Blockchains vs. banks
5 min reading
Blockchains or Banks, that’s the question. Let’s discover the similarities and differences that exist between these.
Blockchains vs. banks
Every day you keep hearing of the existence of decentralized finance which outsmarts the banking systems in so many aspects. Yet as a human being one will always want to remain with the system he has been used to just because the devil you know is better than the angel you do not know. This is quite understandable.
But you will however agree with me that trying out new things may never be bad after all. However, if you are a newbie you may have heard of the existence of blockchains but you have not really known or understood the difference that exists between them. This article will talk about the difference between blockchains and banks.
The difference between blockchain and banks
Blockchain technology is considered one of the most revolutionary technologies in the new era. The banking system is characterized by central banks having some degree of control over commercial banks. The banking system has been around for many years. In order to establish the difference between blockchain and the banking system, it is important to learn the advantages of both systems. You might be interested to know that a blockchain is a type of database that collects information and groups it into blocks.
The blocks have a certain amount of memory, which, once filled, is added to previously filled blocks, forming a chain of data that we call “a blockchain”. Each new piece of information that follows the recently added block is collected into a new block to be also added to the chain. The advantage of this method is that it cannot be hacked. When a block is complete, it is put into the chain and it becomes a part of the chronological sequence. Each block once added to the chain, receives an exact timestamp.
The nature of a centralized banking system makes it vulnerable to hacking. The centralization of the banking system also increases the likelihood of adverse economic conditions. Nevertheless, the established differences between banks and blockchains are laid out below.First and foremost, blockchain is a decentralized database that does not require a third party to conduct transactions. Whereas with banks, all transactions are performed by third parties that include governments as well as other financial institutions.
Blockchain is a transparent system. It maintains the trust of its users through its transparency. It is transparent in the sense that every transaction is visible to all participants, with no ability to conceal the information. Meanwhile, bank ledgers are closed, completely private, and isolated. The public only has access to a certain portion of the documents stored in the banks.
While blockchain is available 24/7/365, banks operate over a certain time and for a certain number of days. For example, bitcoin transactions can take anywhere from fifteen minutes to an hour depending on network congestion, unlike banks where the transaction can take about 24 hours and especially when the network is overloaded.
Since it is the participants who do all the blockchain work, there is no need for third parties to intervene. As a result, costs are reduced and the process of exchanging assets is much more cost-effective than trading with banks. In fact, users are able to determine how much they are willing to pay. This is interesting because it creates an open market or, if a user sets their fee at an unfavorable price, their transaction might not be processed.
Blockchain is error-resistant. It is a much more secure way to store information because of its resistance to data being changed, modified, or even deleted. Once information is stored, it cannot be lost or deleted, and the chain keeps track of everything that follows it. All records are irreversible. Whereas bank ledgers do not guarantee this and can be changed or tampered with, making them less reliable.
While blockchain allows participants from all over the world to join at any time and from anywhere, banks do not. It takes days for a bank to process transactions and reaches a settlement.
In conclusion, considering the comparison made, blockchains are safer and more secure. Blockchain stands to make business and government operations more accurate, efficient, secure, and cheap with fewer middlemen.