Blockchain is set to change the world. It can provide solutions for banking security. It brings cost efficiencies from digitizing data, as part of a larger, significant transformation for finance, banking, and capital markets. It has even been suggested that the impact of blockchain on finance will be greater than that of the internet on media.
Blockchain came to the fore in 2008 with the publication of an article on peer-to-peer cash clearing. There is often confusion between blockchain and the leading cryptocurrency, Bitcoin.
Blockchain is built on ‘blocks’ or ‘ledgers’ containing digital data and directions, linked by a chain with a transaction log. The digitization and decentralized processing of DLT save time and expense. It eliminates central authorities, keeping historical records, ensuring transparency and security. Distributed databases can be with public or permissioned access. Along with technological advances in data storage and computing, blockchain will increase in usage and render cash superfluous.
In addition to the benefits of security, time scale and record-keeping help in compliance with regulations. The first applications of blockchain in fintech are in settlement routines and transaction processing. These include the clearing and settlement of trade and trade finance. However, adoption rates are still dependent on digital transformation, compliance, and collaboration.
The applications of blockchain are on the rise. A real-time, cross-border payment system is offered by the RippleNet platform, while a similar service has been incorporated by Mastercard. A payment system on Corda from fintech company R3 expedites intra-bank transfers and JP Morgan’s Interbank Informational Network is working on facilitating compliance and compiling data for payment confirmations. Initial Coin Offering (ICOs) are being reviewed by government bodies and their volume is increasing by the day.
New blockchain initiatives are aimed at dealing with complex transactions and less liquid assets. They should have a bigger impact on higher returns. A resort in Colorado, St. Regis Aspen, formed with a crowdfunding site and completed a private placement through DLT financing real estate. The sale of tokens with interests in the property raised $18 million. Ceres offers digitized oil and gas royalties in a private placement that brings buyers and sellers together. It can capitalize on rising interest in alternative investments.
Libra is Facebook’s proposed digital currency, also tied to a range of currencies, for which the US dollar represents a half. It will be a tradeable currency that will challenge restrictive exchange regulations. It may succeed, but currency markets, global monetary policy, and fiscal practice could adjust accordingly. The availability of such digital currencies will affect investment and the liquidity of digital assets.
Blockchain will likely have a considerable impact, but the timing of its adoption is less certain. The novelty will increase resistance to change and progress will be dependent on the initiative. Strategies that can foresee the coming changes and plan to capitalize on them will result in the most success.