Blockchain May Revolutionize Banking Even as Cryptocurrencies Struggle for Legitimacy

Although blockchain technology was invented to power cryptocurrencies like bitcoin, its real impact could be in areas other than digital currency. While cryptocurrencies struggle to gain legitimacy as most central banks including Federal Reserve are yet to warm up to the idea, banking is one area that may find the technology useful, experts say.

The basic characteristic of blockchain as a ‘distributed ledger’ that keeps a universal record of all transactions distributed over the entire network points its utility to use in banking, an article on the BBC News website says. “The blockchain is a ledger, or log, of those transactions and users on the network, collaborate to verify new transactions when they occur. They're rewarded financially for this effort - an enterprise known as ‘Bitcoin mining’,” the report says.

An Indian watchdog for digital payments, the National Payments Corporation of India has been pushing blockchain to monitor digital transactions. Vishal Anand Kanvaty, the senior vice president – innovation & product of NPCI, writes the technology can be used to keep an immutable record of ownership and enable transaction of the asset among distrusting parties. Kanvaty describes blockchain as an “immutable, unhackable distributed ledger” of digital assets. “The implications are staggering not just for the financial services industry but also right across virtually every aspect of the society,” he says in a note.

Major advantages

The banking sector’s interest in the technology stems from the idea of a ledger distributed among different users and not held centrally. A blockchain database has some major advantages over conventional ones, says Dave Birch, an author, and advisor on digital financial services.

Apart from banking, there are other areas where blockchain technology is suggested for use. Prof Gilbert Fridgen, a financial services expert at Luxembourg University, proposes a distributed ledger system that keeps track of university certificates and degrees. While no single organization will be responsible for authenticating the certificates, the ledger would reside on the network, accessible for all related parties to authenticate. The use of the technology, it is pointed out, could mean the end of the fake certificates.

Indication of success

Blockchain technology has already found a use for some big businesses. Shipping giant Maersk tracks paperwork using blockchain technology. Its TradeLens, a new system for tracking customs documentation on goods shipped internationally, uses blockchain technology. It provides a secure environment that makes it possible for any stakeholder to verify a shipment’s details. An indication of the success of technology adoption is the 10 million shipping events that are now weekly registered in the system.

A trial project of Swedish land registry, Lantmäteriet, to use blockchain to track property sales documents was found to be efficient, a report says. It’s awaiting new legislation for adoption on a wider scale, says Mats Snäll, chief innovation officer at the Swedish land registry. “It was never integrated into the production system of the land registry,” BBC quotes Snäll as saying.

However, there is consensus that the blockchain technology that is at the heart of a range of cryptocurrencies like bitcoin, Ethereum, Ripple, Litecoin, Tether, and Monero will soon establish itself as the premier technology in a variety of fields, including banking. But the spreading use of blockchain technology in other applications is gradually drawing the focus away from cryptocurrencies even as Facebook has announced its own digital token Libra and the Peoples Bank of China is also reportedly going ahead with its own digital Yuan.