January 31, 2018
Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole. – Bob Greifeld, Chief Executive of NASDAQ
In financial markets there’s always a mechanism to correct an attack. In a blockchain there is no mechanism to correct it — people have to accept it.- Robert Sams, founder and chief executive of London-based Clearmatics.
Blockchain technology has the ability to optimize the global infrastructure to deal with global issues in this space much more efficiently than current systems. – Marwan Forzley, Founder of Align Commerce
Everyone is talking about blockchain, the new technology in the FinTech Industry. The concept of blockchain has energized the financial services industry globally. The concept has already brought a disruption in the financial industry. LTP brings to you the overview, technology, application areas and use cases of blockchain.
What is blockchain?
A blockchain is a public ledger of all bitcoin transactions that have ever been executed. A block is the current part of a blockchain which records some or all of the recent transactions, and once completed, goes into the blockchain as permanent database. Each time a block gets completed, a new block is generated. Blocks are linked to each other (like a chain) in proper linear, chronological order with every block containing a hash of the previous block. To use conventional banking as an analogy, the blockchain is like a full history of banking transactions. Bitcoin transactions are entered chronologically in a blockchain just the way bank transactions are. Meanwhile, blocks, are like individual bank statements. The full copy of the blockchain has records of every bitcoin transaction ever executed. It can thus provide insight about facts like how much value belonged to a particular address at any point in the past. Some developers have begun looking at the creation of other different blockchains as they do not believe on depending on a single blockchain. Parallel blockchains and sidechains allow for tradeoffs and improved scalability using alternative, completely independent blockchains, thus, allowing for more innovation.
To give an example of the blockchain concept, we found out about a product called Gyft, an online platform for gift cards where you can buy, sell and redeem gift cards. It is a partnership between 44-year-old merchant acquirer/processor/FinTech firm First Data and blockchain infrastructure provider Chain to offer gift cards for SMBs using blockchain. The product will be rolled out soon and will become a solid example of blockchain-based innovation that has nothing to do with bitcoin. Why does it make sense? A majority of the SMBs don’t have gift card programs and therefore, POS installed at SMBs don’t accept them. It is costly to offer a gift card program and difficult to see the immediate benefits. It’s basically postponed gratification for a retailer, but large retailers understand it very well and have gift cards acceptance. Blockchain allows Gyft to offer a great gift card solution to SMB customers.
Benefits of blockchain technology as specified byForbesare:
As a public ledger system, blockchain records and validate each and every transaction made, which makes it secure and reliable.
All the transactions made are authorized by miners, which makes the transactions immutable and prevent it from the threat of hacking.
Blockchain technology discards the need of any third-party or central authority for peer-to-peer transactions.
Decentralization of the technology.
Banks and other financial institutions have also been active in investing (time and/or money) in this space. The following are some of the banks and other FIs who have shown intent on blockchain. The below timeline depicts the announcements by different FIs and their partners (if any) along with the potential use cases they are exploring.
The bank has said that it has been exploring various use cases of blockchain in areas like payments and settlement of fiat currencies, asset registries, enforcement and clearing derivative contracts, regulatory reporting, KYC, AML registries, improving post-trade processing services, etc. It has been experimenting on these technologies at their innovation labs in London, Berlin and Silicon Valley (July 2015).
The stock exchange firm initially revealed (May 2015) that they were planning to use blockchain as an enterprise-wide technology to enhance their capabilities on the NASDAQ Private Market Platform. The NASDAQ Private Market Platform is a new initiative launched in January 2014, to enable pre-IPO trading among private companies. It has also said that they would leverage the Open Assets Protocol, a colored coin concept, to build their private exchange platform. Later, in June 2015, it announced a partnership with Chain, a blockchain infrastructure provider for FIs and enterprises.
The bank organized a blockchain hackathon in Singapore in partnership with Coin Republic, a Singapore-based bitcoin company & Startupbootcamp FinTech. (May 2015)
BitX, Blockstrap and Colu provided the APIs for the two-day hackathon series. The winners were Omnichain (first place, an investment platform for emerging markets), Nubank (second place, provides banking for the unbanked) and BlockIntel (third place, a transaction security platform).
Euro Banking Association (EBA) has released a report (in May 2015) talking about the implications of crypto-technologies from the perspective of transaction banking and payment professionals in the coming one to three years. It has noted that these technologies could be leveraged by banks to reduce governance and audit costs, to provide better products and faster time to market.
US Federal Reserve:
Federal Reserve is reportedly working with IBM on developing a new digital payment system tied to blockchain. (Mar 2015)
In a post on LinkedIn, Anju Patwardhan, Chief Innovation Officer of Standard Chartered Bank, said that blockchain could be leveraged to cut costs and improve the transparency of financial transactions. (July 2015)
There have also been reports that derivatives companies CME Group, Deutsche Boerse, clearing houses DTCC (depository trust & clearing corporation) and EuroCCP are working on projects around the use of blockchain in areas such as clearing. Also, there has been news that money transfer service provider Western Union could possibly look into Ripple technology to understand blockchain.
Below is a brief of banks experimenting with blockchain that we have previously reported:
The bank has partnered with Kraken to provide a digital currency exchange in EU, and with Bitcoin.de, a P2P BTC trading platform in Germany. It later partnered with Ripple Labs to provide money transfer services.
Reported to have started working on blockchain technology in June 2014. They developed an app based on colored coins called Cuber Wallet in June 2015. They also have partnerships with Coinbase & Coinfloor and are experimenting on digital security with blockchain.
CBW Bank, Cross River Bank:
Partnered with Ripple Labs to build risk management system and provide lower cost remittance servi ...