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Blockchain technology has been revolutionizing the banking space for years, leveraging a decentralized system that enhances storage capabilities, enhances payments transactions and elevates other banking sector elements.
From tokenizing various securities to using distributed ledgers, blockchain technology is disrupting traditional banking and forcing traditional institutions and large enterprises to take notice. Blockchain technology also creates smart contracts that automate claims and compliance processing while providing an inexpensive, highly-effective method of sending payments.
Blockchain technology, coupled with the increased advent of digital banking, should be identified as a viable banking method for traditional banks and large enterprises coping with their disruptive presence in the banking industry.
Why is blockchain technology so difficult to breach?
Blockchain technology is harder to hack considering that financial information is consistently stored on different computers, making it difficult to compromise the network, preventing falsified balances and fraudulent transactions.
A single blockchain server is tough to compromise, even for the savviest of cybercriminals, as hackers would have to breach every node in the technology at the same time to hack it. The decentralized technology that buffers the blockchain also establishes secure networks for various types of assets.
Because blockchain technology and digital banking are becoming more commonplace, traditional financial institutions and exchanges are gradually seeing the benefits of adopting blockchain technology to securely record and store data regarding stocks, bonds and other financial products.
Because of how strong blockchain security is coupled with its cost-effectiveness, as statistics show that it can reduce up to 30% of banking infrastructure costs it’s becoming a widely accepted technology across the financial industry.
Blockchain technology adds a security buffer to payments
Blockchain technology is consistently being applied throughout the financial services industry, with blockchain use expected to topple $22.5 billion by 2026. Additionally, a little over 20% of banks have admitted their incorporation of blockchain technology in their businesses, with banks like Citi and JP Morgan chief among them.
One reason blockchain technology is becoming a more trusted resource in the banking industry is that it adds extra layers of security to payments. With blockchain technology, more secure and cheaper ways of sending payments are provided, eliminating the need for third-party verification. By using blockchain technology, it’s easier to cut down traditional bank transfer processing times and eliminate the added fees that come with them.
Because conventional banks see high profit-making capabilities by facilitating payments, there is little to no incentive for lowering fees. With more white-label neobanks in operation and the increased adoption of blockchain technology, transactions take less time to settle, lasting minutes rather than hours or days.
By using encrypted distributed ledger technology to verify transactions in real-time, blockchain technology creates quicker payment solutions because there is no reliance on intermediaries to approve payments. And because there is no single point of failure when using blockchain technology, banks and large enterprises have more continuity when leveraging this kind of technology.
Blockchain technology paves the way for optimized lending processes
Another area of banking where blockchain technology makes a critical contribution is the lending process. Thanks to evolving customer expectations and digital transformation, lending processes have long needed a revamp.
Lenders across the board are hampered by legacy technology infrastructure and bureaucratic processes, leading to extensive disruptions and diminishing customer experiences, causing customers to look for more structured alternatives.
Credit evaluation and loan processes come with administrative hindrances, plus hold-ups from third parties like credit unions. So, whenever people seek a mortgage or simply want to consolidate debts, they are confronted with countless inefficiencies.
Blockchain technology gradually eradicates those inefficiencies, removing some of the hindrances regarding lending including manual data entry and aggregation. Instead of storing every bit of lending information in one centralized system that’s susceptible to potential attacks, blockchain technology provides a diverse, decentralized system that keeps important information in various locations.
Blockchain technology includes a distributed network that reduces attack surfaces and thanks to the fact that this type of technology doesn’t have a single failure point, there is less chance of data theft.
Furthermore, blockchain technology offers more transparency for traditional financial institutions and large enterprises seeking to optimize lending processes. The technology allows for high stakeholder visibility into every aspect of banking transactions and operations, eliminating reliance on third-party verification.
Blockchain technology, coupled with the use of a neobank, gives users total control over their most sensitive information, with the added transparency leading to increase trust between borrowers and lenders.
Improving log-ins and authentication
Blockchain technology protects sensitive information and authenticates user identity. The technology uses keyless security infrastructure (KSI) to store data hashes and subsequently run hashing algorithms to consolidate the verification process.
Using KSIs, blockchain technology can easily spot manipulation as the initial hash can be found on nodes linked to the system, ensuring that banks cache in public keys and progress a level above asymmetric encryption.
Traditional financial institutions face constant challenges as centralized IT infrastructure and simple log-ins rank among the most significant security vulnerabilities under their watch. Because of these outdated security elements, end-user protection is a struggle and hackers can identify weak passwords, so they successfully penetrate a bank’s security infrastructure.
Financial institutions can enable user and device authentication without password protection, thanks to blockchain technology deployment. The blockchain’s decentralized features generate unanimity between multiple parties to verify using SSL certificates.
Additionally, the decentralized setup of blockchain technology ensures transaction integrity and transparency while also verifying all account balances thus, greatly diminishing the possibility of cybercriminal activity penetrating the security infrastructure.
With blockchain technology, banking offers stronger authentication practices and secures banking operations while also allowing institutions to identify security threats if they occur quickly. Additionally, blockchain technology improves security regarding internal communications, preventing potential espionage and data leakage.
Closing statement
Blockchain technology is the undisputed future of banking. While there are still strides to make before blockchain technology becomes fully embraced and adopted, it undoubtedly adds much-needed security boosts to the banking industry, with global finance blockchain infrastructure solutions widely available today.
Serge Beck is the CEO and founder of Optherium Labs, a global fintech company developing blockchain solutions to reform defective functions within financial and security infrastructure. He is driven by his belief that people deserve sounder, more secure financial services in our tech-driven world and is committed to eradicating current problems detrimental to end-user experience through the creation of synergized, decentralized products. Earlier in his career, he was responsible for engineering some of the most critical and innovative technological infrastructure at premier financial institutions, including Bear Stearns, Republic National Bank, HSBC Bank and Merrill Lynch, where he revolutionized the way market participants could operate through advanced software development.
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Source: https://dailyhodl.com/2022/02/15/how-blockchain-technology-is-creating-a-secure-method-of-banking/