Do you know How Blockchain is changing finance? How Blockchain Technology can actually change the scope of financial industry? These questions are asked by many experts in major banks and various consulting firms. The R3CEV consortium decided to study development and prospects that blockchain technology has for the future.
This project is funded by several of the world’s largest banks, including Goldman Sachs. They all conducted research on this issue. Not only this, the possible applications of blockchain are also of interest to governments of different countries. Like United Kingdom, USA, Canada, Australia and a number of European countries wish to gather more information.
Most of the research reports highlight main areas of development of blockchain technology:
- International transfers
- Digital assets
- Management and markets
- Accounting and auditing
Let’s discuss these primary zones where blockchain technology can play a significant role.
Blockchain in Finance: Key Areas
1. Infrastructure for cross-border operations:
The digital revolution has completely transformed the media. It has also influenced the financial industry. Financial institutions have been using computers since the 1970s-1980s, when the first databases appeared. Then, came the Internet, and websites began to be developed in the 1990s and gained momentum. Further, the development of mobile applications began in current century of the digital economy.
But, the digital revolution has not yet led to a total change in the international money transfer system. Payment system Western Union is still a major “whale” in this area. Banks continue to use complex infrastructure for simple transactions. E.g. Sending money from one country to another.
So, blockchain technology allows financial institutions to establish direct links among themselves. Thereby avoiding correspondent operations through banks. The main product of the R3CEV consortium today is Corda, aimed at correspondent banking. Corda is from the words “cord” (straight line between two points in a circle) and “accord” (agreement).
Hence, the “Cord Circle” consists of banks that will use a common database. This shall be used for transactions, contracts, and other important documentation.
Additionally, financial competitors can use a common database to control the execution of transactions. And, there’s no need for a central database or third-party management system. In simple terms, banks can formalize and protect digital relationships in previously inaccessible ways.
In essence, this will eliminate the need for correspondent operations. Transactions can be carried out directly between the parties to the transaction within a peer-to-peer network. The most promising in this regard is Ripple. And, this allows you to solve many current problems in the banking sector. This is already used by some financial institutions.
2. Digital Assets as a Class:
Bitcoin made a kind of massive financial revolution. It created a unique digital asset with new properties. Before its appearance, the word “digital” had a completely different meaning. So, digital technologies made it possible to copy various products at the touch of a button. A quick glance at the music industry is enough to understand what is at stake.
But, Bitcoin brought something completely different to our world. In fact, it presented us with a unique digital code. Since the creation of principle of bits and bytes, a digital product has appeared that cannot be copied. Today, the value of cryptocurrency is in its ability to prevent any attempts at double spending and creating fake digital coins.
Cryptocurrency developers have become pioneers in creating a new class of assets. The ones that can replace traditional stock in the future. Each coin contains information about property rights, confirmed by a private cryptographic key.
Having received permission from the US Securities and Exchange Commission (SEC), the Internet giant Overstock announced the release of public shares on the blockchain platform. Also, many start-ups began to appear in large numbers, called the “initial Coin Offerings” (ICO) and Appcoins. These are tokens that help finance the project being promoted by raising funds from private investors.
So, these are few examples of the emergence of digital assets that need blockchain technology.
3. Management and Markets:
In this regard, the blockchain is beyond the scope of transactions. For example, Nasdaq was one of the first creators of the blockchain platform. Thereby providing the opportunity for private companies to issue and sell shares.
Other developers are involved in encrypting financial instruments. This allows you to pre-program them in order to implement certain corporate actions. In addition, you can easily solve logical problems in a business environment.
In 2016, the DAO project started on the Ethereum blockchain. Its goal is to imitate the crowdfunding market. Depending on their share, each investor can influence the adoption of certain decisions within the framework. And for blockchain development, you need to hire developers in this field.
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4. Blockchain in Regulatory Reporting:
You can use Blockchain to create a fully transparent and accessible recording system for regulators. It is also capable of encoding transactions in the area of regulatory reporting.
For example, banks have serious reporting obligations for agencies such as FinCEN. Every time they intend to conduct a transaction of $10,000 or higher, they must transfer this information to FinCEN. And, this stores it for use as an anti-money laundering database.
5. Blockchain in Trade:
When trading paper assets, the time frame for clearing and settlement of transaction is usually three days. The countdown starts from the day following the day of the transaction.
Trade cycle comprises of execution, clearing, and settlement. Hence, blockchain technology simplifies the entire life cycle of a trade transaction. When using a digital asset, trading is a calculation. Moreover, the cryptographic keys and a digital product they control can reduce transaction latency and counter party risk.
6. Accounting and Auditing:
Blockchain databases form themselves based on their own transaction history. They are an autonomous recording system. You can track the movement of finances over a specific time period between participants.
To conclude, the possibilities of blockchain technology in the field of accounting and auditing are very wide.
This is a guest post by Harnil Oza, CEO of Hyperlink InfoSystem, a leading app development company in New York, USA and India. He has a big team of app developers who deliver mobile solutions primarily on Android and iOS platform. And, he regularly shares technology related ideas at leading blogging sites.