When it comes to blockchain technology in banking, the most apparent and fundamental use is as a payment mechanism. Bitcoin and other cryptocurrencies serve as both a digital money and a mechanism of sending payments in that money-form all across the world, and they are becoming more popular. Only an internet connection is required for these transactions, and they are completed promptly. While it is true that it may take several minutes for a transaction to be completely verified, the transaction itself is completed in a couple of seconds.These transactions are borderless, safe, and, for the best part, untraceable. Furthermore, transaction fees are negligible, with each transaction costing just a few cents, making it a significantly more cost-effective method to move money throughout the globe than using wire companies.
A business that does not want to pay the initial and continuing costs associated with accepting credit cards might accept electronic payment through a cryptocurrency instead, for a fraction of the cost of doing so.
Banks are often used by consumers to keep deposits in checking and savings accounts, among other things. However, after you deposit money into a bank account, the bank uses fractional reserve banking to loan out the majority of the money you deposit. As a consequence, the majority of the money that appears when you check your account balance is not really held by the financial institution. When an excessive number of clients seek to take their money from a bank at the same time and the money just isn’t there, a bank run results in the failure of the institution. As a result, a bank account balance is nothing more than an accounting item.
Finally, the blockchain may be thought of as a ledger that records accounting transactions. As a result, bank accounts may eventually be represented on blockchains, making them more secure, more accessible, and less expensive to operate in the future. Furthermore, it has the potential to reduce the likelihood of bank runs.
Trading and clearing in the secondary market
Clearing and settlement of transactions is required for every transaction, from the simplest purchase of a company’s stock to the most sophisticated over-the-counter currency exchange. Ownership of the item or contract that is being exchanged must be verified and documented in order for the transaction to be valid. Exchange costs and clearing fees are now included in the cost of each transaction, and they may build up over time and in the context of huge quantities of orders to be significant.
If the ownership of shares could be recorded on a blockchain, and any change in ownership could be validated and confirmed immediately, it would significantly reduce transaction costs and clearing costs for all types of asset classes, from stocks to bonds to derivatives to commodities to real estate, as well as for financial institutions. Historically important organisations such as the New York Stock Exchange and the Chicago Board of Trade may one day be supplanted by distributed ledger technology, which is more secure, resilient, and less costly to manage and trade on than traditional financial institutions like those.