Opposition or cooperation?

Banking services are perhaps the most obvious application of blockchain technology . What is a bank like? This is an organization that must perform four basic functions: make transfers, deposit customer funds, issue loans and, in the modern version of banking, offer investment options to customers.

Active participants in the cryptocurrency market indicate that blockchain infrastructure almost natively allows such functionality. Many crypto enthusiasts believe that the blockchain has nothing to do with the existing banking system . In my opinion, everything will be somewhat the opposite: bans will be able to adapt the blockchain to solve their problems and will go the way of evolution, reducing costs and offering users more advanced service.

Bank transfer can be compared with a blockchain transaction – for example, in a bitcoin network. With one important “but”: transactions within the blockchain are irreversible: if the user makes a mistake when entering the address or amount of the transfer, it will not be possible to return the money without the consent of the second party. Because of this feature, blockchain transactions are much more complicated than traditional bank transfers and, rather, narrow down a possible circle of clients for banks.

Three advantages of blockchain

At the same time, the blockchain has something to offer the financial sector. The first is the absolute transparency of transactions — something that any bank aspires to. Each chain of transactions (if, of course, transactions were not passed through the mixer) can be traced from beginning to end and understand the origin of the funds in the account. Now everything is somewhat more complicated: you can’t just take and see information about the account holder, if he is in another bank. It is necessary to send a request to the bank to receive information, wait for the results and repeat the procedure for each new bank in the chain.

THE BLOCKCHAIN WILL ALLOW BANKS TO CREATE LARGE JOINT REGISTRIES WITH WHICH IT WOULD BE POSSIBLE TO TRACK ANY CASH FLOW. THIS MEANS A MORE EFFECTIVE FIGHT AGAINST MONEY LAUNDERING AND TAX EVASION.

The second useful feature of the blockchain is automatic clearing. This concept means the implementation of settlements between banks at the end of a certain period. For example, if during the day two banks made a lot of mutual transfers, by the end of one bank transfers the other to the final – “net” – amount. Now clearing is often given to the management of third-party organizations – clearing houses, which undertake to conduct it fairly. In the blockchain, the guarantor of fairness is the network itself and automated transaction execution processes.

WHEN USING THE BLOCKCHAIN, BANKS CAN REDUCE THEIR COSTS BY ELIMINATING INTERMEDIARIES AND CARRY OUT ALL MUTUAL SETTLEMENTS IN REAL TIME.

Such an association can also contribute to the emergence of uniform (international) standards for managing accounts and working with money transfers.

The third advantage of the blockchain is the ability to automate payments, including international transfers and payments. The most striking example today is the Ripple protocol , which allows not only to make transfers without depending on the location of the sender and recipient, but also to quickly convert assets (for example, rubles into dollars, euros, yen, etc.). Now, banks have to keep currency for conversion in stock and collect information about exchange rates from counterparties. Existing automation solutions do not help to go beyond recruiting the most popular assets.

The peculiarity of Ripple lies in the fact that chains can be arbitrarily long, contain almost any assets, include all possible counterparties. And most importantly – the most profitable chain is built automatically in a few seconds. This can greatly simplify the life of not only banks, but also ordinary users. The universality of blockchain transactions and automation can significantly reduce the impact of the human factor on the result, as well as reduce costs by eliminating manual labor.

Credits and investments

If we talk about lending and investment , everything is still more interesting. In both cases, the scoring of the recipient of funds (risk assessment) becomes the most urgent problem for the bank . To do this, you need to know the relevant information about the borrower: his credit history, financial situation, degree of financial stability for organizations, etc.

Today, banks are forced to exchange such data either in pairs, or through a credit bureau – a separate organization that stores and processes information about citizens’ credit histories. The blockchain is able to eliminate intermediaries and save on costs due to the general automated database of the quality of borrowers.

IDEALLY, THE FUTURE OF BANKS WILL BE ABLE TO SEE KEY INFORMATION ABOUT THE QUALITY OF THE BORROWER AND ITS FUNDS IN ALL FINANCIAL STRUCTURES, DEBT BURDEN, THE AMOUNT AND FREQUENCY OF DELINQUENCIES AND OTHER CHARACTERISTICS. ALL THIS WILL CREATE A HUGE DATABASE WITH INFORMATION ABOUT CUSTOMER BEHAVIOR, WHICH CAN BE USED TO BUILD MORE ACCURATE SCORING MODELS.

When offering investment products to clients, banks can enter into a single system of asset providers, which theoretically could allow any user to access any asset on the planet.

Of course, this raises an important question – maintaining the confidentiality of user data. However, it is easily solved: the most “advanced” solutions on the blockchain now allow you to separate public and private data. The first ones are broadcast to everyone, the second ones are encrypted and provided only in case of legal requirements.

Smart contracts for banks

We should also mention the smart contracts – they allow you to create any pool of information in any form. This means that when performing banking operations on the client or bank side, the relevant documentation can be generated in the format required by the participants of the process. Such solutions can significantly increase the efficiency of labor, saving bank employees from paper work.

A simple example: in order to open a deposit to a client, the participation of a cashier and a controlling manager is necessary. Next, the client must sign a contract, which according to the rules must be sent for confirmation to various services (at least the legal department). Also, the bank must reflect the cash on its balance sheet, recalculate financial statements and various financial indicators (capital adequacy, the required amount of deposit security). Such chains vary from bank to bank and in practice turn out to be much more complex.

THE INTRODUCTION OF SMART CONTRACTS WILL ALLOW YOU TO AUTOMATICALLY FORM A CONTRACT, SEND IT TO THE CLIENT FOR SIGNATURE, CHECK FOR CORRECTNESS, SEND IT TO RELEVANT DEPARTMENTS, ENTER INFORMATION INTO BANK STATEMENTS AND RECALCULATE INDICATORS – IF YOU WANT, YOU CAN DO ALL THIS IN REAL TIME. H ETRUDNO IMAGINE HOW MANY RESOURCES WILL SAVE SUCH AUTOMATION.

To build the appropriate infrastructure to solve these and other problems, we create Enecuum. The priority of any platform today is the implementation of smart contracts that automate virtually any processes at any level, as well as create registries of any complexity, degree of security and diversification of data (separation of private and private information). The company’s developments will allow creating complex sidechains from scratch, including for the financial sector. At the same time, our main desire is to make such functionality available for any users, even for those who do not have significant experience in development. We hope to soon present the blockchain community a few successful cases of creating complex and effective solutions with a number of large organizations.