Blockchain Technology has traveled a decade-long journey to be here serving people transparently. Right from the inception of Bitcoin, the peer-to-peer transaction network, blockchain made it all possible.
Not only cryptocurrencies and web3 are utilizing blockchain technology, rather banks, major financial institutions, healthcare sectors, and even government systems are also entering the market. As per research, the global blockchain technology market was worth USD 10.02 billion in 2022. A compound annual growth rate (CAGR) of 87.7% from 2023 to 2030 is estimated.
The crucial need to implement blockchain technology in the financial sector is to strengthen security and transparency. The banking sectors are all staking to implement the best out of it.
How Banks Are Dealing With Blockchain Technology?
First of all, banks are centralized bodies and regulated by the central government, so why do they need decentralization? Well, the answer is security.
Decentralization can improve security by lowering the possibility of a single point of failure or cyberattack, hence strengthening the financial system. Furthermore, by giving access to banking services in underserved or remote areas without relying primarily on traditional centralized institutions, decentralized finance (DeFi) can promote fintech inclusion.
Coming to the adoption demographics, insights from the Deloitte Blockchain Survey 2021 show that 86% of individuals believe blockchain technology will help our transition to more autonomous corporate operations.
The survey included respondents from a variety of industries. According to the survey, 76% of respondents, including an even more optimistic 85% of Financial Services Industry (FSI) Pioneers, believe that Blockchain will play a significant or moderate role in reducing risks for organizations or projects.
According to Mastercard’s New Payment Index survey, 40% of respondents want to utilize cryptocurrencies within the next year. Furthermore, 77% of millennials are interested in cryptocurrencies and want to learn more about them.
Investment banking giant J.P. Morgan has been an active participant in the blockchain ecosystem. The firm always speaks with the media about Bitcoin and other related blockchain projects regularly. The bank claimed on April 12, 2021, that they use blockchain technology to help improve money transfers.
The Swedish central bank is testing the release of its own digital money, the e-krona. The project makes use of R3’s Corda distributed ledger technology solution. They are currently proceeding with their testing phase by bringing in Riksbank and Handelsbanken.
With this, it’s evident that blockchain technology’s disruptive mechanism is something that everyone wants to take home. But there are many hidden challenges also.
Also Read: Singapore’s MAS To Bring New Rules To Eliminate Retail Crypto Speculation
What Causing Banks Taking A Step Back On Blockchain?
Although blockchain transactions are immutable, some potential risks make the system prone to failure.
In a blockchain report published by IT firm Infosys, the blockchain in the fintech space is prone to, counterparty and systemic risks, privacy and security, behavioral and transition risks, settlement risks, technological risks, and regulatory and governance risks.
The report reveals that achieving interoperability remains a formidable task for financial institutions (FIs) venturing into the blockchain space.
The report emphasizes the critical need for regulatory clarity in the blockchain industry. Challenges include issues ranging from dispute resolution processes to the legal standing of blockchain-stored documents. Blockchain adoption is hampered by fragmented rules, exorbitant costs, and worries about existing regulatory frameworks.
Overall, the blockchain industry has come a long way, whether it’s in terms of crypto or finance. In the future, banks may or may not adopt blockchain but the underlying technology will remain the same.
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