Blockchain technology in banking - A promising road ahead

Introduction

In an era where technological advancements and innovations are at its peak, it is

important to bring in a high degree of accountability in the banking sector. Human or machine
errors need not be tolerated with such technological advancements. Errors or loss of data is
possible even when it is stored in a single location with a centralized control by building a wall
around data. Sharing of documents or data in a conventional way does not allow all the parties
associated to the transaction to view the document or data simultaneously. Sharing of data
through a public ledger reduces this risk of loss of data and errors.

Blockchain is a technology which enables one or multiple parties to have access to the
data at the same time. This is also called as a public ledger of all transactions. This electronic
ledger grows each time a new transaction is completed. These transactions are added as blocks to
the chain in the chronological order. The biggest key to turn the potential of block chain into
reality is to make a collaborative effort among banks to create the network necessary to support
global payments.

Advantages of block chain technology in the banking sector

 Key compliance issues like Anti-money laundering and Know your customer can
be simplified where banks are spending about $10 billion a year, when there is a
mounting pressure from the investors to reduce the cost and increase profits of
the banking sector
 The undue delay in completing these compliance issues can also be reduced
considerably.
 Duplication of effort by different banks towards these record maintaining and data
analysis can be avoided.
 This public ledger can be used as evidence that a bank has acted in accordance
with requirements placed by the regulators
 Blockchain data will be complete, consistent, timely, accurate, and widely
available
  Due to the decentralized networks, blockchain does not have a central point of
failure and is better able to withstand malicious attacks
 Changes to blockchains are publicly viewable and extremely transparent
 Interbank transactions can potentially take days for clearing and final settlement,
especially outside of working hours. Blockchain transactions can reduce
transaction times to minutes and are processed 24/7
All the transactions made are authorized by users, which makes the transactions
immutable and prevent it from the threat of hacking.

Types of Block chain

Public blockchain: A public blockchain is a platform where anyone on the platform would be
able to read or write to the platform, provided they are able to show proof of work for the same.

Private blockchain: A private blockchain, on the other hand, allows only the owner to have the
rights on any changes that have to be done.

Hybrid blockchain concept :A consortium blockchain would be a mix of both the public and
private. Wherein the ability to read and write could be extended to a certain number of
people/nodes.

About six times per hour, a new group of accepted transactions (a block) is created, added to the
blockchain and quickly published to all nodes. This allows the software to determine when a
particular transaction has been cleared or not.

Block chain technology in India

The Regulator of the banking system in India – RBI has successfully tested blockchain
technology for trade application . The evaluation was carried out in partnership with MonetaGo,
a New York based crypto currency firm served as technology partner . In the white paper
“Applications of blockchain technology in banking and financial sector in India”. the central
bank has concluded that blockchain is indeed a disruptive technology that can potentially
revolutionise the financial industry
The Reserve Bank’s blockchain research follows a recent partnership between one of the Indian
banking majors, ICICI Bank and Stellar - Provider of a decentralized P2P payment network.
ICICI bank had announced its plans to develop a Stellar-based blockchain application for
transactions within closed groups. Few other Indian banks working on blockchain technology
includes Axis Bank and Yes Bank. While Indian regulators have warned against the use of
bitcoin in the past, recent developments in the Fintech ecosystem sees a thriving population of
everyday adopters. Unocoin, one of the bigger bitcoin exchanges in the country recently raised a
record $1.5 million in funding as it looks to expand.