What banks are switching to blockchain and why
With regard to the crypto industry, all the banks are divided into two camps: the first one opposes blockchain technology and seeks to maintain the existing system, while the another one creates solutions based on decentralised technologies that provide a number of advantages if compared to traditional banking systems.
The main reasons for switching to blockchain
Obviously, blockchain-based systems allow you to develop and implement more productive solutions, which among other advantages help reduce costs. Blockchain operation is cheaper thanks to automation of a large number of business processes which otherwise performed by employees.
Another advantage of the technology is that distributed systems allow for a high level of transparency of financial transactions, which will simplify the audit process for tax and other authorities, and banks will not have to generate additional reports.
In order to ensure security and compliance with the requirements of financial regulators, banks cannot use public blockchains. To do that, you need to develop your own solutions that match the specifics of the banking industry and the work of each bank separately. Banks keep up with the times, but will not hand over the reins of control to ordinary users. Therefore, the blockchain used by banks will be monopolised.
Another reason for switching to blockchain systems is a reduction in operational risks.
Some banks not only switch to using blockchain, but also plan to release their own
cryptocurrency. For example, one of the largest banks in the world, JPMorgan has developed a blockchain system called IIN - an interbank information network. The system is based on the Quorum blockchain, intended for use in large corporate networks. Quorum is powered by Ethereum, but provides higher network bandwidth for faster transaction processing.
JPMorgan is going to connect 400 banks wthin this network. The bank also plans to emit its cryptocurrency - JPM Coin.
Recently, the largest German bank announced its intention to switch to blockchain and join the IIN from JPMorgan. Currently, over 220 banks are connected to the IIN blockchain system, and Deutsche Bank has become one of the first. The main reason for using the system was to reduce transaction costs, as well as providing customers with better services, since the blockchain can significantly increase the speed and simplify the process of processing transactions.
Large American financial conglomerate Wells Fargo plans to emit its own stable-coin. According to its managers, the transition to blockchain will increase financial efficiency, as well as provide an opportunity to abandon intermediaries, which will reduce costs and time required for operations.
Despite the ambiguous position of Russian banks and government bodies, local banks were among the first to consider introducing blockchain technology into their systems. Experts have long assessed the capabilities of distributed ledger technology, and as a result they came to the conclusion that blockchain is much more efficient than the traditional systems. For example, experts say that blockchain allows banks to reduce operating expenses by 80%, while the speed of work will be higher.
The Central Bank of Russia launched the first pilot project on blockchain back in 2016 on two consensus algorithms: PoS and PoW. Then the central bank launched a master-chain, which provides storage for a large amount of data on bank customers and depositors. The head of the Central Bank of the Russian Federation Elvira Nabiullina said that the bank is also considering the possibility of emitting its own cryptocurrency.
Otkritie Bank also uses the master-chain system, which has already finished the transition from paper storage of personal data to the digital one using digital keys and additional levels of information protection.
Alfa-Bank announced a partnership with X5 Retail Group to launch a joint BaaS service based on the Waves platform. DTCM service will optimise user operations using smart contracts. As a result, customers will receive an innovative product for managing finances and banking products, as well as will be able to customise services to their needs.
Sberbank has organised its own blockchain laboratory, which is engaged in research and development of solutions based on distributed technology. Among the pilot projects of Sberbank there is a system for making letter of credit deals, a system for recording mortgages and deal automation based on smart contracts, which allowed to reduce the number of errors during transactions, as well as providing faster and more convenient data verification.
Other banks, such as VTB and Tinkoff, are also trying to move to a block structure. The main problem in introducing the technology remains in legislative regulation, without which banks will not be able to use the technology. Full functioning will be available only after the preparation of the relevant legislative framework.