Blockchain : A Revolutionary Application in Financial Services
Efforts have already been launched by a group of financial institutions to investigate the potential opportunities that blockchain holds for businesses.
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Efforts have already been launched by a group of financial institutions to investigate the potential opportunities that blockchain holds for their businesses. Some organizations like USAA Bank and BBVA have already put in millions of dollars in Bitcoin service providers like Coinbase and Circleto study blockchain applications. Some others like Barclays and Fidelity have created accelerators or sponsored hackathons in a bid to provide space for startups and learn from them. Some other organizations like Citi and Nasdaq contribute as beta-testing systems which are built atop the blockchain technology to explore the potential it offers.Goldman Sachs is an organization that filed an application for a patent related to a settlement system for securities markets that would incorporate its own cryptographic currency, the SETL coin. The company is one of the 42 financial institutions (half of which are among the 100 largest revenue generating firms in the world) that joined a blockchain group launched in 2015 by a financial technology firm, R3 CEV. This consortium or group, one of the first collective efforts among major financial sector firms, is exploring opportunities to utilize blockchain technology not only in new financial products but also in their ongoing operations. The Alte Group, a financial services research firm has reported that in 2015, US$75 million have been invested by financial institutions in blockchain technology. This amounts to more than twice the amount invested in 2014 and the firm has also predicted that about five times the amount invested in 2015 will be invested annually by the year 2019. Financial services companies and regulators are paying great attention to the following areas and applications in blockchain.Crypto Head provides high quality reviews, guides and news for Cryptocurrency. Helping lead the planet to a digital future with this global phenomenon.Blockchain will also help in faster price comparison and tracking of escrow paymentson contracts. Ubitquity, LLC, and Factom are some start-ups that are designing platforms aimed towards tracking the ownership of property using notarizing functionality.The present system of multiple financial intermediaries has resulted in huge settlement time, increased costs, high risks for financial intermediaries. Blockchain has the potential to drastically reduce settlement time, which in turn, will result in the reduction of the amount of cash and collateral required to be held by financial institutions to alleviate settlement risks. This will be prime importance in the case of international transactions which can be completed in just a few hours as opposed to days taken at present.Regulators will also be attracted by smart contracts because of their stronger security aspects and the reduced risks of getting hacked internally. IBM is in the process of launching a proprietary blockchain to facilitate digital contracts. The company also has plans to release an open-source version that is user friendly and can be used by anyone. Smart contracts could also prove advantageous to artists, musicians and authors to license their work and track the usage without having to depend on intermediaries.Google's automated ContentID system is an example of an algorithmic approach already being used by private entities to monitor and manage compliance, however, this does not rely on blockchain technology. ContentID automatically disables YouTube videos that violate copyright laws. Likewise, Fedwire is an example of blockchain technology that can be used by government agencies to empiower bank supervisors to track systemic payment risks.Presently, we can predict with a limited amount of certainty a variety of changes and developments that blockchain technology will offer. However financial institutions and fintech providers could, going forward, face the challenge of identifying problems that will require new and innovative approaches rather than coming up with solutions. The most successful firms will be those that take advantage of these opportunities to harness fintech and the blockchain revolution. Recommended
Trade execution and settlementAdopting blockchain technology will enhance settlement at lower costs as also lower the risk of the happening of fraud. Some organizations will put in effort towards developing some unique and powerful offerings for trade and settlement. Nasdaq's private Linq blockchain network is one such example and its offering helps private companies that are yet to begin record keeping activities required by public listing to keep track of changes in the ownership of shares issued to founders, early investors and employees. Likewise, Ripple has introduced a well established powerful value exchange platform where financial institutions can indulge in real-time exchange of currency, cryptocurrency, commodities and other tokens of value, without having to depend on the traditional intermediaries of the international financial system, such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT). In yet another context, Overstock.com has issued private bonds via a blockchain mechanism, and has obtained approval from the US Securities and Exchange Commission to issue and record company stock using blockchain. In each case, when there is a change in ownership, a record of the same is immediately put on the blockchain and there is a simultaneous payment and settlement of the trade.