Banking on Blockchain

Prasanna Lohar gives us the lowdown on Blockchain, its use cases, benefits, concerns & risks.

Photo Credit : GECKO Governance,


In recent times we have seen Banks, Regulators & Fintech companies working together in collaboration for the benefit of customers and the industry, as a result, whole banking is at disruption.

We have seen adoption of Financial Inclusion, Debit / Credit Cards, Wallets , Social media, Mobile Banking or UPI on Smartphone or UIDAI’s Aadhaar adoption in many Systems. So we might think that banking is being on fast-track by Regulator & Government since last few years. There is another side for this wave. That is available technology & enhancements on right time have been catalyst recent days.

Recently we are experiencing many Technology examples e.g. Internet of Things, Artificial Intelligence, Machine Learning, Analytics, Mobility, Cloud or Blockchain etc. For banks, the Blockchain has the potential to become a technology model for a low-cost and transparent transaction infrastructure. (Blockchain is the underlying DNA of cryptocurrency Bitcoin. In simple terms, the Blockchain is a decentralized ownership record or distributed public ledger of all transactions, which is mathematically signed to prevent unauthorized tampering.)


  • Blockchain is a database. Transactions get stored in the form of blocks and the blocks form a chain to form Block-chain.
  • The Blockchain is a technology framework for decentralizing a number of entities that used to require one or more middlemen and involve significant opacity.
  • The system uses a public and transparent ledger of all activity that has taken place within it, and that ledger is simultaneously the currency as well as the record of how the currency has been created and moved among nodes.
  • The integrity of the system is handled through the use of public-key cryptography and continuous, computationally intense validation by nodes in the system
  • A Blockchain Transaction is a transaction record in Blockchain. Just like you store a record in MySQL database. One must know what a transaction is if they are familiar with Database. It’s exactly the same.

Blockchain use cases

The sharing economy - With companies like Uber and AirBnB flourishing, the sharing economy is already a proven success. Currently, however, users who want to hail a ride-sharing service have to rely on an intermediary like Uber. By enabling peer-to-peer payments, the Blockchain opens the door to direct interaction between parties — a truly decentralized sharing economy results.

Crowdfunding - Crowdfunding initiatives like Kickstarter and Gofundme are doing the advance work for the emerging peer-to-peer economy. The popularity of these sites suggests people want to have a direct say in product development. BlockChain take this interest to the next level, potentially creating crowd-sourced venture capital funds.

Governance - By making the results fully transparent and publicly accessible, distributed database technology could bring full transparency to elections or any other kind of poll taking. Ethereum-based smart contracts help to automate the process.

Supply chain auditing - Consumers increasingly want to know that the ethical claims companies make about their products are real. Distributed ledgers provide an easy way to certify that the backstories of the things we buy are genuine. Transparency comes with Blockchain-based timestamping of a date and location — on ethical diamonds, for instance — that corresponds to a product number.

Smart Contracts - Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met.

Smart Assets - Recording the transacting of anything with a clear date and time stamp becomes even more compelling when we apply this to assets, especially assets in trade finance.

Clearing and Settlement - In the shorter term, clearing and settlement is proving to be the most active use case area for Blockchain in banking, mainly because it gives a short-term win with real cost savings.

Payments - SWIFT is developing projects around Blockchain for payments transactions, as are many of the banks, with R3 being the lead player in such activities.

File storage - Decentralizing file storage on the internet brings clear benefits. Distributing data throughout the network protects files from getting hacked or lost.

Protection of intellectual property - As is well known, digital information can be infinitely reproduced — and distributed widely thanks to the internet. This has given web users globally a goldmine of free content. However, copyright holders have not been so lucky, losing control over their intellectual property and suffering financially as a consequence. Smart contracts can protect copyright and automate the sale of creative works online, eliminating the risk of file copying and redistribution.

Identity management - There is a definite need for better identity management on the web. The ability to verify your identity is the lynchpin of financial transactions that happen online. However, remedies for the security risks that come with web commerce are imperfect at best. Distributed ledgers offer enhanced methods for proving who you are, along with the possibility to digitize personal documents. Having a secure identity will also be important for online interactions — for instance, in the sharing economy. A good reputation, after all, is the most important condition for conducting transactions online.

AML and KYC - Anti-money laundering (AML) and know your customer (KYC) practices have a strong potential for being adapted to the Blockchain. Currently, financial institutions must perform a labour intensive multi-step process for each new customer. KYC costs could be reduced through cross-institution client verification, and at the same time increase monitoring and analysis effectiveness.

Data management
- Today, in exchange for their personal data people can use social media platforms like Facebook for free. In future, users will have the ability to manage and sell the data their online activity generates. Because it can be easily distributed in small fractional amounts, Bitcoin — or something like it — will most likely be the currency that gets used for this type of transaction.

Land title registration - As Publicly-accessible ledgers, blockchains can make all kinds of record-keeping more efficient. Property titles are a case in point. They tend to be susceptible to fraud, as well as costly and labour intensive to administer.

Stock trading - The potential for added efficiency in share settlement makes a strong use case for blockchains in stock trading. When executed peer-to-peer, trade confirmations become almost instantaneous (as opposed to taking three days for clearance). Potentially, this means intermediaries — such as the clearing house, auditors and custodians — get removed from the process. 


It’s available -  Blockchain technology is a global database (distributed ledger) running on millions of devices and available to anyone.

It’s reliable
- Anything – money, title, deeds, music, art….. – can be securely transferred and stored using Blockchain technology.

It's Trusted
- Trust is not maintained by single and central bodies, but by the network, collaboration and complex algorithms.

It’s Secure - Despite all of the fear, uncertainty and doubt that surrounds it, Bitcoin today is one of the most heavily tested and secured open source technologies in the world. Bitcoin provides a built-in bounty for anybody that can find a bug, and so thousands of people have tried. Lots of things were discovered and fixed in the early years, and the core technology behind Bitcoin is now as provably secure as it is possible for anything to be.

It's Cost Effective
- Blockchain technology enables to move and store value in a simpler, fast and cheaper way. 

Concerns & Risks

Similar to any technological innovation, Blockchain comes with a set of risks that must be considered:

Privacy - Balancing the confidentiality and traceability of trading activity.

- Establishing standard tools or administration interfaces.

- Redefining the “new normal” threat matrix for shared ledgers among large banks.

Interoperability / Integration with existing production environment systems - One of the biggest risks for deploying Blockchain systems in a live production environment is the fact it doesn’t really work with other existing systems.

Speed / Scalability
- One of the biggest problems currently preventing adoption of Blockchain systems is the inherent inability to handle large volumes of transactions and system activity. The Blockchain ecosystem is much like the early internet in the mid 90’s. They’re only starting to demonstrate basic capabilities, that don’t scale and enable production grade processing. You wouldn’t introduce a 1990’s grade computer into the modern production environment because it would become a bottleneck and reduce your overall system performance. This is the same with current Blockchain systems.

System integrity / compatibility
- Most modern systems operate on the application layer, with various layers (backend systems) running between the user and the underlying system. Blockchain systems operate like the early web browser, exposing much of the raw pipping and underlying protocol to the end user. The technical concepts behind blockchains are fairly advanced (cryptography) and there’s limited knowledge / expertise, thus there are lots of experiments with the technology, to explore and better understand all the strengths / weaknesses of the system.

The unabridged version of this article is published at:


The writer is Head of Technology (Digital Banking) at DCB Bank Ltd.

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