The real-world use cases of Blockchain have been increasing and people are using the technology to create a growing global market that experts expect to rise to more than $2 billion by 2023. Most cryptocurrency users criticize banks for being too centralized and monopolistic. They think Blockchain technology can be the solution to replace banks in a decentralized way but is it?
Key Features of the Blockchain Technology
What makes the blockchain so special anyways? The blockchain has evolved in many ways but the basics still apply, the technology allows people to interact and transact with other people in a fully decentralized manner, without any third-party or centralized entity involved. Essentially, the blockchain is a digital ledger that is incorruptible and can record any type of information.
The Blockchain was conceived back in 1991 when Stuart Haber and W. Scott Stornetta started working on a cryptographically secured chain of blocks. It was not until 2008 that the first real use case for the blockchain was created, Bitcoin. Satoshi Nakamoto, alias of the creator of Bitcoin used the blockchain technology in combination with other technologies to create a peer-to-peer digital currency.
How Would the Blockchain Replace Banks?
So now the question is, how would one go about replacing banks using the blockchain technology? Is it even possible? In theory, yes, let’s look at it.
Blockchain could reduce operation costs by a lot as most of the banking process could become automated thanks to smart contracts. The current problem with the blockchain is a lack of speed, transactions are not fast enough but developers are rapidly coming up with new solutions to achieve transaction speeds similar to big providers like VISA. There is however a huge advantage over traditional banking, fees, anyone can send millions and even billions in Bitcoin and will pay pretty much the same small fee.
The blockchain technology would also allow banks to be far more secure as all the nodes are spread across the world it is extremely difficult for someone to compromise the network. The blockchain ledger is immutable which means the record of transactions will be recorded there forever and no one can change it, this would allow banks to be 100% transparent.
Additionally, the decentralization gained by using the blockchain technology would allow customers to be sure their accounts won’t be closed for no reason. Currently, any bank can close any account at any time without giving an explanation, the centralized nature of banks allows them to do it, with the blockchain technology this would not be possible anymore.
Some banks are currently looking into the technology, however, the majority of banks are simply not interested in implementing this new technology as they don’t necessarily want to become 100% transparent.
Banks make a lot of money with the current system and they are not looking to change it but perhaps we don’t need them to. If banks are not going to adapt and the blockchain technology continues to evolve, there is going to be a time when banks will simply become obsolete and die.
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