as being a beacon for financial fraud, the truth is that the blockchain could offer more security for transactions than banks have ever been able to provide in the past.
So the question is, will blockchain kill traditional banking? Here are a few reasons why banks are starting to get worried.
Blockchain offers faster and cheaper payment transactions
On average, it takes about 3 business days for a bank to process a simple account transfer. A bitcoin bank transaction takes about 30 minutes. There are also numerous fees involved in bank transfers that, over time, really start to add up. Not only does the bank handling the transfer get a percentage, but the bank receiving the transfer does as well. In addition, there is a flat-rate fee that is usually charged just for the transaction itself.
In contrast to this type of private banking, blockchain acts as a decentralized and secure ledger, removing both the originating and receiving banks by allowing P2P (peer-to-peer) payments at much lower costs and higher speeds.
Blockchain makes it easier for anyone to obtain funding
Whether it’s a personal or business loan, venture capital, or any other type of fundraising, the blockchain provides an open forum for anyone to invest or donate money. And it does this by bypassing traditional banks in the process.
Banks currently grant or deny loans based on a flawed system of credit scoring. Blockchain technology could eliminate the need for credit scores altogether because it will provide a digitized ledger of a consumer’s payment history that is more accurate and cheaper to access than a report from a credit reporting agency.
Not only does this process spell trouble for the banks themselves, but obviously credit reporting agencies such as TransUnion and Equifax could be disrupted and possibly even eliminated.
Blockchain offers more security (and transparency) than traditional financial institutions
Transactions processed through the blockchain reside on a shared and mutually reconciled online ledger. Because the data is decentralized and stored on several different computers, it is much harder for cyber criminals to access and divert the transaction in any way.
The speed and transparency of transactions on the blockchain also make it more difficult for hackers to steal any type of financial information. Both the person sending money and the person receiving the money are able to see each step of the transaction almost in real time.
And finally, blockchain utilizes encryption technology rather than a login/password combination, which makes it infinitely more difficult to hack.
In summary, when it comes to blockchain, bitcoin, and banking, it’s pretty clear that the financial industry is being disrupted. There are experts on both sides of the argument as to whether or not the cryptocurrency movement will ever replace banks completely.
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