Blockchain technology can be applied to more than just money, but for today’s post, we will be focusing on its impact on the finance industry. As the weeks go on, we will focus on an individual industry, but since it is the most famous, we will dive deep into the rise (and fall?) of bitcoin along with other ways in which finance will change forever due to the growth of Blockchain. As you might recall from our first post, forty of the world’s top financial firms are experimenting with the technology. To this date, there has been over $1 billion invested in Bitcoin, the most popular form of Blockchain.
Bitcoin is possible because of Blockchain technology, however, Bitcoin is not Blockchain! Bitcoin has fallen short of expectations, so make sure to understand that finance and Blockchain in the future is not necessarily bitcoin. Bitcoin is a distributed and decentralized digital currency. Some of the cons of Bitcoin is that you can’t move your existing money, have to pay wildly unpredictable fees that are high and rising fast, its suffering large backlogs and flaky payments. Blockchain is the underlying protocol behind the technology of the currency. The strength behind Blockchain technology is in the authenticity of records, content and transactions, and its decentralized nature. This opens up the possibilities of many uses.
For starters, we have IBM working on harnessing the power of Blockchain. IBM’s Blockchain solution combines data provided by the participants in the network, creating a consolidated and detailed view of transactions that is visible to all parties. The outcome of this solution is a significant reduction in number of disputes, dispute cycle time, and improvement in productive use of working capital. Key features of IBM Blockchain are immutability, non-reputability, and privacy guarantees provide a safe, trusted and decentralized ledger for sharing information, while retaining role-based control of its visibility to other participants in the network.
J.P. Morgan Chase is also another financial giant jumping on the Blockchain train. They are working on using the technology in a manner that would allow the bank to use a publicly available system for confidential transactions. It is interesting to note JP Morgan’s outlook on making it a public network instead of a private one like most institutions have incorporated. Cybersecurity is one of the major benefits of Blockchain that we stressed in our first blog post.
Another giant, Barclays, has just completed a Blockchain trade finance transaction. Two of its partners, Ornua and Seychelles Trading Company, successfully transferred trade documentation via a Blockchain platform created by Barclays’ program Wave. This means that in the future, adding multiple parties to a distributed ledger system can remove one of the biggest “headaches” associated with global trade, the movement of the paper documents that track and authenticate the transactions that have occurred.
Blythe Masters, CEO of Digital Asset Holdings, has said that Blockchain will have a significant impact on Financial Industries. Economic transactions on a digital ledger can be programmed to record any type of financial instrument. These systems tackle settlement latency in mainstream financial markets. This means the entire lifecycle of a trade, including its execution, the netting of multiple trades against each other, reconciliation of who did what with whom, and whether they agree, can occur at the trade entry level. That’s much earlier in the stack of process than what you are accustomed to seeing in mainstream financial infrastructure.