How Can Banking Institutions Be Decentralized?
Decentralized is the term that comes into existence because of cryptocurrency, which is famous for its name – Decentralized Finance (DeFi) or Decentralization banking. Decentralization banking is also referred to as Crypto banking.
Banking institutions should consider Crypto banks as partners rather than competitors.
Decentralized Finance (DeFi) helps solve 5 problems related to traditional finance or banking institutions: limited access, financial opacity, centralized control, inefficiency, and interoperability.
Moreover, eth nodes can help banking institutions to connect with blockchain technology.
Let’s further understand – How can banking institutions be decentralized?
Crypto banks are decentralized platforms that provide services the same as centralized banks do, like credit scoring and lending services. Still, Crypto banks eliminate the requirements of intermediaries required in the centralized banks. The Crypto banking ecosystem includes smart contracts, peer-to-peer (p2p) transactions, and services by replacing structured financial data and manually approving loans by the people.
Most issues of the banking institutions can be solved online as the banks can take shape in the form of computers or mobile phones, and the physical money will be in the form of cryptocurrencies.
Decentralized Exchanges (DEX) is a concept that uses p2p transactions between two users. The lending process, which seems complicated, can be automated using DEX, and the transactions can be made faster than DEX.
5 Technologies Supports Crypto Banking –
1. Peer-to-Peer (P2P) –
Peer-to-Peer (P2P) happens between 2 participants, borrowers and lenders, and those 2 participants are private users, not people from banking institutions.
2. Blockchain –
All transactions happen on a blockchain that is transparent and a digital ledger. With the help of an AI algorithm, the right matches are done between the borrower and lender.
3. Machine Learning –
Machine Learning helps automate the lending process technologies.
4. Cryptocurrencies –
Cryptocurrency/ Fiat can be used in decentralized banking. But with the help of cryptocurrencies, decentralized banking works smoothly and can track asset transactions.
5. Smart Contracts –
Smart Contracts can be used for various reasons between the borrower and lender of Crypto banking, such as binding contracts between 2 private users, converting currencies, and automating the transfer of funds.
Use of Native Cryptocurrency –
Native Cryptocurrency under the Crypto banking system helps to create a global payment system.
Datarius is one of the p2p crypto banks which holds its native token named DTRC, which is used for all transactions around the globe. Moreover, tokens can be easily transferable with fiat and other cryptocurrencies.
Machine Learning and Artificial Intelligence in Decentralized Banking –
Machine Learning and Artificial Intelligence (AI) contribute to decentralized banking in numerous ways, such as –
1. Forecasting –
With the help of AI, lenders will understand the involvement of risk with the borrowers. Based on the borrowers’ data, the lenders can predict the payment on a futuristic basis.
2. Fighting against Frauds –
With automated AI systems, finding unreliable users and tracking suspicious transactions get easier; thus, with AI’s help, fraudsters are eliminated from the systems.
3. Scoring –
The data related to risk assessment comes from the borrower when granting a loan.
Benefits of Decentralized Banking –
According to a report, 2.5 billion adults around the globe don’t have access to banks.
Decentralized banking supports the mobile infrastructure, and one will need only a wallet to save their cryptocurrencies; with the help of Decentralized Applications (DApps), people can get the opportunities to take loans. Blockchain node infrastructure like Zeeve can help with Decentralized Applications (DApps). Decentralized banks can reach the places where the banking institutions or centralized banks cannot reach.
3 Examples of blockchain-based solutions for banks –
- Ripple is a blockchain service provider known for its Cryptocurrency XRP working for clearance and settlement, a blockchain-based solution for banks.
- BitPesa is a blockchain technology focused on developing countries like Kenya, Uganda, and Nigeria, and it has led to a 90% reduction in transfer fees.
- SALT Lending, a cash lending platform uses blockchain technology. The loans are approved based and not on the credit score of the borrower. The user needs to purchase the platform cryptocurrency named SALT. And the user of the platform can borrow money against any cryptocurrency.