Transforming Financial Services with Blockchain
When discussing potential application areas of blockchains, the finance sector is often referred to as the first industry primed for disruption by distributed ledger technology.
Most financial markets, like the US stock market, have been in an ongoing uptrend for the past 10 years. Yet, the current systems are frequently regarded as obsolete, since they lack proper digitalization, transparency, contemporary rules and global availability.
As blockchain technology could handle many of those aspects, a wide introduction seems like the next logical step for the finance sector. In this article, we summarize the most promising opportunities and our offers to the finance world.
Trade finance
More and more signs point towards established institutions having an immense interest in getting involved in distributed ledger technology. At the moment, there are four big international blockchain consortia, which all aim to evolve the $17 trillion trade finance industry and consist of some of the biggest banks in the world, such as Santander and HSBC.
In CryptoBLK, we supported one of the largest trade finance consortia formed by R3 and its member banks. In May 2018, we successfully supported HSBC and ING in completing the first live trade finance transaction on blockchain. Goals of the collaboration are to push digitalization in order to reduce fraud and accelerate document turnaround, to streamline accounting for businesses and to expedite receivable discounting, using smart contracts to advance cross border trading by tracking and monitoring open transactions, and to evolve the supply chain industry.
Real estate
Real estate needs an upgrade and there are a handful of reasons for that. Buying or selling a house usually comes with mountains of paperwork and additional costs for notaries or escrow services. Not only does a blockchain provide a secure and reliable technology to store important documents, it also gives the potential to eliminate the middleman by using smart contracts.
The tokenization of fungible assets would drastically reduce the time that is needed to trade property and it would grant the ability to easily divide the ownership of property among multiple investors. As a result, investing into real estate will become available to everyone around the world, and not just financial heavyweights.
As the first step to streamline the real estate transaction, we launched a Corda-based asset valuation and management system, Topaz, in March last year. Powered by the distributed ledger technology, Topaz provides a secure and trustworthy platform for financial institutes and surveyors to work collaboratively for property transaction and mortgage processing.
Insurance industry
Insurances have been a double-edged sword for a very long time. While many people in developed countries don’t want to live without insurances, it is often a hassle to claim them in certain situations. Simultaneously, insurance companies experience many limitations within data collection, auditing cause policies and verification.
As a consequence of these long existing troubles, insurance companies are actively experimenting with blockchain technology for policy issuance, automated payout, etc.
We have teamed up with the big players in the insurance industry to develop an industry-wide blockchain-based insurance authentication system. The system aims at providing a unified platform for the stakeholders, including insurance companies, policyholders, and government agencies, to validate the insurance in real-time, without revealing policyholder’s identity.
International payments
Have you ever tried conducting a wire transfer from a European country to the US? If yes, then you probably recognized the effort and time it took to do so. As many cryptocurrency enthusiasts know, this is one of the core problems that its underlying technology is aiming to solve. Although cryptocurrencies are already used to transfer value across borders, there are still several hurdles to clear before they can serve as a reliable platform for all kinds of payments.
The debate around scalability, while simultaneously maintaining speed and decentralization, is possibly the hottest topic in the blockchain space right now. Pretty much every coin is working towards becoming the most effective blockchain. Microtransactions and applications that record high frequency trading, like decentralized exchanges, are particularly in need of a fast, scalable and secure blockchain architecture.
Governments around the globe, like China and Iran, are currently experimenting with their very own cryptocurrencies. After a hyperinflation in 2017, the South American government of Venezuela introduced its new official currency Petro, which is based on a public blockchain and backed by the country’s oil and mineral reserves. So far so good, yet many sceptics criticised missing transparency and decentralization, which are essentially the key components of a typical cryptocurrency.
On the other hand, full transparency on blockchains does also come with serious issues. Most governments are blocking privacy coins, as authorities like tax bureaus require insight into accounts. Moreover, you can’t really imagine banks using cryptocurrencies if the transaction history is public to everyone. In order to find a fitting solution, we are collaborating with several international universities, including Nanyang Technological University, Shanghai Jiao Tong University and University of Wollongong, in the “Accountable Privacy” initiative. We are working towards the release of a spearheading Blockchain platform, Abelian, which allows compliant transaction to remain private, and applies post-quantum cryptography by design. The project development is led by our Hong Kong based company CryptoBLK, which is also in charge of the trade finance consortium Voltron.
What the future holds
In comparison to 2017, the current year is continuously evolving in terms of adoption and acceptance. Institutions and governments are not only interested, they are also actively experimenting and working on the adoption of the technology.
There are still a few challenges standing in the way of a global acceptance. The blockchain trilemma of maintaining scalability, speed and decentralization might be one of the first stumbling blocks that needs to be solved. Besides that, the explicit transparency is another big obstacle for winning banks and other substantial institutions. Constructing highly configurable blockchain architectures could be the next step for onboarding governments and the big players.
