What Blockchain Means for Banking in 2020
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When the 2007 financial crisis brought a reckoning to many big banks and plunged the global economy, it was clear that the next iteration of finance was poised to look a lot different than the previous one.

According to the FDIC, more than 450 American banks closed between 2007 and 2012, including the once-revered Lehman Brothers. Other prominent financial institutions like Bear Stearns, Merrill Lynch, Fannie Mae, and Freddie Mac were sold off for pennies on the dollar. This reality reverberated around the world, bringing seismic cultural and financial shifts to virtually every country.

At the same time, a new, borderless financial system was emerging online. On October 31, 2008, Satoshi Nakamoto released the now-infamous white paper for Bitcoin, a peer-to-peer electronic cash system that, in many ways, felt like a retort to the large financial institutions that ultimately punished ordinary people with their greed and self-interest. 00 per token, brought it into direct competition with the existing financial ecosystem.

Many financial institutions were skeptical of these developments. JP Morgan Chase CEO Jamie Dimon famously referred to Bitcoin as a “fraud,” and other leaders up and down Wall Street’s c-suite offices similarly expressed their incredulity.

However, in today’s digital-first environment, a more streamlined, technological approach to banking was inevitable, and the currency’s underlying technology, the blockchain, was poised to play a prominent role in that transition. As The New York Times reported in 2018, “The bitcoin bubble may ultimately turn out to be a distraction from the true significance of the blockchain.”

The Fintech Revolution

In reality, Bitcoin, or any other cryptocurrency for that matter, wouldn’t serve as a replacement for other financial systems. Rather, blockchain technology would play a role in a broader shift that is technology-driven and efficiency-oriented. The fintech revolution, which today represents an industry worth hundreds of billions of dollars, includes novel technologies like the blockchain, but also encompasses shifts toward online and mobile banking.

Some institutions are turning to third-party platforms to provide this technology. Several big tech companies, including IBM and Microsoft, have enterprise blockchain products, and others are turning to the startup realm, a particularly apropos approach for the fintech movement. Platforms like XAR, which offer an out-of-the-box blockchain product for decentralized finance, allow banks to enter the space while eschewing the development and implementation costs that accompany blockchain adoption. The platform brings rapid settlement times and high transactional throughput for decentralized financial services that allow banks to capitalize on both the ethos and capabilities and decentralized networks.

What Blockchain Means for Banking in 2020
XAR Network is aiming to change the way banks understand DeFi Image Credit: https://xar.network/

While XAR works with banks, there are a plethora of DeFi platforms emerging on popular networks that offer their own take on the sector, providing blockchain-based products for modern banking companies and customers.

Meanwhile, other institutions are taking matters into their own hands, developing their own blockchains to power the next generation of digital banking. In May 2019, a dozen banks invested $50 million in blockchain technology used for cross-bank cash settlements. Ironically, some banks, like JP Morgan Chase, which sardonically mocked the technology upon its introduction, have sizable blockchain operations. For instance, JP Morgan’s Blockchain Center for Excellence is pursuing decentralized technology at every level of the company.

In total, 90% of financial institutions are pursuing blockchain technology as part of a broad trend toward more technological, transparent banking.

The Semi-Decentralized Approach

Of course, many customers are likely left wondering about the efficacy of this new technology and the regulatory landscape that will ensure that big banks play by the rules in ways that they didn’t before the 2007 collapse.

In short, consumers rightly want regulation, and those desires extend to their adoption of blockchain technology to facilitate the next generation of financial products. While the blockchain is famous for its open, immutable records, there is always a concern that big banks developing their own blockchains will create a workaround to this feature, relying on the perception of blockchain’s integrity but gaming the system for their own gain.

Therefore, third-party applications have a certain appeal, giving banks access to blockchain technology without handing over the proverbial keys to the castle.

The last financial crisis paved the way for blockchain technology to make this less likely, but the ways this technology is implemented will go a long way in establishing the long-term integrity of an industry that often lacks this characteristic.

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