Blockchain in Financial Services: What Is The Main Advantage Of This Technology

October 26, 2017 5 min read

Probably most of us learned about the concept of blockchain at the same time as the massive spike in interest to the bitcoin crypto-currency arose. Bitcoin literally does not come off the pages of news about the world economy and finances, therefore it is quite logical that the technology itself attracts a lot of attention. So, let us figure out: what is blockchain, why all the incredible excitement about it, and, in particular, what role does blockchain in financial services play? We will discuss this in more detail below.

Blockchain in Banking: Understanding What is it?

Blockchain in Banking

So, what is the blockchain exactly? This technology is basically a way to store transaction data. In fact, it is some independent decentralized database, protected by means of cryptography and consisting of many links (hence the name). The correctness of each link is confirmed by individual users on individual computers. This makes it almost impossible to hack and change the newly created link because, in order to gain access to it, an attacker will need to hack all the computers that are involved in storing the given chain. Thus, if 1000 people confirm a particular transaction, even in cases when 999 were hacked, the transaction data stays consistent.

As for reading access, it can be private or public. In the first case, legally interested persons receive a special digital key, by means of which it is possible to decrypt the data stored in the links (if necessary, several levels of access can be set up).

Blockchain as a Variation of Fintech: How Relevant is the Use of Blockchain Applications in Finance?

This technology is ideal for money transfers, in which both sides do not want to resort to traditional services of official institutions and none of them is an absolute guarantor of reliability (the latter factor fully compensates for the unconditional transparency of transfers, because, as it was already noted above, each stage of the transfer of finances is recorded using a separate chain participant). Thus, blockchain makes a more convenient and confidential alternative to common bank transfers. It is especially relevant in cases of international money transfers, since the latter usually are charged with extra-large interests, and, in addition, take several days to verify the client data and convert currencies. Thus, currently, blockchain is actively used not only in operations with crypto-currencies but also in conventional money transfers.

World-Famous Examples of Blockchain Technology in Banking Services Usage

In spite of the fact that initially this technology was considered to be “beyond the law” (good citizens for some reason believed that if they were offered to make a transfer bypassing common finance institutions and the state banking industry, then this procedure entails the fraudulent activity), today you can meet and very successful and, importantly, quite legal examples of the use of blockchain development applications in banking. In particular, in 2016 Bank of America and Microsoft decided to organize a joint fintech startup – a complete software blockchain platform for financial transactions.

First practical application of blockchain also appeared in 2016. There were three participants: Israel startup Wave, UK Barclay’s Bank (one of the most productive fintech accelerators in the world), and Ornua – the supplier of dairy products from Ireland, concluding a deal of $100000. What advantages did they receive from this? In addition to the obvious transparency of transaction, all participants of the project saved their time: instead of approximate 7 days associated with the verification of accompanying documentation, the financial transfer occurred within 4 hours.

Variants of Using the Blockchain Technology in Financial Services

Blockchain can become the basis for services, consumers, organizers or intermediaries of which need increased levels of the data security. These include all kinds of money transfers, micropayments and, of course, a global blockchain ecosystem’s participants, which, in turn, are divided into three main types, which we will consider below. Transaction via Blockchain

Decentralized autonomous companies

These include, first of all, enterprises that operate crypto-currencies. The most famous among them are Bitcoin, BitShares, and Ethereum. The purpose of their creation was to simplify and reduce the cost of making payments, regardless of the countries in which participants are located. In fact, decentralized companies are more than just a handy tool that accompanies financial transfers. They function according to public protocols instead of local laws and anyone has access to their services.

Blockchain services

CoinBase, Bittrex, Circle and other similar services are exchanges that allow conducting transactions in the sale and purchase of the selected currency (and not only money units but also other valuable investment units). They have legal support from countries in which they are registered (unlike the previous type of companies).

Private blockchain systems

Private blockchain systems, represented in the form of applications, operate on the same principle as decentralized autonomous companies, but they have a number of advantages in comparison.

First, these applications have much more bandwidth and are capable of handling up to 100,000 transactions per second (unlike bitcoin, for instance, limited to seven transactions per second).

Second, private blockchains solve the problems of consistency of operations and their accessibility, which are peculiar to public alternatives. For example, you may already know that the bitcoin blockchain system updates the registers only once every ten minutes, which is catastrophically long for companies that operate dozens of transactions every minute. In addition, these applications are linearly scalable, cheaper in deployment, and can be controlled by specially designated administrators.

Thus, no transaction will be committed before it is verified by the administrator. But that is not all. In cases of detection of incorrect data, the administrator, having certain authoritative rights, can personally correct the transaction data, bypassing the evidence mechanism characteristic to the same bitcoin (proof-of-work). And, most importantly: the private blockchain systems are gradually being introduced by many state-owned banks, and their customers can now rely on faster and more efficient services.

Is Blockchain Disrupting for Banking Industry?

Analyzing the above, you can ask quite a logical question: “Is blockchain disrupting for the banking industry?” We can confidently say that in the near future the blockchain companies will be able not only to integrate with the services provided by official banks but in most cases partially replace them – because of high efficiency, transparency, reliability and lower cost. It is therefore quite natural that blockchain may become a disrupting factor for some government or commercial agencies by creating cheaper alternatives under open public control.

Blockchain in Banking Industry

What can the Innovecs’ Experts Offer

The Innovecs IT company has extensive many-year experience in the creation of all kinds of fintech applications, including private blockchains for online banking (such as exchanges for the most valued crypto-currency today – bitcoin). Among our developments is the creation of a blockchain system for a white-label bitcoin casino solutions provider.

If you need to create your own customized solution based on this technology, please contact us, and we will gladly take up the new project.

4.61 5.0
15 Reviews
April 3, 2020
Message from CEO Alex Lutskiy on COVID-19
To all Innovecs employees, clients, and partners As the COVID-19 outbreak continues to develop and affect people globally, I want to personally update you on the steps Innovecs is taking to maintain our business operations and ensure the health and safety of our staff. We remain committed to ensuring the superior service our clients have come to expect from us. We monitor the situation closely and remain watchful to the recommendations of government and public health authorities. Our R&D teams, as well as all other employees, continue to work remotely, and we are ready to adjust the measures in response to changing quarantine circumstances. We have established a special COVID-19 team within senior management to respond to the ever-changing impact of the coronavirus and to protect employees’ health and safety. We have also set up regular online meetings to keep up to date and plan activities so that we could advise our customers and coordinate our teams accordingly. And we continue to provide our internal and external audiences with the relevant webinars and online events with regard to the new world order. To combat the spread of the disease in Ukraine, Innovecs has created the “Innovecs COVID-19 Fund” in the amount of 1,500,000 (one million and a half) hryvnias. The fund is directed to support the initiatives that fight coronavirus, as well as to ensure the safety of the company’s employees and their families. As part of this initiative, Innovecs purchases and installs an oxygen pipeline system at one of the Kyiv hospitals. This is a challenging period for everyone, and the situation is changing rapidly, but Innovecs is responding to it with unity, as a company, and as a team. I believe that when we stand together through moments that bring uncertainty and seem dark, we come out even stronger in the end.  Thank you for your patience and attention throughout this stressful time. As an employer and a partner, Innovecs is confident in our business continuity plan and our ability to provide support to our clients and staff. It is my sincere hope that our efforts and those of businesses, communities, and governments will empower the containment of the coronavirus and enable a speedy recovery for people around the world. In the meantime, let’s stay safe and help others keep safe too.   Sincerely, Alex Lutskiy Innovecs CEO & Founder