Does blockchain threaten the traditional banking sector?

Blockchain có đang đe dọa ngân hàng truyền thống?

Blockchain technology has opened new trends in many areas of the economy such as finance, banking, logistics, electronics and telecommunications, accounting and auditing,… Particularly the banking sector, we expect strong impacts from this technology. So, does Blockchain threaten the traditional banking sector? Let’s find out with Ms. Uptalent through the following article.

What is blockchain?
>>> What is Blockchain? All about blockchain technology

2- What is the impact of Blockchain on the banking sector?

The emergence of Blockchain technology has created new development trends in many fields such as electronics and telecommunications, logistics, accounting and auditing, etc. And the banking sector is no exception to this trend.

If in the past the banking sector managed everything on its internal ledger and did not disclose it to customers, and therefore they were forced to trust the bank, then with the emergence of Blockchain, a lot of things will change .

First of all, it can be seen that Blockchain has the ability to significantly improve the global currency market and the entire banking industry by eliminating these middlemen and replacing them with a system that does not require trust and is subject to no restrictions. at the borders and everyone has access to them.

With its smart contract functionality, Blockchain can process transactions faster and at lower cost. At the same time, it also helps increase access to capital, improve security and enforce agreements without having to rely on trust.

Moreover, under the influence of new Blockchain functionalities, interactions between new financial fundamentals can create completely new types of financial services.

You can refer to some of the applications below to see more clearly what impact Blockchain has on the banking sector.

+ Pay and receive money faster via Blockchain

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Normally, sending money through the banking system takes quite a long time, may incur costs for the bank and customers and require additional verification and administration. With the development of new technologies, the banking system has not been able to meet the need for immediate connection.

However, by applying Blockchain technology, payments will be processed faster and at a lower cost. In addition, the service can be provided at any time without being limited by time or barriers while ensuring confidentiality.

+ Call capital directly on the blockchain

When needing to raise capital, companies will need to rely heavily on external financial units such as angel investors, venture capital firms or banks. This process is often long and must go through numerous negotiations on valuation, share splitting,… and many other subjects.

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But with the support of the Blockchain platform, events like Initial Coin Offerings (ICO) and Initial Exchange Offerings (IEO) can help businesses raise capital without the need for banks or institutions financial.

With ICO, companies can sell tokens to recover capital under the assumption that the token will earn profits for investors. If in the past banks earned huge fees by creating conditions for companies to securitize and carry out initial public offerings (IPO), then thanks to Blockchain companies would save these costs.

However, ICOs also have the disadvantage of not imposing formal or specific requirements on backers to deliver on their promises. ICO can help make fundraising more democratic, but it is still unregulated and it can become risky for investors.

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+ Tokenize assets on Blockchain (transform ordinary assets into digital assets)

The buying and selling of securities and other assets such as stocks, bonds, commodities, currencies and derivatives, etc. require coordination between banks, brokers and payment agencies, clearing houses and exchanges. This process must be carried out efficiently and with high precision. The higher the complexity, the higher the processing time and cost.

With Blockchain, the above process will be much simpler. By providing a technology platform to transform all types of assets into digital assets, also known as tokenization. On the other hand, financial transactions are often conducted through online brokers, so asset tokenization makes transactions more convenient for all parties involved.

+ Lend money via blockchain

Until now, the lending sector has been monopolized by banks and credit companies. This gives them an advantage when they can set interest rates fairly high and limit borrowers based on their credit score. The consequence of this is that the economy relies heavily on banks for capital and the borrowing process becomes lengthy and expensive.

Blockchain technology enables a more accessible financial system. There, users can borrow and lend simply, securely, inexpensively and without being subject to arbitrary restrictions from intermediaries.

In other words, Blockchain allows everyone to participate in a new type of lending ecosystem. This is also part of the movement commonly called Defi (Decentralized Finance). Defi’s goal is to bring financial applications to the forefront in Blockchain.

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>>> Advantages and disadvantages of applying blockchain to banking activities

3- The development of Blockchain in the banking sector in Vietnam

In fact, Blockchain technology is growing rapidly and strongly in many fields in Vietnam, from finance to agriculture to accounting.

In the banking sector, BIDV, VietinBank and MB banks have recently successfully issued interbank L/Cs through the Contour network. If traditional L/C transactions need to be carried out on multiple systems, then with Blockchain, the entire transaction will be carried out on a single system with the participation of the exporter, importer and the issuing bank. Notifying bank and operator.

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The application of Blockchain technology makes it possible to carry out the entire L/C business process, from issuance to presentation of the document, on the Contour network. All participating parties can instantly update the transaction status, thereby ensuring the integrity and transparency of information between related parties and saving a large amount of transaction processing costs and time.

Furthermore, VPBank, Vietcombank, etc. have also announced the application of blockchain in financial transactions.

In short, the benefits of Blockchain when applied to the banking sector cannot be denied. The establishment of the Vietnam Blockchain Association in mid-May 2022 has recently raised high expectations from experts regarding its ability to promote the development of this technology in Vietnam.

The application of technology to daily work is a general trend in the economy, especially in sectors that require fast and precise processing, such as the banking sector. Therefore, proactively researching what Blockchain is and how it works and applies to have a reasonable strategy is essential for banks today.

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4- Does Blockchain threaten the banking sector?

“Blockchain technology is helping to reduce transaction costs and change payment methods, which is expected to pose a big threat to the traditional banking industry.”

The above comments were made by experts at the Blockchain 2018 conference organized by Vietstock and FundYourselfNow.

The banking sector will be one of the main industries affected by Blockchain technology. The reason is the potential applications of this technology in the banking sector, such as real-time transactions, asset tokenization, lending, more convenient international business transactions and strict digital agreements.

However, blockchain itself also presents many problems that judges need to focus on to find solutions. For example, the possibility of illegal transactions leading to political instability due to the high level of privacy of Blockchain.

But it appears that the legal and technological barriers related to Blockchain will soon be lifted to create the conditions for organizations and businesses to exploit the potential of this new financial infrastructure.

With a banking and financial system based on transparency, not relying on trust and not limited by border barriers, it should create an open and highly connected economy.

Although currently, Blockchain has not created too many changes or tended to replace positions in the banking sector. However, it is not too early to start researching what Blockchain is and developing a reasonable response strategy. In a world where technology is evolving at a rapid pace, being proactive and willing to absorb new knowledge will help you succeed.

Ms. Uptalent has therefore provided you with the most necessary information on what Blockchain is and its impacts on the banking sector. Then continue to search for other information to always be successful.

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