Today’s computing is intrinsically distributed. Many industries and companies operate on a global scale, with thousands or even millions of machines on all continents. Data is stored in many distributed computers and data centers. Distributed systems have many benefits such as reliability, availability, and parallelism. In 2009, “Bitcoin: A Peer to Peer Electronic Cash System” was published pseudonymously by Satoshi Nakamoto, which comes to the advent of distributed ledger blockchain technology. The word Blockchain comprises of two sections, the blocks: means the digital data and the chain: which means all the digital data are interconnected like a chain. In other simple words, it is the digitalized recordkeeping technology that uses a public database to keep that record . Blockchain is a secure decentralized distributed ledger technology that has the characteristics of immutability, transparency, and trust verification. Since the appearance of blockchain technology, it has successfully disrupted many industries including blockchain. A public ledger of blockchain technology has all the executed transactions. All the records of transactions made in blockchain are stored in blocks and maintained by all the systems that are linked in a peer-to-peer network. These blocks are similar to individual bank statements.
As discussed earlier, blockchain is immutable and any past transaction record cannot be modified . Each block contains a hash of the previous one and changing the hash of the block will result in the breakage of links among blocks. There are many categories of blockchain, based on permission models. such as permission, permissionless, and consortium blockchain. The concept of blockchain technology has initially appeared as the foundation of Bitcoin cryptocurrency, which is a type of permissionless model.
In the public blockchain-based transaction structure, all clients share one common public ledger which removes the need for central authority but raises the need to acknowledge data reliability and accuracy issues in this process. Various consensus algorithms included POW, POS are used with blockchain technology to solve nodes consistency issues in the absence of central authority. Distrustful nodes make a trust relationship using consensus. On different payment scenarios, blockchain uses digital currency like Bitcoin.
Permissionless models are not controlled by any organization or company. It has complete access to everyone who is a part of the relevant blockchain. Anyone can participate in the network. All the participants are unknown to each other . The permissionless model requires an incentive to pay to the nodes who verify the transactions, which is also called mining incentives. Juri  has further discussed the permission system, which is because of the trustless environment in the permissionless model. All the nodes on the permission model are known to each other and can be trusted to vote, honestly. There is no need to provide any mining incentives, which makes it less complicated and trusted as compared to permissionless systems. In permissioned systems, only a particular member can publish a block of transactions which makes it less transparent and more restricted. Thus, private (permissioned) blockchain is not very decentralized and a consortium blockchain is semi-private, they have a spot between fully decentralized and fully-centrally controlled systems. Having these advantages many people are encouraged to use blockchain by replacing the traditional banking system. The traditional banking system has several issues and risks. While blockchain is the open ledger for all transactions in the network and the record of blockchain cannot be deleted or altered. So, there is no possibility of corrupted data. A system of blockchain cannot be controlled by a single person because it is a decentralized distributed ledger.
In centralized banking, all the personal information of the account holder is stored at a central server and all the branches of banks are connected to the central hub. Failure in the central server can affect all the branches. Currently, all information about cards and transactions is stored in banking servers in their centralized databases. Because in the modern world many applications or programs are working under heavy loads, special requirements of servers are needed. One server that cannot do such machines will need dozens, while the need to transfer large amounts of data. Distributed databases are increasingly finding their use. Distributed databases (DDB) are a set of copied, shared, and synchronized digital data, geographically distributed in different places by the institution .To reduce the cost, consumption of recourses and to enhance performance banks must use digital technologies. The risks of intruders are increasing day by day. Each bank needs the protection of data storage, confidentiality, integrity, in the process of change of information and control of the boundaries of internal information leakage. However, this task is complicated because of the presence of branches, cash dispensers, and other services. Banks are vulnerable to fraud and crimes. The estimated percentage of vulnerability is around 45.It is now an urgent task to maintain the uniqueness, integrity, and security of the information circulating in distributed databases of banking infrastructure, using the capabilities of innovative information technologies, in particular, the Blockchain technology .
In the current financial industry, it is very difficult to synchronize a large amount of data that is segregated in silos. So much manual effort is involved in this process which is time-consuming and costly . Traditional banks run their service freely and independently but, in this system, it is really hard to share information for the specific purpose of specific customers. Open banking is a system that also includes small businesses to allow sharing data securely and mutually across different banks. In the case of a third-party service provider, it also allows secure communication and data sharing. Third parties can create mobile applications, and these applications provide a variety of services and grant user requests quickly and easily. Moreover, this process is very transparent, which improves bank credit. But, open banking is difficult because many problems can occur . First, mutual authentication is hard to be transparently managed. The second is privacy provides services that enable the user to control and share personal data by customizing the access control list, and the third is provenance and regulation are necessary for accountability. To solve this type of issue blockchain is the best solution to assure none of these problems happen. Blockchain technology also makes it possible to reduce the number of intermediaries between participants in a transaction. Considering the advantage of this new technology, much research has been done on cryptocurrencies. Up to 700 currencies have been proposed yet including (CAD-Coin) the digital version of the Canadian dollar, RSCoin proposed by the Bank of England, De Nederlandsche Bank (DNB-Coin) prototype which was experimented with the Dutch Central Bank. The Central Bank of China had been studying the feasibility of the issuance of digital currency since 2014 and then published many research reports .
Az Azrinudin Alidin.  has proposed a process of integrating Saadatin (a core banking system in Malaysia) with blockchain. Three types of Muamalat contracts were included in Saadiqin which are Sale Based, Lease based, and Equity-Based. The successful integration and implementation of Saadiqin and blockchain have brought efficiency and effectiveness to the new system.
World Economic Forum (WEF) 2015, estimated that 10 percent of total Gross domestic product (GDP) will be stored on blockchains or blockchain-related technology by 2025 . The banking industry is making significant strides into the blockchain with the upcoming innovations, researches, and developments. Bank-based blockchain projects are expected to transform the financial services industry, IBM-backed Hyperledger Fabric project, the Utility Settlement Coin (USC), and R3’s blockchain consortium are few such examples (Harsono, 2018). The forex settlement giant, Continuous Linked Settlement CLS has partnered with IBM in creating a blockchain app store for banks . Though, there is also evidence of resistance towards the adoption of blockchain in banking. For example, Whilst Visa is exploring the possibilities with distributed ledger technologies, its Chief Executive Officer (CEO) stated that it does not currently see the potential for blockchain in its core business (Kulkarni, 2018)  Despite the potential, opportunities, and new dimensions created by Blockchain in financial services, it is still in earlier stages. According to an interview with Oversea-Chinese Banking Corporation (OCBC), a Singapore Bank, adopting Blockchain in current financial services faced with many challenges. Blockchain real-life applications to local currencies are still in the infancy stage.
Many financial institutions including banks have already started to focus on the concept of digital currency for their regulatory processes. Bitcoin is one of the famous cryptocurrency which uses Proof of Work (POW) as their consensus model for the verification of transactions but POW requires huge computational cost. Other famed digital currencies, such as Ripple network, LiteCoin, PeerCoin are famous to use a hybrid version of Proof of Stake (POS) and POW consensus, but the implementation of these currencies has limitations of supervision, privacy, scalability, and computation cost. The transaction speed is also a big challenge, like bitcoin, only 7 transactions could be handled per second while an online payment system (PayPal) can handle 400 transactions per second (TPS) and an American multinational financial services corporation (Visa) can handle 20,000 (TPS). Security is an opportunity as well as a challenge in the implementation of blockchain in the banking industry. Satoshi Nakamoto highlighted the 51 percent attack in POW which means if half of the computers working as nodes to service the network tell a lie, the lie becomes the truth .
Developing a blockchain-enabled system is a high-cost affair. The cost of storage and mining is yet another growing concern for blockchain technology in banking. Bauerle discussed the costing issues of bitcoin, as it stands, each bitcoin transaction costs about 0.20 USD and can only store 80 bytes of data . It is estimated that the long-term storage cost per gigabyte for a Bitcoin node will exceed 22 million USD or more and the energy required to mine bitcoin is equivalent to more energy than 159 countries consume in a year .
Block size issues, expanded chain size, and electronic mark size are also a few other issues that have arisen with the implementation of blockchain. These issues are called scalability issues one of the most significant issues in the blockchain. Some researchers have begun to look into the creation of another blockchain that allows for tradeoffs and improved scalability. A bank can exist without mining, connecting the entire infrastructure with a peer-to-peer network. The network is controlled by the bank, while blockchain technology retains its mechanism and all its advantages. Due to structural hashing on the Merkel Tree (a hash-based data structure), all transactions in the block are protected from changes, information remains confidential and reliable. Besides, using Merkel root, you can create simplified nodes only by block headers, while two interacting nodes can ensure that transactions are correct only by their headers. In this paper, we proposed a theoretical model for banking application using consortium blockchain based on the concept of on-chain and off-chain transactions to encounter the implementation issues of blockchain in banking systems with the consideration of basic blockchain challenges that give much more secure and reliable services.
The remaining paper comprised of the following sections: Sect. 2 presents the previous works published on blockchain implementation in the banking industry, Sect. 3 presents the system architecture of the proposed blockchain model, Sect. 4 discusses the major services of this model, Sect. 5 shows the comparative analysis of our proposed system with previously presented schemes and its results and Sect. 6 concludes the paper and highlights the open issues.