How Bitcoin (the system), bitcoins (the tokens), or both might be incorporated into the mainstream banking system ?

-
By Othman Darwish

Recently, there is a growing number of financial institutions and banks that look seriously at the new  revolutionary  technology of Bitcoin and weight  its potential applications.  Bankers  all over the world  are fascinated by Bitcoin technology for the fast, low cost, and secure payment solutions it facilitate, thus, they try to maximize their banks profits by providing new business  services  using new innovated digital currency like Bitcoin .
Banks are now racing to harness  the new innovation of Bitcoin and blockchain technology, they believe that this technology will cut off the cost  and transform the way the business  work. Blockchain  can be defined as the technology behind the cryptocurrecy Bitcoins, it is a decentralized immutable  public ledger that contains the details of every Bitcoin transaction that has ever been completed. Using innovated technical protocols, that ledger has proven to be exceptionally accurate, reliable and secure. In one of its publications, Spanish Bank Stander highlighted that the blockchain technology could cut the bank's infrastructure costs for cross-border payments, securities trading and regulatory compliance by between US$15 – 20 billion per annum by the year of 2022. Cross-border payments  and trading are highly impacting the cash reserve management for financial institutions, as the participation of multiple intermediaries  drag  out settlement time and increase the cost and risk for financial institutions. The potential of blockchain offers a dramatic cut for the settlement time, which  will reduce the amount of cash and collateral that financial institutions will need to hold to mitigate settlement risks. This will be particularly significant for international transactions, which currently take days to complete but can be completed in hours using blockchain technology. Banks can also benefit  from  blockchain which  provide tamper resistance record of identity, including the history of individual's transactions that have ever made, those records could  be used to validate data of individuals or companies participating in the payment transfer, "know your customer".
There are a lot of potential for Bitcoin applicability in Islamic banking and finance. Islamic banks and financial institutions follow the principles of Islamic law. Two of the main principles are: the collection of interest (riba) is forbidden, and loans must be based on profit/loss sharing. Based on that two main principles , Charles W. Evans, analyzed virtual currencies with the requirements of Islamic Banking and Financal, he wrote "BMS (blockchain management systems) … incorporate the principles of maslaha (social benefits of positive externalities) and mutual risk-sharing (as opposed to risk-shifting)" and concluded that Bitcoin is compatible with the principles of Islamic finance. Currently, Bitcoin application in Islamic banking and is very limited, but considering  the world's population, and that 25% of that  population are Muslims, the compatibility of Bitcoins with Islamic finance law could  drive the Islamic Banks  to adapt  and invest  in Bticoin technology which will impact the whole world financial markets.    

In conclusion, Financial service researchers increasingly pay attention to Bitcoin technology and its applications, blockchain, the technology behind the Bitcoin, is proved to be cost efficient and  secure medium of exchanges for cross-border payments and security trading.  The trusted, secure and distributed blockchain  technology creates transparency between banks, and participate in building customers data store to validate individuals and companies. Bitcoin  is compatible with  Islamic Bank Financial law  which represents a large population of the world, however a lot of potential and development is excepted in this area. As a result, with the coming of any new innovated technology  such Bitcoins, banks will employ to innovate new banking  services in order to  expand their profits and reduce their costs! 

Comments

Post a Comment

Popular posts from this blog

The New Internet Protocol: Blockchain

-
Image
By Othman Darwish The age of the online world began its journey with the invention of the Internet. The Internet has grown and evolved into its present form because people find immense value in using it. The emergence of Blockchain technology years ago and its current steady progress would revolutionize the Internet as we know it today. This article is arguing how the decentralized nature of Blockchain would radically changing the today's Internet . Internet starts with a prototype, done back in late of the 1960s by Advanced Research Projects Agency Network or ARPANET, which was funded by the U.S. Department of Defense. ARPANET allows multiple computers to communicates on a single network. The technology continues its growth and developments in the 1970s by Robert Kahn and Vinton Cerf, and they developed the Transmission Control Protocol and Internet Protocol-TCP/IP, a communications protocol that standardized the way the data exchanged between multiple networks. The i
Read more

Consensus Models in Public and Consortium Blockchain: Tradeoff Analysis

-
Image
Authors: Lamine SANO & Othman Darwish Abstract In distributed systems, with multiple computing nodes, consensus is a fundamental concept that aims to achieving system reliability, with the fact that some nodes may fail, malfunction or provide malicious information. This conflict in the provided information, requires a mechanism where all nodes agree on some state; this process is called consensus. The problem was first formulated by Leslie Lamport, Robert Shostak and Marshall Pease in their 1982 paper, "The Byzantine Generals Problem," [1]  and proved then to be unsolvable. Since then,  different algorithms were designed and developed to try and solve this problem under various assumptions. The advent of Bitcoin, and its underlying innovating blockchain technology provided a practical and radical mechanism to solve this problem and make it possible to transfer information in an entirely decentralized and trustless environment. This paper, will briefly explore th
Read more

Blockchain-Powered Internet-of-Things: Potentials and Challenges

-
Image
By Othman Darwish Device democracy was the idea of the experiment done back in 2015  by IBM, with the collaboration of  Samsung. The trial studied the integration of decentralization technology of blockchain with Internet-of-Things - IoT. The use case revealed by IBM concerning autonomous wash machine, that able to order detergent autonomously;  that machine provided by a sensor that able to detect detergent level, and when it goes low,  it communicated with a smart contract using Ethereum protocols and instantiated an order request to a retailer. Once the retailer received the request and upon approving it, a digital payment automatically released from wash machine and received by the retailer, then an acknowledged of the payment received by wash machine. The negotiations between wash machine and retailer ordering service and resulting transactions logged on the blockchain. The idea behind  that IBM experiment of making these devices autonomous in a decentralized internet of
Read more