Blockchain Development and Consulting for Banks

Blockchain technology has been utilized in the banking industry for quite some time. The concept was first envisioned on paper – the cashbook, bound and numbered from the first to the last page, with a seal and signature, from which no page could be torn and the previous day’s cash balance could not be falsified, was the primitive form of a blockchain. While the digital iteration appears more intriguing.

Banks will transition to blockchain rather quickly. As fintech evolves, banks will not disappear, but their workforce will be significantly reduced. In the next 50 years, the largest bank will employ merely 50 people. The rest will be replaced by automated bots, processes, and smart contracts. The traditional banker profession is likely a dying one, as they will become IT professionals, developers, and eventually find their place in another segment.

Regarding blockchain, three key distinctive aspects must be highlighted. Firstly, it is a strict, tamper-proof ledger. Though attempts have been made, as seen in the case of Bitcoin Cash branches and their eventual outcomes. Nonetheless, the ledger remains unified, chronological, linear, and practically immune to any corrections. The entire ledger resides in peer-to-peer networks, with an identical copy everywhere. If a branch attempts to modify the ledger, the system firmly reacts and removes that branch. One cannot access a server and make changes. Each computer is a part of the unified system.

Chronology plays a vital role. Everything is signed with a hash protocol that consists of two parts. One part is produced by the system itself, and the second part is inherited from the previous block. This is why the links in this strict chain can never change places. The most important feature and value of the technology is that it is impossible to change the information in the historical context.

Another important point is the disappearance of the hierarchy. Each of us is a part of the whole. Peer-to-peer networks are a replacement for hierarchical networks, where there is a server machine and client machines. On the one hand, this is good – enter the system, the entry is free. But follow the rules set by others, a single ecosystem. If you fall under these rules, you work, if not, the system will survive you, not giving you the opportunity to work and earn. The banking system lives precisely by such laws. And everything else is considered unfair competition.

And finally, the most important thing is consensus. Now there are two opposing lines of Proof-of-Work and Proof-of-Stake (PoW and PoS) – the two most famous consensus algorithms in cryptocurrencies, offering different structural mechanisms for proving the work done). And it is not clear which technology will win. Probably, neither the first nor the second will win. Because their algorithms are over-regulated, and there is not enough computing power. Therefore, at the present time, it does not matter how the relationship between these systems will develop.

How does this work in a bank? Blockchain in a bank starts with a secure hyperlink for downloading paid content. If you paid for the content from your IP address, only you on that IP address will be able to download it. Copy the link to another computer – the content will be unavailable.

Smart contracts are the second way blockchain is used in a bank. There are different blockchain chains. For example, the payment chain is the regular bitcoin. Everyone knows how bitcoin works – how money is transferred from one person to another, how these transactions are protected and why they cannot be forged.

Let’s imagine that in parallel, another chain is created – this is the title transactions, transactions for the alienation of property rights. This is exactly the same asset that will be smoothly transferred from one owner to another. And the electronic notary in the form of a node, a person or a robot, will transfer the ownership of an apartment from one person to another.

How to combine the movement of money on the blockchain with the movement of apartments on the second blockchain? Only through smart contracts. Smart contracts are the third branch that records transactions. In the same chronology and sequence, the only difference is that a smart contract is an algorithm of actions in the first chain by branching and in the second chain.

Sometimes there are situations where one smart contract is subordinate to another and launches its function before it comes into force itself. Therefore, there are simple smart contracts for transferring money from one person to another, and there are complex smart contracts when against the transfer of money, the title is transferred and a third smart contract is launched, according to which another event occurs.

In the future, mortgages will look like this: A smart contract is launched – a loan. The loan defines the client’s asset purchase. The bank transfers funds to the client’s ID via the blockchain. At the same time, the funds are transferred from the borrower to the seller of the apartment. After that, the ownership of the apartment is transferred from the seller to the bank through the title chain. Then, 120 times according to the smart contract, the person who received the loan will clearly repay this loan. After the 120th cycle, the title will be transferred from the bank to the former borrower, the current owner of this apartment. At this point, the smart contract will end.

The bank will play a minimal role. But in this scheme, it will not be possible to deceive, delay, change the title to another, register children, or lose the apartment if this contract is not repaid.

Why is this technology not developing fast enough? There is one important problem with blockchain – its capabilities are severely limited. It can only perform a few dozen operations per second, which is provided by large machines with 30,000-50,000 graphics cards («farms»). These are the progenitors of tomorrow’s powerful nano-cryptoprocessor, which does not yet exist in the world.

Once it appears, all farms will be replaced with very small devices. Just as the large vacuum tube machines that used to perform very simple operations have now been reduced to smartphones and accelerated many times over, the cryptoprocessor will accelerate computing power by tens, hundreds, and thousands of times. That’s when the processes of blockchainization in the world will start to develop very rapidly, both on their own and between themselves.

Smart contracts will conquer the blockchain. They will combine various chains and turn them into a single whole. Smart contracts will develop simultaneously in different branches and transfer various assets, titles, and processes from one participant to another. And here not only people, but the Internet of Things, will be involved. That’s when the breakthrough will happen.