Today's world has become digital. While this trend increases rapidly during the pandemic process, it progresses in parallel with technological development. Technological developments and digitalization have accelerated day by day. Financial institutions invest their investments in technological infrastructure such as blockchain to make all their actions digital, ensuring security and increasing efficiency.
Making these infrastructure investments is for security, facilitates reporting to top organizations, and provides great convenience to combat money laundering by monitoring transactions.
Blockchain technology confronted people at one point, and until a few years ago, some people said that Blockchain technology was an exaggeration and would not function contrary to popular belief. However, people who predicted the future declared that this technology would cause big business areas changes.
The most suitable use of this technology, which is now used in many financial and other organizations, uses KYC / AML compliance. This usage gives stimulating ideas about the present and the future.
What is the Blockchain Technology
A database is an electronic information store collected in a system. This information is the tabular form of specific information. Certain individuals have designed these tables to gain access to information. Moreover, a database is designed to be accessed, filtered by users simultaneously and as quickly as possible.
Large databases use computers with powerful information and data processing as servers, which accomplishes these operations. These servers can be created using thousands of computers because they are necessary for many users to access and store this data simultaneously. Many people can access this database, but often certain companies use this technology and have the ability to manage this data themselves.
As a result, it is a database that stores financial transactions. Blockchain technology brings a new perspective to the banking system. Specific features of blockchain technology;
The decentralization of Blockchain technology is the most fundamental and noticeable difference between traditional banking and Blockchain technology. The blockchain is decentralized, and no intermediary institution is needed for transactions.
Besides, Blockchain technology uses a global computer network and directly allows transactions between the parties. In this case, it removes the need for an intermediary, which eliminates centralization.
Transactions using blockchain technology are decentralized and transparent at the same time, meaning anyone can view the transaction.
In this way, it increases accountability by facilitating the audits of people's transactions, so the transparency feature is essential. Since the traditional banking system transactions are more confidential, they are in a style that someone can easily manipulate. Therefore, blockchain technology can be easily audited in terms of transparency and accuracy.
When a transaction takes place in this technology, it cannot be changed or modified by anyone. As written above, it cannot be manipulated as it can be done in traditional banking.
Each party is given a new password and an address to make transactions using blockchain technology. This can be thought of as a classic bank account. You can give this address to the person you will be processing and perform your transaction. However, it would help if you did not share the unique password to you, called the private key, with anyone.
This feature is significant to some people because they can perform their transactions anonymously without any intermediaries, without having to verify their credentials with any bank. This feature is a standout feature that is completely separate from the classical banking system. Blockchain technology reliably provides this anonymity.
Is Blockchain Secure?
The security of blockchain technology can be explained in several ways. In this technology, blocks are added to each other. It is similar to Bitcoin's technology. Towards the last months of 2020, the block's height reached 656,197 blocks.
After adding blocks to the end of the blockchain, changes are difficult unless the majority is understood. Because after each block is added to the chain, it will be in the form of a hash. These codes are created thanks to mathematics.
If one wants to change these blocks, changing even a single chain will change the remaining chains. Such a transaction would only have to have more than half of the chains. This situation is not possible and difficult because enormous technological infrastructure and capital are needed.
Disadvantages of Blockchain
Blockchain is fascinating in terms of technological advancement, but there are some vulnerabilities in its use. These deficits are not just technical. The real challenges are the long hours of work required to integrate blockchain into business networks. These difficulties can be explained as follows.
Thanks to the Blockchain, transaction fees are much lower, but using this technology is costly. For example, Bitcoin's system to verify transactions is computationally intensive, which means energy consumption.
Despite these costs, users bear this energy expenditure because the Bitcoin they receive in return is more valuable. However, this is not the case for blockchains that do not use cryptocurrencies.
This disadvantage is available under the following headings;
Speed Inefficiency, Illegal Activity, Regulation
As a result, regulators are doing a variety of work for blockchain regulation. You can choose AML Compliance Solutions providers such as the Sanction Scanner to fight financial crime and follow regulations. Contact us or request a demo to explore the Sanction Scanner AML solutions.