As the world continues to evolve, so does the need for businesses to develop or supplement everyday tasks, procedures, and mechanisms technologically. This is the same for all institutions to include financial such as a bank, broker, dealer, casino or card club (U.S. Treasure, n.d.). In order to keep pace with the dynamic world around them, several of these financial institutions are using blockchain technologies to complete transactions more effectively and efficiently. In a nutshell, blockchain technology uses a ledger, also known as a secure list of transactions, to distribute to a network of participants for money transfers, improve remittances, and minimize exposure to cryptocurrency (Pritchard, 2019). Additionally, blockchain technology serves to bring lower costs, faster execution of transactions, improved transparency, and auditability of operationsâ€ (SWIFT Institute, 2018).
- Analysis of Benefits of Blockchain Technologies
There are several benefits of blockchain technologies to reduce risk. One of the most important is trust. Due to the framework that blockchain technology uses, all who use it can be absolutely certain that transactions are complete not only securely but correctly as the possibility of hacking is exponentially more difficult (Pritchard, 2019). Another major benefit of blockchain technology is the ability to save time. This can be from both the perspective of the financial institution as well as the customer. For example, an individual wouldnâ€™t even have to leave their house to complete a money transfer. Therefore, saving time for the customer. Similarly, a bank would be able to have confirmation of successful funds in minutes to seconds rather than waiting days to weeks for confirmation of insufficient funds via a bounced check. Finally and arguably most important, is the benefit of ownership. Ledgers are nearly impossible to tamper as one would have to change every ledger from all broadcasted participants (Pritchard, 2019). Additionally, all liens and other events are documented in the ledger, thereby tracking ownership at every moment. Due to this, it can be used to uncover or detect money laundering and other crime related financial transactions similar to those which were discovered at Island Banking Services.
As now it may seem apparent why a financial institution would want to implement this type of technology, there are several factors that key level decision makers must take into account before implementing any type of technology, especially blockchain. Firstly, an assessment of the financial institutionâ€™s needs should take place as this will lessen mistakes regarding complexity and expansion (Boxho, 2017). Blockchain technology requires synchronization of computers from distributed systems, thereby increasing costs and more time for planning. Additionally, this will further allow the ability to determine appropriate risk sharing as well.
Secondly, the appropriate type of blockchain technology must be identified, such as private , permissioned, or public. This is extremely important as dependencies such as speed, control, continuity, and accessibility must be decided to determine best fit. For example, permissioned blockchains share data to stakeholders without divulging information to the public, while public blockchains are accessible to anyone who downloads that particular node (â€œBlockchainsâ€, 2020). On the other hand, private blockchains are managed by a central authority which can decline or reverse transactions (â€œBlockchainsâ€, 2020). Identification will also allow an organization to determine itâ€™s appropriate risk appetite as well as risk tolerance, important concepts of risk management
Thirdly, I recommend the financial institution utilize and model industry standards in order to regulate both security and integrity of data. This will serve to reduce risk greatly for all stakeholders by ensuring appropriate risk retention, and avoidance is considered. (Boxho, 2017).
One of the most important initiatives a business today should implement is to learn and keep pace with current technological evolutions. For financial institutions, this can include blockchain technologies which serve to provide a wealth of benefits such as high security, decentralized control and automation (Simplillearn, 2019). However, it is important that institutions understand there are several factors that must be considered in order to ensure effectiveness and efficiency. These include assessment of a financial institutions’ needs, determining the best type of block chain utilization as well as implementation of industry standards. Blockchain technology is the future but to ensure the organization maintains a place at the table, risk modification, retention, avoidance, and sharing should be at the forefront first.
“Blockchains.” (2020). Encyclopedia of Emerging Industries. Farmington Hills, MI: Gale, 2018. Business Insights: Essentials. Retrieved from http://bi.gale.com.ezproxy.umuc.edu/essentials/article/GALE%7CAENWZD457979910/5b1c2f443f277eda128ffe4f72915e26?u=umd_umuc
Boxho, A. (2017). Recommendations on implementing a blockchain? Retrieved from https://medium.com/takeo-engineering/recommendations-on-implementing-a-blockchain-e53610b7b6d4
Pritchard, J. (2019). How Blockchain Is Changing Banking and Financial Services. Retrieved from https://www.thebalance.com/how-blockchain-is-changing-banking-and-financial-services-4174354
Simplillearn. (2019). What is Blockchain Technology and How Does It Work. Retrieved from https://www.simplilearn.com/what-is-blockchain-technology-and-how-does-it-work-article
Swift Institute. (2018). How the Blockchain Will Impact the Financial Sector. Retrieved from https://knowledge.wharton.upenn.edu/article/blockchain-will-impact-financial-sector/
U.S. Treasury. FInancial Institution Definition. Retrieved from https://www.fincen.gov/financial-institution-definition