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Game theory and blockchain that support better banking networksShutterstock
Today, banking is far from what it was. Increasingly, in order to fuel the services required by consumers, banks must have access to multiple arrays of technologies and new methods of interaction and transaction. While this may seem like it would only lead to further inefficiencies in the banking sector, it can actually simplify the industry thanks to new innovations in blockchain technology, all inspired by game theory.
Modern banking services, the kind that you access the phone when you deposit a check with a photo or when you send money through Venmo, often works on a banking service as a service (Baas) template. This allows customers to undertake traditional banking operations without having to find the nearest ATM or need to know when the local branch is open. Because of this new use of BaaS models, the banking sector is now represented by a myriad of features often developed by third-party fintech companies. These individual characteristics are therefore integrated into a unified banking environment under a brand. But this flexibility can be used for something more than the simple integration of mobile banking applications. The flexibility represented by the BaaS model will allow banks to integrate blockchain solutions to solve a problem afflicting the financial world, which John Nash noted and expanded into a well-known contribution to game theory, better represented by the mental experiment of the prisoner dilemma.
Game theory, prisoner's dilemma and Blockchain
For a quick update, game theory is a branch of mathematics that studies strategic interaction between rational actors. One of the best known thought experiments in this field is the one mentioned above, the prisoner's dilemma. In this mental experiment, there are two inmates who are both questioned for their suspected participation in separate but similar crimes. The sentence for these crimes is three years. However, the police suspect that the two prisoners, the prisoner A and the prisoner B, collaborate to commit a more serious crime involving a four-year sentence. The police offer an agreement: if a prisoner confesses the gravest crime and indicates that the other prisoner was involved, then the confessed prisoner will receive a two-year sentence while the other prisoner will receive a harsher sentence of eight years. It is important to stress that this depends on a prisoner who confesses and denies it. If both prisoners confess, both are given the standard four-year sentence. For clarity, refer to the following table:
As is obvious, the best option for both inmates is to deny involvement in the most serious crime and thus get only three years in prison. However, since neither of the two prisoners can be sure of the strategy of the other, both will choose to confess. This is purely logical; if a prisoner confesses and the other does not, the prisoners risk doubling their potential time of imprisonment. Confession is the best option that has given their circumstances. This is what Nash has observed and what is known as a sub-optimal balance.
This is the situation in which the banking sector is at the moment. Confidence among financial operators is almost non-existent and there is no transparency in transactions. This leads, as exemplified by the thought experiment, to a non-optimal balance achieved within the financial sphere, which causes systemic inefficiency and entails costs, thanks to the consequent requirement for periodic checks.
Here is where blockchain can integrate with traditional banks. It can increase trust among market participants thanks to its eminent transparency and can reduce costs by eliminating the audits that were once used to establish the reliability of banking information. This is achieved since all transaction information will be recorded on the decentralized and accessible blockchain.
The Proof of Asset protocol
The integration of banking and blockchain is exactly the mission of Bankex, a fintech company founded in 2015 with the aim of providing Know Your Customer (KYC) services to banks. Shortly after the success of the KYC project, the company, thanks to its team of bankers and blockchain evangelists, decided to move into the sphere of the blockchain to feed this new blockchain environment for the banks.
BANKEX is trying to pave the way for this integration by developing its Proof of Asset Protocol, a method by which existing resources can be recorded on the blockchain. The idea of the Proof of Asset Protocol, simply expressed, is that the qualities of an asset can be amalgamated and digitally verified, and therefore the good is made virtual as a token that can be bought and transferred. Banks will act as gatekeepers for this system and, therefore, the resources registered on the blockchain will be visible to anyone with an Internet connection. Audits will no longer be necessary; thanks to this new protocol, the resources will be visible and accessible to anyone who wants to see them. In the BANKEX system, the value of the activities can be established in an algorithmic way and therefore makes resource evaluation processes inefficient.
Liquidity of the market
Not only will this increase trust between the banks, but the integration of BaaS-enabled blockchain will also increase the liquidity of the assets. Liquidity is the ability of a good to buy and sell quickly and at a reasonable price. It is an important consideration when the value of an asset is established. For an example of liquidity that affects the price of assets, consider a used car. A used car, if quoted online, claims to have certain qualities, but these qualities must be verified from external sources, often at the expense of the buyer. This makes entry into the market more difficult, with a consequent reduction in liquidity, and this decreases the value of the asset. However, if these checks and audits are carried out and set digitally, liquidity increases. The buyer's confidence in the used car would be comparable to the buyer's trust in any other new asset as the qualities would be verified by an impartial schedule and recorded on the immutable blockchain.
Blockchain for bankers
BANKEX is led by Igor Khmel, a man with extensive experience in the banking world. There are no illusions about blockchain or even other team members. There is no cake thinking in heaven here. Of course, the blockchain environment confers confidence in transactions, but BANKEX likes to operate on the principle of "trust but verification". For example, to participate in its Token Exchange, customers will have to go through the Anti Money Laundering and KYC procedures. This is the financial sphere with which they are dealing here and they take it seriously. The background of the banking team can probably be thanked for this.
These concepts form the basis of the effective full STO framework across the entire lifecycle of a security token, including digitization, issuing that meets both KYC and AML requirements, the secondary market and mastering.
In addition, they developed BANKEX Custody Service, a cryptographic storage solution that supports major cryptocurrencies, Bitcoin, Bitcoin Cash, Ethereum and Litecoin, as well as ERC-20 utility tokens and other security tokens. This is rather insignificant and comparable to other similar services until a detail is added: the service is totally removed from human interference. Just as resources will be tested with the cold logic of calculation, so access to these resources will be protected. No human will have immediate direct access to resources and access points are protected by new highly secure cryptographic protocols.
The future of Banking
The suboptimal operating balance of the financial industry, illustrated by game theory, should not be the norm. The fact that players on the market have accepted insufficient confidence and liquidity up to this point could simply be the result of the fact that there were no solutions to these problems. BANKEX claims to have a solution for these problems: blockchain, which can be integrated quickly and simply thanks to the already ubiquitous implementation of BaaS technologies. It is necessary for the banking sphere to understand how significantly the blockchain can improve its business. Technology is here to stay, the question now is simply: which bank will fully adopt its solutions before?
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Game theory and blockchain that support better banking networksShutterstock
Today, banking is far from what it was. Increasingly, in order to fuel the services required by consumers, banks must have access to multiple arrays of technologies and new methods of interaction and transaction. While this may seem like it would only lead to further inefficiencies in the banking sector, it can actually simplify the industry thanks to new innovations in blockchain technology, all inspired by game theory.
Modern banking services, the kind that you access the phone when you deposit a check with a photo or when you send money through Venmo, often works on a banking service as a service (Baas) template. This allows customers to undertake traditional banking operations without having to find the nearest ATM or need to know when the local branch is open. Because of this new use of BaaS models, the banking sector is now represented by a myriad of features often developed by third-party fintech companies. These individual characteristics are therefore integrated into a unified banking environment under a brand. But this flexibility can be used for something more than the simple integration of mobile banking applications. The flexibility represented by the BaaS model will allow banks to integrate blockchain solutions to solve a problem afflicting the financial world, which John Nash noted and expanded into a well-known contribution to game theory, better represented by the mental experiment of the prisoner dilemma.
Game theory, prisoner's dilemma and Blockchain
For a quick update, game theory is a branch of mathematics that studies strategic interaction between rational actors. One of the best known thought experiments in this field is the one mentioned above, the prisoner's dilemma. In this mental experiment, there are two inmates who are both questioned for their suspected participation in separate but similar crimes. The sentence for these crimes is three years. However, the police suspect that the two prisoners, the prisoner A and the prisoner B, collaborate to commit a more serious crime involving a four-year sentence. The police offer an agreement: if a prisoner confesses the gravest crime and indicates that the other prisoner was involved, then the confessed prisoner will receive a two-year sentence while the other prisoner will receive a harsher sentence of eight years. It is important to stress that this depends on a prisoner who confesses and denies it. If both prisoners confess, both are given the standard four-year sentence. For clarity, refer to the following table:
As is obvious, the best option for both inmates is to deny involvement in the most serious crime and thus get only three years in prison. However, since neither of the two prisoners can be sure of the strategy of the other, both will choose to confess. This is purely logical; if a prisoner confesses and the other does not, the prisoners risk doubling their potential time of imprisonment. Confession is the best option that has given their circumstances. This is what Nash has observed and what is known as a sub-optimal balance.
This is the situation in which the banking sector is at the moment. Confidence among financial operators is almost non-existent and there is no transparency in transactions. This leads, as exemplified by the thought experiment, to a non-optimal balance achieved within the financial sphere, which causes systemic inefficiency and entails costs, thanks to the consequent requirement for periodic checks.
Here is where blockchain can integrate with traditional banks. It can increase trust among market participants thanks to its eminent transparency and can reduce costs by eliminating the audits that were once used to establish the reliability of banking information. This is achieved since all transaction information will be recorded on the decentralized and accessible blockchain.
The Proof of Asset protocol
The integration between the banking and blockchain sectors is exactly the mission of BANKEX, a fintech company founded in 2015 with the aim of providing Know Your Customer (KYC) services to banks. Shortly after the success of the KYC project, the company, thanks to its team of bankers and blockchain evangelists, decided to move into the sphere of the blockchain to feed this new blockchain environment for the banks.
BANKEX is trying to pave the way for this integration by developing its Proof of Asset Protocol, a method by which existing resources can be recorded on the blockchain. The idea of the Proof of Asset Protocol, simply expressed, is that the qualities of an asset can be amalgamated and digitally verified, and therefore the good is made virtual as a token that can be bought and transferred. Banks will act as gatekeepers for this system and, therefore, the resources registered on the blockchain will be visible to anyone with an Internet connection. Audits will no longer be necessary; thanks to this new protocol, the resources will be visible and accessible to anyone who wants to see them. In the BANKEX system, the value of the activities can be established in an algorithmic way and therefore makes resource evaluation processes inefficient.
Liquidity of the market
Not only will this increase trust between the banks, but the integration of BaaS-enabled blockchain will also increase the liquidity of the assets. Liquidity is the ability of a good to buy and sell quickly and at a reasonable price. It is an important consideration when the value of an asset is established. For an example of liquidity that affects the price of assets, consider a used car. A used car, if quoted online, claims to have certain qualities, but these qualities must be verified from external sources, often at the expense of the buyer. This makes entry into the market more difficult, with a consequent reduction in liquidity, and this decreases the value of the asset. However, if these checks and audits are carried out and set digitally, liquidity increases. The buyer's confidence in the used car would be comparable to the buyer's trust in any other new asset as the qualities would be verified by an impartial schedule and recorded on the immutable blockchain.
Blockchain for bankers
BANKEX is led by Igor Khmel, a man with extensive experience in the banking world. There are no illusions about blockchain or even other team members. There is no cake thinking in heaven here. Of course, the blockchain environment confers confidence in transactions, but BANKEX likes to operate on the principle of "trust but verification". For example, to participate in its Token Exchange, customers will have to go through the Anti Money Laundering and KYC procedures. This is the financial sphere with which they are dealing here and they take it seriously. The background of the banking team can probably be thanked for this.
These concepts form the basis of the effective full STO framework across the entire lifecycle of a security token, including digitization, issuing that meets both KYC and AML requirements, the secondary market and mastering.
In addition, they developed BANKEX Custody Service, a cryptographic storage solution that supports major cryptocurrencies, Bitcoin, Bitcoin Cash, Ethereum and Litecoin, as well as ERC-20 utility tokens and other security tokens. This is rather insignificant and comparable to other similar services until a detail is added: the service is totally removed from human interference. Just as resources will be tested with the cold logic of calculation, so access to these resources will be protected. No human will have immediate direct access to resources and access points are protected by new highly secure cryptographic protocols.
The future of Banking
The suboptimal operating balance of the financial industry, illustrated by game theory, should not be the norm. The fact that players on the market have accepted insufficient confidence and liquidity up to this point could simply be the result of the fact that there were no solutions to these problems. BANKEX claims to have a solution for these problems: blockchain, which can be integrated quickly and simply thanks to the already ubiquitous implementation of BaaS technologies. It is necessary for the banking sphere to understand how significantly the blockchain can improve its business. Technology is here to stay, the question now is simply: which bank will fully adopt its solutions before?
