How Blockchain Will Alter Global Financial Systems
Blockchain technology has come a long way, not only its capabilities but also with its public perception. Distributed ledgers gained the spotlight in public discourse through the explosive growth of cryptocurrency, with Bitcoin being the most well known. Numerous large financial institutions were quick to denounce this meteoric rise as a bubble with very little backing the hype. These same banks are now investing in their own blockchain projects in order to in a bid to be the disruptor rather than the disrupted.
An example of this change in perception is JP Morgan. Jamie Dimon is an outspoken critic on Bitcoin, yet a mere two years later JP Morgan announced JPM Coin for remittance. This news was released in February with a launch slated for Q3 of 2019. It will be implemented in its wholesale payments business, which moves $6 trillion daily. JPM Coin can and will be used in place of international wire transfers, vastly decreasing settlement time & fees paid by each party.
JPM Coin runs on Quorum, a private fork of Ethereum developed with institutions and their financial assets in mind. The cryptocurrency is backed, meaning it is a stablecoin, making it different than most other mainstreamcoins. Another example of banks adopting Blockchain technology is Utility Settlement Coin . This project involves many large banks and is also looking to alleviate inefficiencies across the financial industry.
What Do These Coins Mean?
One of the main roles of banks is clearing and settling transfers. Currently, the system for clearing and settling these transactions can take days. Processing the transaction on a distributed platform, such as JPM Coin or Utility Settlement Coin, will allow money to clear and remit in an instant. This decreases friction in the flow of money between financial institutions, lowering costs and encouraging global trade. We can see further developments in Distributed Finance (DeFi) here.
We expect the process of taking out a loan to evolve as well. Lenders often require volumes of personal data in order to trust you as a potential borrower. This organization unfortunately leaves credit agencies in charge of protecting the personal data of everyone and anyone they can generate credit data for. A blockchain may be suitable for automating this process in such a way that the credit agency never gets to hold your personal information, only determine whether or not you are a trustworthy borrower.
Broader Implications
In terms of these projects, we find many of these banks pairing with large tech companies. This resource sharing is a critical driver of innovation and is leading towards a safer, more transparent financial industry. Financial institutions are setting a precedent, and we could potentially see these innovations starting to be implemented in countries with less developed economies. Financial development of emerging markets will be stabilized, and growth will rise. In the current global economic storm, blockchain is a lighthouse whose beam cuts through the dark to lead the ships. It may not completely eliminate wealth inequality, but we will undoubtedly see the lives and economic well-being of unbanked people improve because of DeFi.
Why Banks Need This Evolution
We should give props to banks for seeing the use of blockchain and pouncing on the opportunity. It is paramount to their own survival that banks adopt this technology. Institutions that refuse will be left noncompetitive as their archaic practices become less and less appealing to the average consumer. Startups like Stripe, Cash App and Venmo have already begun to threaten a centuries-old status quo. They link to your bank account, allowing you to transfer funds into a virtual wallet that you can then use to pay another party. It makes transfers easy and instant. If given the time, these companies could grow to the point where they run autonomously and cut out the banks. Banks have all the resources they need to seize the opportunities in front of them- a large investment into the research and development of a distributed platform will be their salvation.
It is fascinating to speculate how these projects will end up working out, and we are eagerly watching the progressing impact of DeFi on the financial industry. As much as people rely on banks, they generally do not trust them. Trust is the linchpin of an economy, and safely implementing coins/blockchain infrastructure will help build this trust by creating a more transparent and consumer-centric system.
Sources
- https://www.cnbc.com/2019/02/13/jp-morgan-is-rolling-out-the-first-us-bank-backed-cryptocurrency-to-transform-payments--.html
- https://www.jpmorgan.com/country/MX/ES/Quorum
- https://www.forbes.com/sites/shermanlee/2018/03/12/explaining-stable-coins-the-holy-grail-of-crytpocurrency/#4575c55b4fc6
- https://bitcoin.org/en/how-it-works
- https://techcrunch.com/2018/01/28/bank-based-blockchain-projects-are-going-to-transform-the-financial-services-industry/
- https://transferwise.com/us/blog/everything-you-need-to-know-about-swift-network
- https://cointelegraph.com/news/major-utility-settlement-coin-project-raises-63-mln-for-commercial-realization
This article was written by Michael Guffey, a writer for MUBC’s Medium Blog Research Team. Miami University Blockchain Club is one of the premier University Clubs and educational resources in the nation, with a membership of over 200 individuals, and offerings ranging from conferences,hackathons,projects, speakers, professional development, and research. MUBC believes in building future leaders by connecting them with the Blockchain Ecosystem to foster innovation. Reach us on any of our social media accounts and learn more on our Linkedin, Twitter, YouTube, Instagram, and email.
