Tapping the Power Of Blockchain In Financial Services
Jun 28, 2018 23:50
In the present landscape, industry leaders are evaluating distributed ledger technology. Among the first to implement the blockchain platform and set the groundwork for the future of this technology was the financial sector. An IBM report in 2017 even found 14% of financial market institutions aim for blockchain technologies in production and at a commercial scale. The trailblazers are prioritising blockchain efforts to act on threats like new business models or fresh competitors.
Today, industry leaders understand gaps in digital capabilities. With innovative network business models arising, banks and financial companies are realising they need to shift to blockchain to thrive in the digital era.
How It Works
Once the data capture takes place using blockchain technology, it can be shared across institutions and individuals as an immutable record, cutting out middlemen. The distributed replication of blockchain permit stakeholders to access and give data without centralisation. Each transaction is verified by stakeholders, so contributors can be accountable for individual roles in overall processes. For instance, wealth management firm Northern Trust in conjunction with IBM built a security-rich blockchain based on the Hyperledger Fabric, and secured on IBM’s blockchain network in 2017.
The network created through such blockchain platforms offers real-time insights and transparency across parties, including funding managers and investors. The support for stakeholders in compliance with regulations is one important feature of the blockchain network. Another is to transfer ownership stakes and be serviced, managed and audited through the investment life-cycle on a transparent platform.
Principles of Blockchain Technology
For every blockchain, distributed data ensures each party has complete access to the entire database and the complete history. There is no central control of data or information. Communication occurs between peers and each transaction with associated values can be accessed by those in the system. Once the database receives transactions, the records cannot be altered. The digital nature of the ledger means blockchain is programmed. Algorithms and rules can trigger transactions in between the nodes.
The Rise of Blockchain in Finance Sector
The promise of this disruptive technology has led to 1000s of banks, insurers, audit and professional service firms to invest in it. The chance to reduce friction and costs is the key. Santander, a EU bank put the savings from blockchain adoption at USD 20 billion per annum.
Streamlining the Business
Blockchain also enables financial services providers like JPMorgan Chase, Credit Suisse, Citigroup and many others to streamline their businesses using this innovative technology. Blockchain has also changed the face of corporate financing, allowing any company to raise money in the P2P way through globally distributed share-offerings.
One of the blockchain industry’s largest investors, Blockchain Capital is set to raise money for a new fund by issuing tokens for an initial coin offering (ICO), a first for this industry. Companies like Nasdaq Inc, Goldman Sachs, and Intercontinental Exchange have dominated the listing business and been the largest investors in blockchain technology.
The Potential of Blockchain
Blockchain is set to upend complex functions in the industry such as identity and reputation, storing value or savings, moving value or payments and credit as well as insurance and risk management apart from audit and tax functions.
Blockchain technology permits financial institutions to link up with each other, avoiding correspondent banking. Corda, a technological and business blockchain consortium R3’s principle product, aims at correspondent banking. Banks who would use shared ledger for contracts, paperwork, and transactions are in Corda’s circle. Thanks to blockchain technologies, banks are able to connect digitally in ways not possible before, short-circuiting RTGS and correspondent banking agreements.
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