The technology that is likely to have an enormous impact on the future of the world economy has arrived and it is here to stay. And it is the blockchain ! It will change the entire world.
Below are some of the areas that will be disrupted by the new “Blockchain Financial System”:
Authenticating Identity and Value — At present trust and identity verification is done by intermediaries and incumbents. Blockchain will shift or even eliminate the trust element to the core fabric of the network. Know Your Customer KYC will be performed as a single digital entry and cryptographically secured and distributed across the network eliminating duplicate entries and verification. Key stakeholders that would be effected by this innovative solution are retail banking, wholesale banking, investment banking, asset managers, broker dealers, payment networks, lending marketplaces, equity crowdfunding, regulators and auditors.
Distribution of Value — They say money makes the world go round…can blockchain do the same? Financial system moves trillions of dollars daily while ensuring that no single dollar is spent twice. Blockchain can be the standard going forward using smart contracts for the distribution of value be it assets, currency, bonds, diamonds, gold, silver, stocks…The distribution of value using blockchain technology will dramatically reduce cost, speed of payment and counterparty risk as transactions get verified and cleared instantly.
Storage of Value — Banking institutions are the custodians of value (commodities, currency, financial assets) for individuals, institutions and governments. Blockchain and payment mechanisms combined with permissioned blockchain decentralised cloud storage systems (like YottaCube.io) would be a more efficient way of storing financial assets minimising cybersecurity risks.
Lending Value — Since the financial crisis the lending business has seen a significant amount of disruption with marketplace lending providers such as Prosper, Lending Club, Funding Circle spearheading innovation in the alternative finance space. Debt can be issued, traded and settled on the blockchain which will increase efficiency, reduce frictions and improves systemic risk. Consumers and SMEs will use their digital reputation fingerprint to access loans from peers.
Exchanging Value — Financial markets facilitate trillions of dollars of financial assets daily. The introduction of blockchain within this segment will reduce the transactions settlement times significantly from days and weeks to minutes and seconds.
Funding and Investing — The present investing model requires intermediaries to create markets by matching investors with entrepreneurs, SMEs and enterprises at every stage of growth from angels to IPOs. This funding model requires intermediaries such investments bankers, venture capitalists, brokers, lawyers which can have high costs attached. The funding and investing space has seen disruptive business models emerging such as equity crowdfunding and mini IPOs, similar to the lending landscape. These innovative business models take the experience online and utilise a peer to peer model where ideas and entrepreneurs connects directly with investors without the need of costly intermediaries. Mini IPOs are also facilitated by new platforms which gives the everyday investors the ability to participate and invest at early stage of company funding cycle. Blockchain will automate many of these functions by making the recording of investments more efficient, transparent and secure. The emergence of cryptocurrencies and smart contracts will fundamentally transform the funding and investing landscape. Initial Coin Offering (ICO) is a new concept that has become available due to the rise of digital currencies. An ICO is a way for the new project to raise funds globally and digitally so that it can be created and launched…Crowdfunding 3.0. One successful example of an ICO being used to fund a successful digital currency project is Ethereum, a public blockchain-based distributed computing platform.
Insuring Value and Managing Risk — Risk management is a fundamental component within financial system. Ensuring the protection of individuals and enterprises from losses or catastrophe has been the bread and butter within the system for decades. Managing risk by using blockchain reputational systems to better protect assets, derivatives instruments, business property will increase transparency and efficiency.
Finance for Value — Finance activities will see a transformation culture shift. Moving from focusing on manual and heavy lifting transactional activities to a more finance advisory role by identifying and adding value to senior management and organisation as a whole.