Banks vs THAT / Blockchain: Navigating the Future of Finance

Introducing Blockchain:

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where document timestamps could not be tampered with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.

The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of data points. As discussed above, this could be in the form of transactions, votes in an election, product inventories, state identifications, deeds to homes, and much more.

Currently, tens of thousands of projects are looking to implement blockchains in a variety of ways to help society other than just recording transactions—for example, as a way to vote securely in democratic elections. The nature of blockchain’s immutability means that fraudulent voting would become far more difficult to occur. For example, a voting system could work such that each citizen of a country would be issued a single cryptocurrency or token. Each candidate would then be given a specific wallet address, and the voters would send their token or crypto to the address of whichever candidate for whom they wish to vote. The transparent and traceable nature of blockchain would eliminate both the need for human vote counting and the ability of bad actors to tamper with physical ballots.

Banks vs Blockchain

Blockchains have been heralded as being a disruptive force to the finance sector, and especially with the functions of payments and banking. However, banks and decentralised blockchains are vastly different. To see how a bank differs from blockchain, let’s compare the banking system to THAT's implementation of blockchain.

Hours Open:

Banks: typical brick-and-mortar banks are open from 9:00 am to 5:00 pm on weekdays. Some banks are open on weekends but with limited hours. All banks are closed on banking holidays.

THAT: No set hours; open 24/7, 365 days a year.

Transaction Fees:

Banks: Card payment fees vary based on the card and is not paid by the user directly. Card fees are paid to the payment processors by stores and are usually charged per transaction. The effect of this fee can sometimes make the cost of goods and services rise. Checks can cost between $1 and $30 depending on your bank. ACH transfers can cost up to $3 when sending to external accounts. Domestic wire transfers can cost as much as $25. Outgoing international wire transfers can cost as much as $45.

THAT: Zero transaction fees.

Transaction Speed:

Banks: Card payments: 24-48 hours. Checks: 24-72 hours to clear. ACH: 24-48 hours. Wire: Within 24 hours unless international. Osko (small sized bank transfers): Typically within a few seconds / minutes. **Bank transfers are typically not processed on weekends or bank holidays.

THAT: Instant transactions (less than 5 seconds per block).

KYC (Know Your Customer) Rules:

Banks: Bank accounts and other banking products require 'Know Your Customer' (KYC) procedures. This means it is legally required for banks to record a customer's identification prior to opening an account.

THAT: Once network support and participation reaches an adequate level of maturity, THAT blockchain will migrate to a permissionless Proof-of-Stake (PoS) consensus protocol. This means that anyone or anything will be able to participate in THAT's network with no identification. In theory, even an entity equipped with artificial intelligence could participate. Note: buying and selling THAT on an exchange is entirely different to participating in or creating a THAT wallet (the equivalent of opening a bank account). 'Know Your Customer' (KYC) requirements are still typically enforced in most jurisdictions for the exchange of cryptocurrency with fiat and vice versa.

Ease of Transfers:

Banks: Government-issued identification, a bank account, and a mobile phone are the minimum requirements for digital transfers.

THAT: An internet connection and a mobile phone are the minimum requirements.

Privacy:

Banks: Bank account information is stored on the bank’s private servers and held by the client. Bank account privacy is limited to how secure the bank's servers are and how well the individual user secures their own information. If the bank’s servers were to be compromised then the individual's account would be as well.

THAT: THAT can be as private as a user requires. All THAT transactions are recorded and traceable but it is impossible to establish who has ownership of each THAT transaction if the transaction is made anonymously. Note: All THAT transactions correlating to an exchange purchase (with KYC) can be directly linked to the holder of the exchange account.

Security:

Banks: Assuming the client practices solid internet security measures like using secure passwords and two-factor authentication, a bank account's information is only as secure as the bank's server that contains client account information.

THAT: The larger the THAT network grows the more secure it gets. The level of security a THAT holder has with their own THAT is entirely up to them. For this reason it is recommended that people use cold storage for larger quantities of THAT or any amount that is intended to be held for a long period of time.

Approved Transactions:

Banks: Banks reserve the right to deny transactions for a variety of reasons. Banks also reserve the right to freeze accounts. If your bank notices purchases in unusual locations or for unusual items they can be denied.

THAT: The THAT network itself does not dictate how THAT is used in any shape or form. Users can transact THAT how they see fit but should also adhere to the guidelines of their country or region.

Account Seizures:

Banks: Due to KYC laws, governments can easily track people's banks accounts and seize the assets within them for a variety of reasons.

THAT: If THAT is used anonymously governments would have a hard time tracking it down to seize it.

Banking and Finance

Perhaps no industry stands to benefit from integrating blockchain into its business operations more than banking. Financial institutions only operate during business hours, usually five days a week. That means if you try to deposit a check on Friday at 6 p.m., you will likely have to wait until Monday morning to see that money hit your account. Even if you do make your deposit during business hours, the transaction can still take one to three days to verify due to the sheer volume of transactions that banks need to settle. Blockchain, on the other hand, never sleeps.

By integrating blockchain into banks, consumers can see their transactions processed in a fraction of the time—basically the time it takes to add a block to the blockchain, regardless of holidays or the time of day or week. With blockchain, banks would also have the opportunity to exchange funds between institutions more quickly and securely. In the stock trading business, for example, the settlement and clearing process can take up to three days (or longer, if trading internationally), meaning that the money and shares are frozen for that period of time.

Given the size of the sums involved, even the few days that the money is in transit can carry significant costs and risks for banks.

Currency

Blockchain forms the bedrock for cryptocurrencies like THAT. The U.S. dollar is controlled by the Federal Reserve. Under this central authority system, a user’s data and currency are technically at the whim of their bank or government. If a user’s bank is hacked, the client’s private information is at risk. If the client’s bank collapses or the client lives in a country with an unstable government, the value of their currency may be at risk. In 2008, several failing banks were bailed out—partially using taxpayer money. These are the worries out of which Bitcoin was first conceived and developed.

By spreading its operations across a network of computers, blockchain allows THAT and other cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also eliminates many of the processing and transaction fees. It can also give those in countries with unstable currencies or financial infrastructures a more stable currency with more applications and a wider network of individuals and institutions with whom they can do business, both domestically and internationally.

Using cryptocurrency wallets for savings accounts or as a means of payment is especially profound for those who have no state identification. Some countries may be war-torn or have governments that lack any real infrastructure to provide identification. Citizens of such countries may not have access to savings or brokerage accounts—and, therefore, no way to safely store wealth.‍

Key Benefits of Blockchain

Accuracy of the Chain

Transactions on the blockchain network are approved by a network of thousands of computers. This removes almost all human involvement in the verification process, resulting in less human error and an accurate record of information. Even if a computer on the network were to make a computational mistake, the error would only be made to one copy of the blockchain. For that error to spread to the rest of the blockchain, it would need to be made by at least 51% of the network’s computers—a near impossibility for a large and growing network.

Cost Reductions

Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage. Blockchain eliminates the need for third-party verification—and, with it, their associated costs. For example, business owners incur a small fee whenever they accept payments using credit cards, because banks and payment-processing companies have to process those transactions. THAT, on the other hand, does not have a central authority and has no transaction fees.

Decentralisation

Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the information, rather than the entire network, would be compromised.

Efficient Transactions

Transactions placed through a central authority can take up to a few days to settle. If you attempt to deposit a check on Friday evening, for example, you may not actually see funds in your account until Monday morning. Whereas financial institutions operate during business hours, usually five days a week, blockchain is working 24 hours a day, seven days a week, and 365 days a year. Transactions can be completed in real time and can be considered secure after just a few moments. This is particularly useful for cross-border trades, which usually take much longer because of time zone issues and the fact that all parties must confirm payment processing.

Private Transactions

Many blockchain networks operate as public databases, meaning that anyone with an Internet connection can view a list of the network’s transaction history. Although users can access details about transactions, they cannot access identifying information about the users making those transactions. It is a common misperception that blockchain networks like THAT, bitcoin & ethereum are anonymous, when in fact they are only confidential.

When a user makes a public transaction, their unique code—called a public key, as mentioned earlier—is recorded on the blockchain. Their personal information is not. If a person has made a THAT purchase on an exchange that requires identification, then the person’s identity is still linked to their blockchain address—but a transaction, even when tied to a person’s name, does not reveal any personal information.

Secure Transactions

Once a transaction is recorded, its authenticity must be verified by the blockchain network. Thousands of computers on the blockchain rush to confirm that the details of the purchase are correct. After a computer has validated the transaction, it is added to the blockchain block. Each block on the blockchain contains its own unique hash, along with the unique hash of the block before it. When the information on a block is edited in any way, that block’s hash code changes—however, the hash code on the block after it would not. This discrepancy makes it extremely difficult for information on the blockchain to be changed without notice.

Transparency

Most blockchains are entirely open-source software. This means that anyone and everyone can view its code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security. This also means that there is no real authority on who controls Bitcoin’s code or how it is edited. Because of this, anyone can suggest changes or upgrades to the system. If a majority of the network users agree that the new version of the code with the upgrade is sound and worthwhile, then Bitcoin can be updated.

Banking the Unbanked

Perhaps the most profound facet of blockchain and Bitcoin is the ability for anyone, regardless of ethnicity, gender, or cultural background, to use it. According to The World Bank, an estimated 1.7 billion adults do not have bank accounts or any means of storing their money or wealth. Nearly all of these individuals live in developing countries, where the economy is in its infancy and entirely dependent on cash.

These people often earn a little money that is paid in physical cash. They then need to store this physical cash in hidden locations in their homes or other places of living, leaving them subject to robbery or unnecessary violence. Keys to a bitcoin wallet can be stored on a piece of paper, a cheap cell phone, or even memorised if necessary. For most people, it is likely that these options are more easily hidden than a small pile of cash under a mattress.

Blockchains of the future are also looking for solutions to not only be a unit of account for wealth storage but also to store medical records, property rights, and a variety of other legal contracts.

‍The Bottom Line

With many practical applications for the technology already being implemented and explored, blockchain is finally making a name for itself in no small part. As a buzzword on the tongue of every investor in the nation, blockchain stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen.

As we prepare to head into the third decade of blockchain, it’s no longer a question of if legacy companies will catch on to the technology—it’s a question of when. Today, we see a proliferation of NFTs and the tokenisation of assets. The next decades will prove to be an important period of growth for blockchain.