March 11th, 2019 - Financial, Global Connectivity
By Praveen Pondichery
Is Wall Street ready for blockchain? That’s the question haunting the financial industry after Reuters reported several major financial institutions shelved their blockchain projects while they figure out exactly what to do with the new technology. Whoever gets it right will reap significant rewards – but it’s not clear when that will be.
Here’s a refresher on what blockchain might be able to do for the industry:
The current financial system, based on trusted intermediaries, represents financial contracts (cash deposits, bonds, stocks, derivatives, etc.) as digital records in thousands of cascaded proprietary ledgers of individual banks, exchanges or securities depositories. As a result, every transaction goes through tedious procedures that create complexities and inefficiencies in managing the whole setup, leading to significant errors in the process.
Blockchain technology has powerful mechanisms to make a trading platform more efficient, with the potential to revolutionize bookkeeping and records of ownership. It may even boost the back end of the trading sectors, where hefty costs are involved in maintaining and validating the records of all transactions.
With blockchain technology, there will be no need to maintain the same records of brokers, dealers, intermediaries, and clearing and settlement houses. Additionally, there will be smoother, more transparent and more effective monitoring of regulations and auditing.
Some potential applications for trading firms include:
While blockchain has been around for roughly a decade, confusion still surrounds it. One common misunderstanding that blockchain is bitcoin or some other type of cryptocurrency. Another misconception is that it is a new technology in the early stages of development, so having blockchain as part of an enterprise solution may not be a good idea.
While these ideas are not quite correct, it’s true that there are significant challenges to overcome before blockchain becomes a part of a trader’s life. Some include:
A consortium approach to Blockchain Platforms provides many of the same benefits affiliated with private blockchain — efficiency and transaction privacy, for example — without consolidating power with only one company.
Consortium blockchain platforms have many of the same advantages of a private blockchain, but operate under the leadership of a group instead of a single entity. This platform would be great for organizational collaboration and increases the success of building a minimum viable product(MVP).
As the coming years bring more clarity, collaboration and standardization, one thing is certain: The financial industry has not seen the last of blockchain.