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  • Writer's pictureNilesh Dhande

Why Adopt Distributed Ledger of Identities in Banking?

Blockchain as a technology has a potential to eliminate 99% of the time and risk involved in banking transactions.

Because distributed ledger, the underlying framework of blockchain, approach takes away multiple steps involved in enabling a digital banking service due to reduced clutter of centralized identity management, banks are going to be benefitted with agility, high responsiveness to market demands and amazing digital experience.


In essence this is a technology disruption that makes a good business sense. Refer to KYC part of the this report which presents a first of its kind business opportunity for large banks to be in the business of Identity as a service – A related diversification growth strategy that integrates backward into the bank for continuously building trust levels with transacting parties and also add new revenue streams.

What does it mean to be Blockchain ready for banks?

Blockchain brings forward two fundamentally new ways of conducting business for banks:

  1. System of Cryptographic digital identity and trust for all transacting parties.

  2. A common, distributed and immutable ledger of transactions.

Currently both of these do not exist as an integral part of the bank’s digital infrastructure. Business in banking begins with KYC and defining identity for each individual participant. True digital transformation will not happen until following two gaps are addressed in current architecture,

  1. KYC and identity definition is merged mathematically, cryptographically and not simply a cause and effect.

  2. Digital identities are maintained as a distributed ledger of events that fit the context of relationship with the participant.

Digital identities at present are non-cryptographic labels or passwords, codes provided to each individual party and these require an absolute match over the Internet every single time the transaction must be executed. The digital transactions are recorded in independent systems in the banks E.g. CBS, FRM, ATM Switch, NetBanking, DWH etc.

To be blockchain ready is to be able to adopt fundamental technology transformations one after another without having to disrupt the business as usual.

How to get there?

Layering or replacing the traditional username, password, OTP etc based identity and authentication system with a cryptographic digital trust ecosystem would be the tiny step towards the digital transformation by design for enterprises and banks. It will be good to bring one digital transaction use case at a time to consume the Cryptographic digital identity of users and perform digital transaction signing as may be required.


The ledger system of Blockchain technology is evolving to become foolproof for mainstream banking, hence by the time organization switches, in about 15 months, to 100% Cryptographic digital identity, the ledger technology would be readily inline with compliance and regulatory guidelines likely to come in this regard.


EU has put across quite a lot of these guidelines in place towards opening up banking sector and businesses overall. Banks can plug the signed transactions that are returned from the cryptographic system into such a ledger technology quite easily. Banking is likely to turn into a community banking service and to be ready to do that adopting distributed identity architecture is only a beginning.

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