Lesson 5: Blockchain use case: Finance

Lesson Learning objectives : What problems can Blockchain solve in the financial industry ? This lesson address this important topics in a simple and efficient way, to allow the participant understand a real use case of Blockchain in finance


Now that we understand what blockchains are and how they work lets look at some use cases for blockchain technology.

Blockchain use case in Finance

As business networks emerged to facilitate global trade so too did institutions to facilitate the financing of these networks. These instruments of trust (Banks, Federal reserve, Insurance, Govt Bodies) facilitate the exchange of value and/or protect buyers and sellers with regulations. Printed money, lines of credit and regulations all play a role in the financial sector and despite its many advancements over the decades there are still a variety of issues to be solved.

Similar to the inefficiencies in the business model, blockchain technology could save an estimated $20B in the financial service sector alone. Increasing the efficiency of ledgers, streamlining exchanges and speeding up transactions whilst also offering the security and transparency for regulators to audit quickly and efficiently.

Trust is the concept that a transaction can be accepted without worry, this is usually performed by a third party who can confirm that the asset truly did move from party A to party B. This process can be lengthy in time and effort as all parties in the transaction will create their own record of this single transaction, 

The centralized nature of these systems also increases the effect a mistake or cyber attack can have on the whole network as there exists one central point for failure which compromises the whole network.

Technological advancements in communication have reduced the distance between buyer and seller, facilitating the growth of international trade. Even with the advancements in digital money over half the worlds population still do not have access to bank accounts, forcing them to find alternative ways to do commerce. The high on-boarding costs and fees required to take part in various credit organizations has lead to parallel transaction systems increasing the duplicity of records even further. With transaction volumes increasing so too does the load beared, meaning any vulnerability is magnified.

“We could go the way that file transfer technology changed music, allowing new businesses like iTunes to emerge,” says Michael Harte, chief operations and technology officer at Barclays. “That is why there is such feverish activity at the moment.”

Permissioned blockchain technology can be used internally by the financial sector to streamline their record keeping whilst also reducing costs. Unalterable timestamped records provide regulators and auditors quick and easy access, speeding up various bureaucratic process. As each public address is open for viewing, displaying the holdings and transactions carried out by the account transparency is achieved.

In the past, large financial institutions were able to use their customers funds as they saw fit, without anyone’s knowledge, and not always in the most effective or honest matter, the financial crisis of 2008 being the epitome of this very issue. In a decentralized permission less blockchain, the network the need for a verifying third party. Allowing anyone with access to the open source software to create an account and transact with any other member on the network. The predefined rules of the network dictates the relative supply and distribution rules. (For more information on decentralized finance see our Education course: Cryptocurrency)

In the next lesson we will look at how permissioned blockchain technology can be used for Supply Chain Management (SCM).

Back to: What is Blockchain ? – Complementary Course
Lesson Details
Length
5 minutes
Complexity
Easy