Author: David Hamilton
The banking system is inefficient in its current state as it requires the use of multiple third-party verifications and transferring services in order to complete a transaction. Blockchain can alleviate the need for these organizations and provide the world with a viable solution to the inherent problems facing the banking community. Blockchain is transforming the way in which we conduct business globally by offering us the ability to perform transactions securely in a peer-to-peer manner without the need of any middleman.
The current state of the global banking system is shabby at best. We’ve already witnessed multiple government bailouts to date and it is exactly this type of pompous behavior that spawned the birth of cryptocurrencies nine years prior. Satoshi, the unknown creator of Bitcoin, was even kind enough to let us know that this was his motivation by leaving a reference to the bailout headlines from the London Times embedded in BTC’s genesis block – The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
A Brief History of How Banks Came About
To understand the advantages that blockchain has over the current banking system, you need to understand the history of banking. Banks evolved out of the need to securely store gold. The first “banker” was nothing more than a gold depository for wealthy people.
Individuals would drop off their gold and the banker would then issue them a receipt that could be used to purchase items around town. Eventually, the banker realized that the people never all came for their gold at the same time and so he decided to start lending out other people’s gold at a slight mark up or interest rate.
The people eventually became suspicious of the banker’s quickly expanding wealth and one night the banker was cornered by a furious crowd who accused him of spending their gold. They forced the banker to take them to his vault and show them that he had everyone’s gold. He gladly obliged as he not only had all of their gold but he now had the interest he made in profit as well.
After realizing what the banker had done, the wealthy individuals demanded in on the action. This is why banks now have to pay you a small interest on your holdings as well. Not much has changed since then in regards to the purpose of banks; It’s still a third-party organization looking to make a profit off of holding your funds.
A New Day
Today, none of these steps are necessary thanks to blockchain technology. Technology has advanced and it is time for our banking systems to do the same. The world cannot continue to bail out fraudulent bankers or run on a fiat-based financial system. Let’s take a moment to see how blockchain technology could eliminate much of these banking problems in the coming years.
The words peer-to-peer has no use in the current central banking system that relies on a combination of verifications and monitoring platforms to ensure your funds are sent. Every time you swipe your debit card there are around thirty separate third-party organizations that must coordinate to complete your transaction.
Your bank must first check your balance, verify that it is you actually spending the funds, notify the account where the funds are going to ensure it is correct, interact with the merchant processing firms involved, interact with VISA or MC, and the list goes on. This is why you can spend your debit card funds quickly but any refunds can take a week or longer to be processed.
Cryptocurrencies eliminate this need for third-party verification. The transparent nature of blockchain technology makes it perfectly suited for financial services. An individual can check any wallet on the blockchain to ensure funds are present and once they are sent, they go directly to the other individual involved in the transaction.
Send Any Amount Instantly
Have you ever tried to send a large amount of money internationally? It is a nightmare that can take days to complete depending on the amount you decide to send. During this layover, your funds are inaccessible to both you and the other party involved in the transaction. It is common to wait over a week for a large transaction to complete.
Blockchain technology eliminates the need to wait and regardless of the amount of crypto you are sending, the transfer time is the same. This is a huge advantage that crypto has over the current banking system.
Imagine that you are a large international company that must send millions of dollars in capital internationally. Blockchain technology would allow you to accomplish this task with unmatched simplicity. There would be no additional delays and the funds would be more secure than any other form of money transference currently available. You also avoid any losses from converting your funds between countries.
Records stored on a blockchain are immutable and easily traceable. Nobody can hack this data and it is easy to search for a single transaction. Integrating a blockchain-based system would allow banks to quickly handle common issues such as identity theft or disputed transactions. Some banks are starting to explore this option and it can be expected that many more will follow suit in the coming months as the technology continues to see adoption.
Bye-Bye Credit Bureaus
The transparent nature of the blockchain eliminates the need for credit bureaus. A blockchain-based system would allow for anyone to quickly see their financial history and thereby prove their ability to repay a debt.
Currently, credit companies are only obligated to provide you with a single credit report yearly for free. These are billion dollar organizations that thrive off of a technology that is no longer needed. Significant time and capital could be realized by eliminating these wasteful institutions from the banking system.
Blockchain technology is light years ahead of the current banking system in terms of security. The redundant nature of the protocol ensures that your funds are safe and allows you the ability to store your funds personally.
A Blockchain Future
The advantages of blockchain technology are unmistakable and for the first time in history, a global decentralized economy is a reality. This is exactly why the central banking system has been so vocal on their opposition towards cryptocurrencies such as Bitcoin. You can expect to see this aggressive rhetoric continue as the banking system continues to go through their identity crisis but in the end, its just math and efficiency will always win out.
What do you guys think? Is it time for the banks to get serious about blockchain? Let us know in the comments below and be sure to sign up for our newsletter to stay up to date on all of the latest crypto news as it develops.