What is a blockchain?
A blockchain, is a growing list of records, called blocks, which are interlinked using cryptography. Each block contains information regarding a specific transaction. A blockchain is designed to be resistant to the modification of data. As each transaction takes place, it is stored in a block and added to the chain. In simpler words, blockchain is a digital ledger, where all the transactions are recorded and shared publicly.
Information recorded on a blockchain exists as a shared and continually updated database. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and anybody can access the same. Information is decentralized and hosted by millions of computers simultaneously, thereby making hacking a most improbable event. While blockchain is often mentioned in association with cryptocurrency platforms like Bitcoin, the underlying technology has great potential in making the finance sector more efficient and transparent. As a radical technology for recordkeeping, blockchain technology is believed to change the future of finance in all aspects like accounting, asset registers, payments, trading, collateral management, and more.
Various governments are now bringing about changes in their financial sector by supporting businesses and organizations as they adopt new technologies like blockchain. Countries and companies are looking for various opportunities and options to implement Blockchain across the finance value chain. Numerous companies have started implementing blockchain-based proofs of concept and prototypes that will revolutionize the way financial transactions will be performed. Some of these projects are even sponsored by government institutions in an attempt to adopt the upcoming technology and gain a competitive advantage. The blockchain is making all the good noise in the financial industries with major countries trying to use it for secure and transparent transactions and try and avoid money laundering.
One of the recent examples is the Blockchain Academy that is to be launched by The Bahrain Institute of Banking and Finance (BIBF), making it the first if its kind in the country. Established in 1981, BIBF is a non-profit semi-government organization that mainly provides training in the financial sector. The Blockchain Academy will become the first professional blockchain program designed to help aspirants across the globe to get international credibility of the Certified Blockchain Professional C|BP. The program was developed in a partnership with Dubai’s leading training organization MyLearning Key. The program anons at three core competencies of the blockchain technology namely development, implementation, and strategy. Dr. Ahmed Al Shaikh, the BIBF director said that the program was developed to support the growth of the blockchain technology by providing skilled professionals in the blockchain area. Earlier this September, the Bahrain government emphasised upon the importance of the technology and insisted all the departments including vigilance, water, and electricity to explore areas where blockchain can be implemented.
Similar to the Blockchain Academy, Plekhanov Russian University of Economics will be launching programs that provide training and accelerator courses on the blockchain technology that will help train individuals in a short span of time. This will be achieved with the University’s partnership with multi-sector blockchain company Bitfury. Another such example is the launching of Blockchain course focussing on decentralised solutions, implementation and the human resources by the Tokyo University. The Tokyo University had received $800,000 as a donation from various leading banks, companies, and Ethereum foundation in a process to speed up the course design.
Blockchain technology holds great promise for finance organizations, including quantitative and qualitative benefits.
Cross border trading
The international trading faces a stiff challenge due to expensive remittance fee and never-ending wait time for the processing and this partnership is seen as an opportunity to reduce the impact these challenges have on the global trade market.
Japanese insurance giant Sompo Holdings, Inc. has officially announced their footprint into the blockchain industry. The company is about to get into a business partnership with BitPesa, an African organization that specializes in digital foreign exchanges and treasury solutions. By getting into an alliance Sompo Holdings, Inc. will be able to use BitPesa’s blockchain offerings that will completely revolutionize the cross-border financial transfers made by individuals as well as organizations. Both these companies are looking to expand their market globally and also increase blockchain awareness in the international financial trading sphere. BitPesa’s blockchain offerings help reduce the costs involved and also speeds up the entire payment process from and to markets, including cross-country remittances across Africa and Europe. Takehiko Eguchi, General Manager of Sompo Digital Ventures and Sompo Holdings said that it is an exciting venture that will help the company understand cross-border payments and is looking forward to eradicating challenges that affect the global trade. Eguchi also believed that virtual currencies can help reduce the foreign exchange fee problem in addition to lesser processing time.
Elizabeth Rossiello, CEO and Founder of BitPesa mentioned that the main aim of the alliance is to create a society that facilitates smooth movement of goods across the globe with the help of a cost-effective and efficient trading platform aided by virtual currencies. In addition to the partnership, Sompo has also invested in BitPesa to expand and strengthen its base across the globe. The Japanese giant’s investment will really help the company gain credibility and reach out to customers internationally.
Digital Assets as a class
One cannot talk about blockchain’s impact in revolutionizing financial markets without mentioning Bitcoin. The leading cryptocurrency has had a major share in the impact created by cryptocurrencies and blockchain. Bitcoin was the first and is the topmost digital currency that came up with the concept of uncopyable digital code. The Bitcoin made sure that users can use their currency without the fear of it being duplicated. This feature led to the use of these coins for trading and developers came up with the idea of creating different colours of Bitcoin denoting the different types of data and the value they hold along with the ownership rights and private key. Overstock, a leading retail giant announced that it will allow the issuing of its stocks on its blockchain platform.
Increased efficiency and regulatory compliance from transparent records and a single source of truth- By creating one version of a ledger that is synchronized across computers, blockchain can help eliminate out-of-sync ledgers and, therefore, the need for frequent cross-checking. Transparency leads to other benefits as well. In trade finance, for example, all parties will be able to see when goods have been shipped and view all steps of the transaction, which may significantly reduce the closing time of the transaction. The transparency associated with this technology allows the transactions to be checked for their compliance with regulations and policies. That being said, blockchain can also be designed to authorize transactions that comply with the policies. Banks have strict reporting requirements for financial institutions. One such example would be the banks requiring financial agency FinCEN to send a report for transactions more than $10,000 and this will be stored as a record to verify and stop money laundering .
Enhanced data integrity to reduce loss
With records that cannot be changed and are visible to everyone involved, blockchain will improve data accuracy and security, help reduce the risk of fraud, and show compliance through an audit trail. For example, when supply chain information is put on a blockchain, companies can potentially reduce fraud and errors, improve inventory management, identify issues more quickly, reduce delays from paperwork, ultimately building trust among all parties. Blockchain also offers the potential to create a single source of information pertaining to customer identity while simultaneously reducing costs and the risk related to the same.
‘Know Your Customer’ regulation
Improved customer experience through faster processing- By using blockchain to share information with clients and vendors, companies may be able to seal sales deals and serve customers far more quickly than with traditional systems for setting up new customer relationships. Blockchain can also facilitate consolidated and accurate databases or repositories of customer information that can be accessed by all parties in the network.
Higher availability of capital and lower cost of business
Thanks to modern consensus mechanisms and smart contracts, blockchain can minimize the time for which capital is tied up for a transaction, by triggering an automatic transfer of funds upon meeting an agreed set of conditions. Blockchain will also eliminate some transaction fees by reducing dependence on third parties, and it will likely free up capital flows as the purchase of managed funds moves to real time.
Facilitating Smart accounting
Using blockchain in accounting will provide more clarity over ownership of assets and existence of obligations, and could dramatically improve efficiency. Blockchain has the potential to strengthen or improve the accounting profession by reducing the cost of maintaining and reconciling ledgers and providing absolute certainty over the ownership and history of assets.
Blockchain has a huge potential to become an industry changing technology. That being said it must be handled with extreme caution, at least during the initial stages so that the misuse of this technology can be avoided. Training users and explaining to them how to use it will largely help consumers adopt it and increase awareness.