Banks and Blockchain - What Needs to Work?
Large financial institutions are full of legacy systems and mounds of regulatory risk, making it difficult to implement blockchain, an emerging technology with multiple benefits capable of enhancing industries and companies that heavily rely on transactions and record keeping. Multiple fintech firms are working on tackling this issue, with one company in particular, Digital Asset Holdings LLC, building a comprehensive infrastructure for banks for sharing verified transaction data across a blockchain network, while still following necessary regulations and security protocols.
With the enormous amount of transactions happening daily, data gets duplicated across multiple institutions that each need to do their own reconcilement of shared transactions. Using distributed ledger technologies (DLT) a single permanent record can be made once on a blockchain platform, and then verified by multiple parties as authentic at any time (with appropriate permissions). DLTs are updated in real-time and can work with smart contracts, an automated workflow function that doesn’t need an intermediary and is executed once agreed-upon conditions are met.
Unfortunately, large areas of opportunity still exist for blockchain technology to deliver as expected, working within regulatory guidelines and operating at a faster speed to handle the demanding daily transaction globally. Also, smart contracts need to be thoroughly tested and authenticated to avoid poor experiences and monetary losses from improper execution.
At its core, an effective platform would offer:
> Permissioned & segregated ledgers: only parties with the necessary authority would be able to see or change data on the ledger; with two components, (1) private contract store (detailing contract and transactions for a specific party) and (2) the global synchronization log ,which keeps all entries continuously up to date and avoiding duplication.
> Business logic layer: an added layer running on top of the blockchain in a customized programming language that is specific to a sector / industry / company (instead of being all-purpose), which provides an added security control and necessary compliance.
Overall, a robust blockchain solution built with proper regulatory and security controls would be a welcomed innovation in the world of finance. Financial institutions are in need of process improvement and a replacement of legacy systems - - blockchain is well-positioned to solve this and other issues for banks.
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