Blockchain has the potential to become the critical backbone of the future capital markets infrastructure. So, what is it and is it right for your investment bank? Let’s look at these areas in more detail:
Crypto technology—what does it mean for investment banks?
Blockchain is a platform that uses cryptography and a distributed messaging protocol to create a shared ledger between trading counterparties. The idea is to allow for a simple transfer of asset ownership of more complex transactions using smart contracts.
Blockchain has the potential to make trading processes far more efficient, to improve regulatory control and to eliminate unnecessary intermediaries. It also has the potential to disrupt business models through challenging the positioning of traditional third parties, automation, smart controls and cost reduction, to name a few. For example, when it comes to automation, a Blockchain platform has execution capabilities open to the Internet and settlement is automatic. This means execution can be carried out without any human intervention and under the control of an incorruptible set of business rules.
Is Blockchain right for my bank?
Technology decision-makers at investment banks: it’s time to ask yourself the following questions before looking at Blockchain:
- Is there any regulatory framework to define a new industry standard?
- What are the new value drivers for market leadership in using the Blockchain technology?
- Will counterparties need to be identifiable and linked to a legal entity?
- How is the ledger version controlled?
- Is there a marketplace to perform the transactions?
These are just some of the questions investment banks will need to consider before diving into Blockchain. For those that do take the plunge, however, the potential benefits could be significant. The usage of Blockchain technology has, for example, the potential to reduce settlement times, increase security, lower trade failure rates and provide more accurate audit trails. Join me next week, when I take a closer look at the future of Blockchains.
Newer paper is attached or at: Blockchain-Enabled Distributed Ledgers: Are Investment Banks Ready?