Blockchain: A decentralized and “smart” approach to managing finances
Have you ever wondered, how your assets and securities are managed within your investment fund? Apparently, a great deal of confusion and friction exists between different intermediaries such as sell-side firms, exchanges, clearing houses, central securities depositories, payments processors. Especially because all of them use different operational infrastructures.
Moment of epiphany, isn’t it? Next time, be reminded of the scenes behind the curtains, when you get on a call with your asset manager.
Blockchain’s ubiquitous distributed ledger technology can put a rest to this commotion within the financial network. No need for intermediaries to validate financial transactions anymore.
You as the end user, the fund investor can settle all formalities with your respective buy-side firm without any middleman intervention. “Smart contracts” can prove very useful in this regard.
Let’s understand this in a deeper sense. So, you have the blockchain which runs on a decentralized network across millions of computers. Consider that your asset management company, or buy-side firm gets its entire operational infrastructure set up on its own blockchain.
Now, the company can configure an executable file with its business rules implied by a financial contract. This file, also known as a smart contract can be embedded in a programming language and executed with any transaction. Smooth, right? This “smart” move, in turn can eliminate all intermediaries, leading to transparent transactions between you and your buy-side firm.
Fulfillment of each contract is made possible by a software code (as discussed above) which is independent of human interference. The terms of the contract and the money is released only upon compliance of all included conditions within the contract, sort of like an escrow feature.
Realizing the fact that smart contracts may at times require coding which can only be done by software professionals, many companies are launching a whole bunch of customizable templates for smart contracts, which can form the basis of any desired contract on any platform.
These templates can be set to act as per requirement and arrangement between parties, in turn eliminating the need for experienced professionals to create room for entry-level participants.
Also, there’s an added benefit of going about managing your funds on the blockchain. Except the smart contracts functionality, every blockchain has an associated cryptocurrency which is in turn is powered by the respective blockchain.
These digital currencies can act as a store of value resulting in exponential growth of your wealth over a period of just a few years. For example, consider the Ethereum blockchain, which propounded the idea of smart contracts in the first place.
From the time of its inception till date, Ethereum has given investors almost 74000% returns in three years’ time! Which other platform provides the benefit of reaping such humongous profits on invested capital? None.
Altogether with these digital assets, financial transactions over blockchains are nothing more than a cakewalk. You can send money to anyone in any part of the world with the lowest transaction fees in the fastest possible time, without intermediary interruption.
You can choose to either keep all your holdings as cryptocurrency assets on blockchains and encash them as per your requirement, earning a certain profit almost every time you withdraw funds to your bank account.
A much better idea than letting your hard earned money get stale in centralised ledgers, right?
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