In recent decades, globalization has transformed the world, boosting economic growth and connecting developed and developing countries. Yet, the banking industry, like many other industries, continues to go through turmoil, and the pressure’s building up on all sides. The core challenge for banks, as for all organizations is to create long-term sustainable success. Let us look at some most commonly faced issues with the current banking system:
High Transaction Fees
Sending money to someone could charge you around 2% of the amount that you are sending to, which may cause a huge amount of loss. For instance;
Person A is transferring $100 to Person B but it must pass through a trusted third party (bank or financial service company) before Person B can receive it. A transaction fee of 2% is deducted from the amount transferred, hence Person B will only get $98 at the end of the transaction. Some may say this is not a big amount but let us imagine if you were transferring $100,000 instead of $100, then the transaction fees will increase to $2,000 which is a big amount.
Double spending is a risk that a digital currency can be spent twice. With digital currency, there is a risk that the holder could make a copy of the digital token and sent it to a merchant or another party while retaining the original.
Person A has only $500 in his account. He initiates two transactions simultaneously to Person B for $400 and Person C for $500. Normally, this transaction would not pass as he does not have sufficient balance in his account. However, by duplicating and falsifying the digital token associated with every digital transaction, he can complete these transactions without the needed balance.
Net Frauds and Account Hacking
With so many users jump to internet banking, it is no wonder that hackers are on the hunt for login details. For example, in the UK, concerns are growing among consumers over pre-populated debit or credit card details that many people use to make online purchases. Almost 40% of people had money stolen from their bank or credit card account in 2017, at a cost of around £840 each, according to shocking new figures as reported by Independent News.
Financial Crisis and Crashes
In today’s turbulent economy, anything could happen which may lead to financial crisis and crashes. Let’s step back to the financial crisis 2007-2008, also known as the global financial crisis is considered by most economists to have been the most serious financial crisis since the Great Depression of 1930. It is when banks and investment organizations had borrowed heavily and lent it as subprime mortgages to people who could not afford to pay back the loans. This, in turn, leads to one of the greatest financial crises ever happened and was estimated to have caused losses nearly to $11 Trillion worldwide. Not to mention how often our banks and financial services companies crash due to internal frauds.
How does Blockchain solve these issues?
The Blockchain system follows a decentralized approach when compared to banks and financial organisations which are controlled and governed by Central or Federal Authorities. Here, everyone who is part of the system becomes equally responsible for the growth and downfall of the system. Rather than one single entity holding the power, everyone who is involved with the system holds some power.
The ledger which holds the details of all transactions which happen on the Blockchain is open and completely accessible to everyone who is associated with the system. Once you join the Blockchain network, then you can download the complete list of the transaction since its initiation. Even though the complete ledger is publicly accessible, the details of the people involved in the transactions remain completely anonymous.
Verification of Every Individual Transaction
Every single transaction is verified by cross-checking the ledger and the validation signal of the transaction is sent after a few minutes. Through the usage of several complex encryption and hashing algorithm, the issue of double-spending is eliminated.
Low or No Transaction Fees
The transaction fees are usually not applicable but certain variants of Blockchain do implement certain minimal transactions fees. These transaction fees are however quite less when compared to the fees implied by banks and other financial organisations. If a transaction needs to be completed on priority, then an additional transaction fee can be added by the user so as to have the transaction verified on priority.
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A keen researcher who believes in enriching her knowledge. For Shuhada, the crypto world intrigues her sense and offers plenty of high delicious 'crypto cuisines'.