ST.

JOSEPH’S COLLEGE OF COMMERCE

(AUTONOMOUS)

BRIGADE ROAD, BANGALORE, 560047

BANK MANAGEMENT
ARTICLE REVIEW

SUBMITTED BY
ANU S VARGHESE
MCOM IB
20SJCCMIB006
 Blockchain for Banking and Finance

Introduction

Blockchain technology is a disruptive technology which has revolutionized the conventional

business models, traditional business transaction work flows and opening the door to huge
opportunities of business value co-creations. Blockchain holds the promise to disrupt various
industries and organizations, and one of the most well-known areas is its applications to the
banking and finance sector. This qualitative study has analyzed state-of-the-art Blockchain
research and technology in the banking and finance sector. Blockchain technology is a core,
underlying technology with promising application prospectus in the Banking Industry.
Blockchain is currently a concept that has received significant attention in financial technology.
It combines several technologies including distributed data storage, point-to-point transmission
and encryption algorithms. The magnitude of Blockchain technology has gotten consideration
around the world. It has a colossal group around it that is searching for opportunities to embrace
and use the advantages of this technology in their businesses. The banking industry is being
disrupted by blockchain, which is contributing to the growth of big data in banking. However,
there is a research and development gap in academic perspective into the role of blockchain in
banking, which is projected to have a substantial negative effect on the implementation and
development of blockchain technology for banking. Hence, this research reviews existing
blockchain in banking literature to map out the impact, opportunities, and challenges of
blockchain in the banking industry. Further, Blockchain allows for the use of tools like “smart
contracts,” self-executing contracts based on the Blockchain, which could potentially automate
manual processes from compliance and claims processing to distributing the contents of a will.

Objectives:

• To examine the role of blockchain technology in the banking industry.

• To identify the trends in blockchain technology application.
• To evaluate the challenges of blockchain technology application.
 • Article name: Blockchain Technology and the Future of Banking
• Article domain: across the globe
• Journal: This journal is appropriate for this article
• Audience: People who are engaged in the making of this technology and people
interested in investing in such platforms aka bitcoins.
• Classify: Article review.

Summary:

Blockchain is currently a concept that has received significant attention in financial technology
(FinTech). It combines several computer technologies, including distributed data storage, point-
to-point transmission, consensus mechanisms, and encryption algorithms. It has also been
identified as a disruptive innovation of the Internet era. However, as blockchain is a major
breakthrough in data storage and information transmission, it might fundamentally transform the
existing operating models of finance and economy, which might lead to a new round of
technological innovations and industrial transformation within the FinTech industry. Different
types of blockchain industrial consortiums have emerged in order to promote the development of
blockchain technology and its applications, the R3 blockchain consortium being the most
influential among them. The major financial institutions have a relatively positive attitude toward
improving the back-end processing efficiency of blockchain technology, and place significant
emphasis on its potential to reduce operational costs. There has also been widespread optimism
regarding the application of blockchain in the banking industry. In the financial sector, such as
interbank payment and global financial transactions, we use a closed distributed ledger. Because
of the nature of finance, reliability, stability and efficiency are priorities, blockchains based on a
closed distributed ledger, where only authorized personnel can participate, are preferred. The
closed type has a consensus mechanism that ensures the authenticity of the transaction, so that
only a small number of specific groups can participate to offset the problems of openness. First,
it is to secure technological development and standardization. Open type is difficult to
standardize because of the lack of new standard method owing to technological development, but
closed type is easy to agree and accept technical standards among participants. Second, this type
can achieve efficiency and independence.
Open type has the advantage that there is no specific power or reliance agency intervention, but
the efficiency structure is lower compared to the closed type in consensus structure. Third, in the
case of closed type, the transaction can be changed. An open type is not possible to modify the
transaction recorded in the spreadsheet and can only be corrected by reverse trading, but the
closed type can be modified by mutual agreement.

How can blockchain technology solve the challenges faced by the finance industry?
The finance industry has been facing many challenges for a very long time. The incredible
advancements in technology have led to solving numerous problems, but some new technologies
have created new issues in the process. There are multiple fintech solutions available today,
making it very confusing for financial service providers to decide which solution will suit them
best. Hence, they look for an all-in-one solution that can help solve all of the major challenges
being faced.
Blockchain in financial services is highly promising and can solve significant challenges faced
by the industry.
• Security and transparency:
There is a severe lack of transparency in the system, with the safety of the data being solely
dependent on the intermediaries and database security. Even if the databases have maximum
protection, there are still very high chances of data breaches and server’s hacking. The lack of
transparency in the system fosters security threats as nobody can know what is happening until
things go wrong or data gets breached. Though understandably, everyone does not want their
financial records to be transparent, having a certain degree of transparency in the system is
beneficial and essential for both financial service providers and their clients.
Solution: With blockchain in financial services, transparency and security can be ensured
simultaneously.
• Immutability: As blockchain is immutable, no data can be altered. It ensures that all data
is secure, authentic and correct.
• Privacy: There are two security keys – a public key and a private key. The public key is
available to all users in the network. The private key, however, is only shared between
the stakeholders of the transaction. Hence, the transaction will be visible to all users in
the network with the public key’s help, whereas the stakeholders’ and transaction details
will only be visible to those who have the private key. It ensures that transparency is
 maintained in the system while securing the confidential financial information of the
stakeholders.
• Effectively Control Risks

Financial service providers face a lot of risk in providing services like loans, such as:
• The counterparty not being able to meet its obligations.

• Credit risk due to information asymmetry.

• Trusting intermediaries.

In the case of commercial banks, emphasizing on the monitoring and tracking of the loan usage
is also not very reliable and effective as the trust has to be ultimately placed in an intermediary.
Hence, the risk is significant as the providers will face substantial expenses if anything goes
wrong.
Solution: With blockchain in financial services, every stakeholder is treated as a node. Hence:
• Peer-to-peer (P2P) transactions can be enabled, which eliminates the need for intermediaries.

• Fund management risks and credit risks are reduced as all transactions are recorded on the
network.

• Smart contracts help to settle transactions quickly.

• Data immutability improves reliability.

Contribution:

Blockchain is s a decentralized, distributed, and public ledger that is used to record transactions
across many computers within a network. Because of its design and properties, blockchain is
secure, transparent, and nearly impossible to alter.

In the finance industry, this underlying technology allows the transfer of currency with
confidence that the transaction is secure and reliable.

The benefits of blockchain come from the following properties:

• Distribution: Numerous copies of the ledger exist throughout the network. Each time a
new transaction and block are added, everyone within the network receives a copy. No
 single entity controls the ledger, but the system is designed to provide everyone with the
same information.

• Immutability: A blockchain provides an accurate, chronological history of transactions.

Because each person within the network has a copy, it’s nearly impossible to alter or
erase transactions or to add information that hasn’t been verified. Doing so successfully
would require a coordinated attack on hundreds – or even hundreds of thousands – of
computers simultaneously, which is unlikely.

• Money transfers: Transferring money to other countries presents many problems and
challenges for consumers and financial institutions. People send billions of dollars
internationally each year, and the process is usually expensive, laborious, and error prone.
Blockchain can change all that. Many major banks have adopted international payments
with blockchain technology, which saves time and money. Consumers can also use
blockchain money transfers to complete electronic transfers with mobile devices,
avoiding the cumbersome process of visiting a money transfer facility, standing in line,
and paying fees for a transaction.

• Fewer scams: Online scams are a concern for many individuals, but blockchain-based
payments are quick and reversible. They’re also less expensive than using banking
services, especially for pricey items.

• Less time and money: The safest payment methods are cash, wire transfers, and
cashier’s cheques, but cash is untraceable, wire transfers are time-consuming, and
cashier’s cheques can be forged. With blockchain-based payments, all of these issues are
removed for greater confidence.

• Reduced fraud: Blockchain stores information in a ledger with transaction information

within each block, along with a unique hash that refers to the previous block. Every
person within the network receives a copy of the transactions as well. Because of these
features, blockchain technology is resistant to distributed denial-of-service attacks,
hackers, and other types of fraud.
Conclusion:

With a wide variety of use of blockchain technology, every industry whether its healthcare or
entertainment industry are opting for this. For securing data sources, this technology is
challenging the traditional approaches on every level. As it’s time to move forward with the
digital revolution, this technology can help in maintaining the relationship between the
technology and user data & privacy. It can help in tackling data management and can give more
concentration on privacy. It reduces delays & conflicts in transaction and can provide the actual
data in real time. Blockchains could revolutionize the underlying technology of the payment
clearing and credit information systems in banks, thus upgrading and transforming them.
Blockchain applications also promote the formation of “multi-center, weakly intermediated”
scenarios, which will enhance the efficiency of the banking industry. It is worth noting that the
problems of regulation, efficiency, and security have always sparked extensive debate in the
process of each new financial innovation. However, history is not stopped by current obstacles,
as the technical, regulatory, and other problems of blockchain technology will ultimately be
resolved. Hence, the prospect of integrating blockchain technology into the banking industry will
most likely occur in the near future.

Relevance:

The use of blockchain in the banking sector can help reduce fraud. Blockchain offers hope
because 45% of financial intermediaries are prone to economic crime. Across the globe, banking
systems are designed to function via a centralized database. Hence, they are vulnerable to serious
cyber attacks due to its many points of failure. The truth is; all a hacker needs to gain access to
the system to breach it. Once this happens, fraud is eminent if such breach is not noticed on time.
Hence, blockchain companies can help design blockchain systems to mitigate financial fraud.
The truth is; blockchain can cut down on the massive fraud in the banking sector. This is true
because it is a distributed ledger system where each transaction block has its timestamp. More
so, it is a technology that links each block of transactions to past transactions. Thus, it can
checkmate and at the same time cut down crimes in online financial transactions. Hence, it offers
better opportunities that can help reduce fraud in the banking industry. Blockchain provides
transaction immutability and distributed ledger architecture, which are key requirements for
eliminating the need for an enforcer of trust in the ecosystem.
Tamper-proof distributed data enables an environment in which trust is not an issue and allows
counterparties to operate with the knowledge that they all have the same version of the truth at
all times and its history cannot be altered. Blockchain technology will significantly increase
transparency between market participants. Blockchain implementations promote the creation of a
public record of activity in the ecosystem to which all market participants have access in real
time. Blockchain maintains an immutable record of transactions and therefore asset ownership
since the time the asset first appears in a transaction on the blockchain. This significantly reduces
risk and the need for associated mitigating operations for multiple asset types. This capability
will enable the reduction of the occurrence of theft, fraud and misselling of high value assets and
intellectual properties. It will also help for assets where its provenance determines value by
creating a digital footprint on the blockchain.

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