More than 20 banks and financial institutions are now publicly working on adapting blockchain, the technology behind Bitcoin, for more mainstream banking services.
Thanks to an infographic produced by Let’s Talk Payment, we now have a better idea of what these blockchain-backed services could be:
The blockchain is seductive because it does away with a “man in the middle” for processing and validation. For a currency like Bitcoin this means no central bank, but for other financial products it could mean even more.
As Alex Batlin, CTO for Innovation at UBS told IFR Asia earlier this year:
“Blockchain technologies can make banks more efficient – for example through instantaneous settlement rather than the days it takes at present, lower costs and lower operational risk. The simple lesson for banks is that if we don’t do it someone else will.”
When it comes down to it, all of these applications being explored have a few things in common: they are processes that require expensive and often time-consuming processing and validation.
For asset registries, the benefit is immediately obvious: Nasdaq is reportedly already trialing the blockchain as a method of automated and verified record keeping, using it as a replacement for manual data entry and expensive lawyers.
Smart Bonds are being championed by UBS, who have experimented with a bond that is a “self paying instrument” and are taking advantage of the ledger technology to automate coupon payments for certain securities.
There are already a number of companies exploring “smart contracts” based on something like the ethereum platform. Smart contracts are contracts that automatically execute the terms of the contract once the programmed conditions are met. Again, leveraging the power of the public ledger to displace lawyers.
For trading, the best example might be its use in the massive global currency market, where blockchain-based trading promises instantaneous transfers, unlocking liquidity, and possibly bringing down costs.
As you can see, the blockchain disruption is poised to spread throughout the financial system, bringing the kind of automation that has already hit other industries.