Blockchain technology has been around for more than a decade and has revolutionized the way we store, share and transfer data. However, it has its limitations when it comes to handling large amounts of data or processing transactions at scale. One of the main challenges in this regard is the limited scalability of blockchain networks.

The solution to this challenge lies in adding traditional banking infrastructure to the blockchain network. This process is commonly referred to as “banking on the blockchain” and involves integrating the features and capabilities of traditional banking systems with those of a blockchain-based platform. In this article, we will explore the various ways in which banks can be added to blockchain networks and the benefits that this approach offers.

The Role of Banks in Blockchain Networks

Before diving into the details of how banks can be added to blockchain networks, it’s important to understand their role in these systems. In traditional banking networks, banks act as intermediaries between buyers and sellers, facilitating transactions by maintaining a record of all financial transactions and providing liquidity. They also perform various other functions such as issuing currency, managing risk, and providing financial advice.

In the context of blockchain networks, banks can play a similar role but with some key differences. For instance, instead of being centralized institutions, banks in blockchain networks are typically decentralized and operated by a network of nodes. This means that transactions on the blockchain are not controlled by a single entity or institution, but rather by a distributed network of computers that work together to validate and verify each transaction.

Additionally, banks in blockchain networks can leverage the immutable and transparent nature of the blockchain technology to streamline their operations and reduce costs. For example, they can use smart contracts to automate many of their processes, eliminating the need for intermediaries and reducing the time and cost associated with traditional banking procedures.

How Banks Can be Added to Blockchain Networks

There are several ways in which banks can be added to blockchain networks, depending on the specific requirements of each network. Some of the most common approaches include:

1. Public-Private Partnerships

2. Hybrid Blockchain Networks

3. Consortium Blockchains

1. Public-Private Partnerships

In this approach, a public blockchain network is used as the underlying infrastructure for financial transactions, while traditional banking institutions are responsible for managing certain aspects of these transactions. For example, a bank may be responsible for issuing and managing fiat currency on the blockchain, while a decentralized platform may handle the processing and validation of transactions.

This approach offers several benefits, including increased security and transparency, as well as faster and more efficient transaction processing. However, it also requires significant resources and expertise to implement and maintain, and can be vulnerable to attacks if not properly secured.

2. Hybrid Blockchain Networks

In this approach, a combination of public and private blockchain networks is used to manage financial transactions. Public blockchains are typically open and transparent, allowing anyone to participate in the network and validate transactions. Private blockchains, on the other hand, are restricted to a specific group of participants and can be more secure and efficient in certain contexts.

In a hybrid blockchain network, banks may use private blockchains to manage certain aspects of financial transactions, such as issuing and managing fiat currency, while public blockchains handle other tasks, such as processing and validating transactions. This approach offers the benefits of both public and private blockchain networks, including increased security and transparency, as well as faster and more efficient transaction processing.

3. Consortium Blockchains

In this approach, a group of banks or other financial institutions come together to create a shared blockchain network that they can use to manage their financial transactions. This network is typically operated by a consortium of these institutions, which work together to validate and verify each transaction on the network.

Consortium blockchains offer several benefits, including increased security and transparency, as well as faster and more efficient transaction processing. However, they can be vulnerable to attacks if not properly secured and require significant resources and expertise to implement and maintain.