Applications of Blockchain in Finance
10 Jul 2018
The “Vibranium” of Finance: Blockchain
By: Jason Whang
JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley. Finance goliaths in cut-throat competition are scrambling to innovate ways to utilize an emerging technology to push ahead of their competitors: blockchain. Said to be the next Internet, blockchain technology has the potential to revolutionize the world, especially in the finance sector, but how?
A decade ago blockchain was envisioned by Satoshi Nakamoto to be a decentralized system that facilitates transactions between users worldwide via a peer-to-peer network to solve the problem of double-spending of digital currency, when a set of currency is copied and spent twice in quick succession. Today, blockchain does that and more. Through a network of nodes or specialized computers, transactions are added to the blockchain ledger as miners compete to be the first to verify the validity of each transaction. However, due to the novelty and a general lack of understanding of this new technology, many are left wondering what its implications are and how blockchain’s use of cryptocurrency will affect the world of finance.
Traditionally, processes in finance are erroneous and slow, but blockchain technology allows financial institutions to conduct transactions more efficiently and precisely. Transactions can be conducted via smart contracts, computer programs that facilitate and verify the agreement between the two parties, before being appended to the leger and middlemen that were once necessary are cut out.1 This cuts the cost of remittance anywhere from 2-18% offering financial institutions the opportunity to save resources and time.2
Financial institutions can also utilize blockchain technology for improved identity verification. Since each person’s identity can be verified and a complete leger with all of their transactions is available, blockchain technology enables banks to better calculate their risk when distributing loans.3
Finally, blockchain technology is considered to be a disruptive technology for the stock exchange as well. With its ability to track assets and debts and to cut out middlemen, blockchain creates a faster and easier process to settle transactions. Its decentralized nature allows for greater security of important documentation, the automated surveillance system for transparency and trust, and smart contracts for reduced costs.4
Although blockchain is complicated and the volatility of cryptocurrency have deterred many from immediately adopting it, the potential benefits that it provides are vast. Top financial institutions recognize this and are competing to find ways to effectively utilize this technology to gain the upper-hand. As greater uses for blockchain are discovered and implemented, enormous advancements will follow. Expect the first financial institution to effectively implement this technology to come out on top.
- Bulters, Jeroen, and Jacob Boersma. “Blockchain Technology – the Benefits of Smart Contracts |
Deloitte.” Deloitte United States, 3 May 2018, www2.deloitte.com/nl/nl/pages/financial-services/articles/3-blockchain-the- benefits-of-smart-contracts.html.
- Eysden, Roeland Assenberg van, et al. “Blockchain Technology – Speeding up and Simplifying
Cross-Border Payments.” Deloitte United States, 3 May 2018, https://www2.deloitte.com/nl/nl/pages/financial-services/articles/3-blockchain-the-benefits-of-smart-contracts.html.
- Marquit, Miranda. “Blockchain Financial Applications for Business.” Due, Due, 30
Nov. 2017, https://due.com/blog/blockchain-financial-applications/”due.com/blog/blockchain-financial-applications/.
- Singh, Som Shekhar. “How Blockchain Will Change the Way You Trade in Stock Markets.”The
“Economic Times, Economic Times, 15 Jan. 2018, https://www.https://economictimes.indiatimes.com/markets/stocks/news/how-blockchain-will-change-the-way-you-trade-in-stock-markets/articleshow/62161610.cms.