The Blockchain technology was first introduced in 2008 as the backbone of Bitcoin, world’s first decentralized crypto-currency. Ever since, there has been a steady rise in the popularity and controversies surrounding Bitcoin and several other alternate currencies. However, what strikes us the most is the technology behind these currencies – Blockchain.
Blockchain is a distributed database, which stores a permanent and immutable record of the transactions on the network. In other words, Blockchain is an open ledger of valid transactions, which can be viewed by anyone on the network, but cannot be modified. The Blockchain protocol is designed to obviate the need of any intermediary, thereby facilitating transactions between two entities that don’t necessarily know or trust each other. This is a significant departure from the status quo, wherein a secure value exchange over the internet requires a third-party, which in most cases happens to be a Bank or a Financial Institution.
It is speculated that Cross Border Payments and Trade Finance Processes are likely to see Blockchain-based transformation before other areas and rightfully so. While Payments Infrastructure today is plagued with settlement delays and high cost of transactions, the trade finance process remains manual and operates in silos. With offerings of a decentralized, uncertain and immutable network, Blockchain appears to be a go-to-solution to these concerns.
Having understood the potential, Banks are taking a variety of different approaches to better understand and explore the possibilities. While some are actively engaging with firms specializing in this technology, others are working on developing in-house expertise.
In the past, businesses have seen rapid displacement, disruption and in some cases outright extinction, owing to technological advancements. The Financial Services Industry is no exception. With a technology as disruptive as Blockchain on the horizon, the basic rules of creating and capturing economic value, stand to change. In the wake of such disruption, there are several innovative business models that have surfaced and pose as a potential threat to the Banks and Financial Institutions at large. Clearly, there is a need for the industry players to evolve in response if they want to remain viable. Blockchain is not something that this industry can choose to ignore!