Blockchain architecture and its applications in a bank risk mitigation framework

Abstract

This study proposes a simple two-period model to consider consumers' borrowing behaviour in a decentralised consensus and information distribution platform. Based on this model, we develop a bank risk mitigation framework and find that decentralised digital identity and encryption technology are the most important factors for attaining market equilibrium between decentralised consensus and information distribution. Specifically, the greater the scope of digital identity construction and the more blockchain consensus records there are, the less likely the borrower will default. Our study provides meaningful practical implications for bankers and policy regulators to help them better understand consumers' borrowing behaviour and decisions to default.

A Proposed Framework for Improving Online Banking Transactions Using Blockchain

“…For instance; Ethereum (ETH) which have a larger importance other than Bitcoin, Bitcoin Cash (BCH) which is the fastest and less expensive bitcoin alternative, Cardano (ADA) is the safest Bitcoin alternative to invest in, Ripple (XRP) is a bitcoin alternative with massive potential, Litecoin (LTC) is the most important bitcoin alternative with no downtime, Cosmos (ATOM) is the top contender for best crypto of the future, Monero (XMR) is bitcoin alternative for anonymity, Solana (SOL) is the fastest growing smart contract ecosystem, Dogecoin (DOGE) is the most popular meme currency, and eventually Stellar (XLM) is the bitcoin alternative dedicated to the unbanked and underbanked. This research indicates the importance of Bitcoin, Ethereum, Cordano & Litecoin [11],[29], [24], [17]and [27].…”

“…Previous transaction recording solutions are centralized, inefficient, expensive, and repetitive, which is where blockchain comes in. A popular example of blockchain is Bitcoin, decentralized peer-to-peer digital money [6], [17] and [21].…”

“…Blockchain technology provides a decentralized and secure record for online transactions, which represents a viable solution to these security problems. Blockchain technology can improve transactions' speed and effectiveness while decreasing the chance of fraud [10] and [17].…”

“…Blockchain technology, which was previously mainly used for bitcoin peer-to-peer transactions, has now been extended to include smart contracts, which are applications that self-enforce contract requirements on the blockchain and [17]. Although, when a person approaches a bank for a loan, it is always in excess of the basic credit limit, which may be given out in bulky, simple monthly payments, so the bank is more concerned to check out the customer's financial abilities of credit history and credit score, As a result, if a single blockchain framework is built that can handle both a retailer's transaction and credit orders, the process will be much more efficient and transparent [19].…”