Blockchain could help banks finally overcome a problem that has been troubling them for years. Banks are responsible for verifying their customer‘s identities. These rules exist in nearly every country in the world and aim to help prevent fraud and money laundering.
The cryptographic protection offered by blockchain, which requires a secure key to access, would ensure that all parties involved in a transaction would be clearly known to the ledger. Since identification is required by law, this feature is essential to all financial transactions.
A number of companies are already working tirelessly to try to develop blockchain technologies that will help banks and other financial institutions with the problem of establishing identity. These companies include Cambridge Blockchain and R3.
While blockchain has many potentially transformative use cases in the financial services sector, governments and regulators need to adopt a pragmatic approach to give it a chance to realize its potential. Given the decentralized nature of blockchain, it poses a challenge to central banks and governments.
No government can control blockchain bitcoin, for example, which is something that threatens their authority. Read more about this in “Blockchain and associated legal issues for emerging markets”.
At the time of writing, countries around the world are trying to work out a pragmatic regulatory framework for blockchain and associated businesses.
In the US, for example, this framework is evolving rapidly. Regulators in the US are increasingly providing clarity through regulatory frameworks regarding the use of cryptocurrencies, whereas they are much further behind when it comes to frameworks for blockchain.
On the other hand, several smaller countries including Malta, Belarus, and Gibraltar have already come up with regulatory frameworks for cryptocurrency exchange and blockchain-based businesses. Read “Blockchain and the law: Regulations around the world” for more information.
It is important to remember that you need to study the blockchain-related regulations in the country of jurisdiction of your business so that you can comply with them.
Failure to do so could result in prosecution.
Plan Well When You Build Blockchain Financial Services Applications
How can you successfully build and implement blockchain financial services applications?
Answer: You need to plan thoroughly. Take the following steps:
Choose between a public and private blockchain. You will only want to allow only trusted parties to join your network, moreover, you will need to implement access control to protect sensitive data. You also need to implement scalability and the best performance, therefore, public blockchains might not work for you. As we outlined in “Public vs private (permissioned) blockchain comparison”, you will likely need to use an enterprise blockchain.
Use an enterprise blockchain framework that meets your requirements. We recommend that you use Hyperledger Fabric since its highly matured.
Find an appropriate hosting provider for your blockchain network. Our guide “Best blockchain network hosts – Stabila Blockchain – Amazon etc.” can help you.
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