Blockchain Technology has traveled a decade-long journey to be here, serving people transparently. 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, but 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. The anticipated compound annual growth rate (CAGR) will be 87.7% from 2023 to 2030.
The crucial need to implement blockchain technology in the financial sector is strengthening security and transparency. The banking sectors are all staking to implement the best out of it.
How Banks Are Dealing With Blockchain Technology?
First, banks are centralized bodies 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.
Regarding 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 encompassed participants from diverse industries. According to the study, 76% of respondents, including an even more optimistic 85% of Financial Services Industry (FSI) Pioneers, believe Blockchain significantly or moderately reduces risks for organizations or projects.
According to Mastercard’s New Payment Index survey, 40% of respondents want to utilize cryptocurrencies within the following year. Furthermore, 77% of millennials are interested in cryptocurrencies and want to learn more about them.
Investment banking giant J.P. Morgan has actively participated in the blockchain ecosystem. The firm regularly discusses Bitcoin and other related blockchain projects with the media. On April 12, 2021, the bank asserted that it utilizes blockchain technology to enhance money transfers.
The Swedish central bank is testing the release of its 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 everyone wants to take home. But there are many hidden challenges also.
What is causing banks to take 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 must be improved due to fragmented rules, excessive costs, and worries about existing regulatory frameworks.
Overall, the blockchain industry has come a long way, whether in terms of crypto or finance. Banks may or may not adopt Blockchain in the future, but the underlying technology will remain the same.