Despite the digital revolution, it seems that the banking system has still somehow been left behind in some areas. Fraud continues to be a serious problem for the entire sector, and many consumers have serious concerns for their privacy from these centralized data systems.
This has not been lost on some obvious, and the original goal of Cryptocurrencies was, in fact, to allow people to act as their own banks. However, as much as crypto enthusiasts would love for everyone to adopt this technology exclusively, the fact is that not everyone will, and banks are not going away. They do still have their merits, and that’s something we must accept.
To that end, some blockchain projects are taking a different approach. They plan to actually work with these financial institutions in order to improve their systems in a way that will not only make them a more appealing option for consumers but also offer them a number of benefits that can improve their efficiency and their bottom lines.
Banks have a few major issues that could be addressed by the blockchain. One of the biggest is in the security of financial data. While many consumers are not aware, our current system for storing financial data is not very secure.
In fact, security breaches are a big issue for corporations of any type, and that includes banks. It’s estimated that over 16 million people every year are the victims of identity theft in the US alone due to misuse of private data.
Some proposed blockchain solutions would not only allow for better security but also more privacy for the clients of the bank. With more and more people becoming dissatisfied with the way private information is handled, it’s likely that in the near future a better system, like what the blockchain can provide, will need to be implemented.
The other area where Cryptocurrencies can shine is in providing speedy payments that are globally accessible. It’s still surprisingly annoying and expensive to send money across borders. It can take days for traditional bank transfers to take place when moving from account to account, but thanks to the blockchain, it can happen in a matter of seconds.
It’s also much more convenient to exchange these digital currencies for fiat currency once it arrives at its destination since cryptocurrencies are globally accepted as legal tender. Many traditional finance providers are seeing the benefits of this and some have even already secured partnerships with promising startups in this sector to advance their own financial products.
Ripple is by far the most well-known name in this space, managing to garner mainstream media attention for themselves. They’ve already established partnerships with a number of businesses and financial institutions including MoneyGram, RBC, and American Express. Their system allows for their partners to provide instantly settled and traceable payments using the blockchain.
While this doesn’t seem that special at first, the truth is that it solves many of the banking industries woes. One of the biggest being the ability to prove to the government that their transactions were not involved in money laundering activities. An immutable ledger leaves a trail that can relieve a lot of their headaches in this department.
Ripple’s system creates a win-win here where it gives the bank’s clients faster payments, and it gives the banks themselves an easy way to cover themselves legally. Some cryptocurrency veterans turn their nose up at this coin, but you can be sure that they are here to stay.
Possibly the second biggest project in this space, Stellar focuses on speedy remittance, and the underbanked. Believe it or not, there are many places in the world where people do not have bank accounts.
The reasons for this are typical because traditional financial institutions simply do not cater to them, as the required infrastructure required would be costly or difficult to implement. Under Stellar’s ecosystem, smaller players in the space would actually be able to expand their financial and lending networks without added costs by utilizing mobile applications.
IBM, Stellar’s high profile partner, has been building their own products on top of this platform. They’re already responsible for creating applications for their high profile partners, and now they’ll do the same thing for Stellar, in order to allow businesses an easier way to integrate the platform into their existing systems. This will allow them to begin utilizing fast and cheap blockchain transfers.
This is a much lesser known banking application, but they have some very interesting technology. Their products are targeted at upgrading the efficiency and security of banking applications. They plan to do this with a couple different protocols. The first, Raindrop allows for private financial systems on the blockchain to be publicly audited.
This means that the system can be held accountable if there is a security breach, and it can’t be hidden. Raindrop also acts as a secondary security level, forcing those who would attack a network to bypass multiple roadblocks from both the private security level and the one put in place by Raindrop.
That handles the security portion of their product, but there’s another very cool part of this project. It’s called Snowflake, and it secures the data of consumers. Onboarding for financial institutions can be painfully slow. There’s a lot of work that goes into verifying users identity, but it’s required by the government to prevent money laundering.
In Hydrogen’s solution, users will build a blockchain based identity that is unique to them and can be universally accessed, verified and accepted by financial institutions globally. This information is then encrypted, cannot be altered, and decentralized verifiers can vouch for the data you have submitted.
This not only allows you to securely transmit financial data, but it makes processing that information faster. This could potentially save banks and lenders tremendously in manpower and overhead.
BABB’s slogan is everyone is a bank. This is another type of service that wants to help the underserved, but with an interesting twist. They utilize something called social KYC. Instead of the traditional system, users can be verified by people they know who will vouch for them, and as long as you have a smartphone, you can create a UK bank account.
This speeds up the onboarding process, and they believe it will help the unbanked masses who may lack documentation to apply themselves. Keep in mind that their target audience lives in developing nations, and these people may not have access to normal bank accounts at all due to their location or economic factors.
After going through their quick verification procedure, new account holders will have access to the BABB application. This will allow them to instantly send money anywhere in the world, access peer to peer currency exchanges, and utilize a decentralized payment card which is not tied to Visa or Mastercard. Central banking institutions within these targeted locales will also be able to issue their own unique digital tokens if they choose.
Another big player in the banking cryptocurrency space is OmiseGo, who plans to bank the unbanked with their decentralized payment application. While they have the typical remittance abilities needed for sending super fast and cheap transactions, that’s not their only game.
The team behind this project has also developed an SDK that will allow developers to easily integrate the wallet into their own applications for sending or accepting payments. The potential uses for this could include various games or even loyalty reward programs.
They also have a solution for the liquidity issue faced in many cryptocurrency markets. Users will be able to trade other blockchain assets using their integrated exchange. The system will automatically locate the most cost-efficient trade, and then execute it for you.
This will also be applied to cross chain payments where if a payment is requested in Bitcoin and you only have Ethereum, you’ll be able to pay in the currency of your choosing while the recipient will get the currency that they prefer as well.
In closing, the blockchain has a lot to offer to the banking sector. Investors should keep in mind that while this list includes some excellent projects, there are many more like them. It’s important for you to do your own research and to make sure that you understand everything about a particular solution before investing in it.
This is particularly true of new and unproven projects. While it can be exciting to get in on the ground floor of a big cryptocurrency project, it can also be dangerous. A lot can go wrong in that time frame, and you should be prepared for the fact that you could incur a loss.
You can mitigate these risks by spreading your investment across multiple coins or tokens. There will likely not be a single winner in the crypto banking space or any blockchain niche for that matter, and diversifying is never a bad idea.