While the world was grappling with a global financial meltdown after the Lehman Brothers filed for bankruptcy in 2008, the seed had already been sown for a currency/technology that could withstand the vagaries of a financial crisis. People world over have been seeking a financial system that would not be completely in the hands of a central authority, a currency that was truly by the people and for the people. Though it took a decade to completely surface and gain momentum, it has now gained a financial face. It is now growing at a rapid pace and is all set to completely disrupt traditional banking systems.

The question that is doing the rounds today is this – do banks face a threat from this new technology called blockchain? Can currencies such as Bitcoin and Ethereum replace the money we have always handled? The answer is a simple yet vehement – yes! Crypto systems such as Ripple have already taken the place of the standard SWIFT in banks such as Santander in the United Kingdom.

Looking at the benefits that blockchain has to offer, we can no longer sugar coat it and call it a revolution; the entire system of traditional banking faces the threat of complete disruption.

For several decades now, banks have, as trusted third-party intermediaries enabled monetary transactions, facilitated loans and provided credit while maintaining all personal and financial information in centralized silos. Blockchain, on the other hand, promises to cryptographically do all that the banks do, sans an intermediary, sans tedious paperwork using smart contracts, in a completely digital environment, on a public ledger that is composed of individuals, companies and merchants all over the world. One single centralized authority will no longer control the banking industry that is pegged at over US$134 trillion globally.

In fact, every day literally trillions of dollars in multiple currencies run the circuit worldwide every second, passing hands through different intermediaries in a slow and antiquated system running the risk of security and the added strain of high cost of transactions. Now, a technology promises to run the same transactions much faster at far lower costs in a public decentralized ledger, sending payments from peer to peer or business to business directly, writing all the requisite data on a block, negating the need for any legal and compliance paperwork. A simple remittance that takes three days today could be done via Bitcoin in a matter of 30 minutes and a transaction that comes at a cost of a 1.5% could drop down to a 0.5%.

The biggest advantage that Blockchain has to offer is fraud prevention. With the financial power sliding from one centralized source that is more vulnerable to fraud and cyberattacks, our personal and financial data can also remain safe and not fall prey to economic crime. Blockchain achieves this safety net by writing batches of individual transactions on a block that has a link to a previous block and a timestamp.

Developing countries, hitherto just a blip on financial maps, could benefit from blockchain, especially that 40% of the world’s population which does not even have a bank account. BitPesa is one such company that is already facilitating payments across borders in countries such as Uganda and Nigeria, which do not have a good quality payments infrastructure, at one-third the fees that are normally charged by banks. For users as well, storing money is said to be incredibly simple – create a Bitcoin account or Wallet on a smartphone, and accept and store Bitcoin transfers from other users.

Now the obvious question would be whether blockchain is like a Paytm system. In some ways it is. Blockchain technology transfers funds in a Bitcoin form as a crypto currency, whereas Paytm uses cash. That is, however, where the similarity ends. Paytm is again one single company (operational only within India) that runs the transactions in a centralized manner. Bitcoin, on the other hand, is an anonymous public and distributed ledger.

We can draw several analogies to explain the technology that is as per a World Economic Forum report all set to store approximately 10% of the world’s GDP by the year 2025. However, the fact remains that the reduction in fraud and the risk of a centralized authority running operational errors could be quite dramatic. Several big banks including the Bank of England and Credit Suisse are already toying with the advantages that Blockchain has to offer.

As we get deeper into trying to understand Blockchain and its benefits, and mull over names such as Ripple and Ethereum, there is no question that despite the hesitancy and regulatory norms that are preventing its adoption, Blockchain is already maturing at a fast pace. Should worldwide adoption follow suit soon, financial meltdowns will most certainly remain closed doors in the past.







