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5 Ways Blockchain Will Disrupt Finance

January 19th 2018

In 2017, blockchain went from a technology embraced by a few techs and even fewer businesses to being talked about in tabloids, taxis and boardrooms around the world.

Articles about the long term price/ viability of Bitcoin will soon need their own blockchain and I have no desire to add my crystal ball predictions to the pile. Instead, I would like to look at actual examples of blockchain being implemented or where plans to implement it in are advanced and substantive.

Here are 5 real world instances where blockchain technology could significantly change existing models.

Asset Management

Many of the most traded assets are difficult to transfer or subdivide. Buyers and sellers trade paper that represents all of, or a portion of, the asset. The process is complex, inefficient and can be hard to track. One solution would be ‘Tokenization’, the ‘slicing up’ and ‘digitization’ of assets. This would give investors far easier access to a larger range of asset classes and provide more liquidity in the market.

Clearing and Settlement

Accenture has estimated that some major investment banks could make $10bn of efficiency savings by utilising blockchain technology.

The Australian Stock Exchange is replacing its registry, settlement and clearing system with blockchain technology to cut costs for customers.

Banks, including Goldman Sachs and JPMorgan, completed a test in the $2.8 trillion equity swaps market. Keeping track of the swaps contracts after they were executed, with a 100% success rate.

Identity

Know Your Client procedures are ‘still a pain point for financial institutions’ according to the Thomson Reuters 2017 KYC report, with annual administrative costs in the tens of millions. Blockchain would allow the independent verification of a client by an organisation to be readily accessible by other authorised organisations. Removing duplication from the process would substantially reduce these costs.

Land and Property Purchases

Utilising self executing smart contracts on the blockchain to create transaction records. These records would be incorruptible and facilitate near-instantaneous settlement which would reduce costs and friction. It could also change the way mortgages are sold and serviced, with cost and time benefits for customers. If land registries were on the blockchain, costs could be reduced even further. Blockchain-powered land registry projects are already underway in countries like Sweden.

Private Equity

Equity crowdfunding is now a bigger source of startup capital than venture capital. It has been doubling every year for the past few years and it is expected to grow even further. Instead of receiving paper share certificates for investing in a business the investor can receive a digital contract of equity ownership created by a smart contract.

Conclusion: Blockchain has enormous potential to reduce costs, administration procedures and add certainty and trust into financial transactions. The caveat is the hurdles of legacy systems and regulations that must be overcome before it is adopted worldwide. Also, all new technologies take significant development and capital and blockchain is no exception. However as the Harvard Business Review recently noted, ‘The Blockchain Will Do to the Financial System What the Internet Did to Media’.

About the author: Paul Henderson is a content strategist and marketer with a background developing digital content projects for companies including Bloomberg and Microsoft. He is the founder of Blockheads, a consultancy that advises blockchain and fintech startups on content strategy and social media marketing.

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