How Could Blockchain Technology Change Finance?
von Satoshi Nakamoto
This question has been asked by every futurist research lab in many of the largest banks, central banks, financial institutions, think tanks, consulting firms and government committees around the world.
R3CEV, a consortium effort financed by some of the world's largest banks, is busy trying to answer this question. Goldman Sachs, McKinsey Consulting and Consumers' Research have all written excellent reports on this question. The UK Government, the Senates of the US, Canada, Australia and the EU have all made inquiries along these lines.
Many startups also produce white papers concerning their particular innovation or use of blockchain technology, and often include the larger social question: "How this will change things?"
Much of this research underlines four major areas of change:
Infrastructure for cross-border transactions
The digital revolution has totally transformed media, as we all know. It's had an effect in the finance industry as well. Of course, financial institutions use computers. They used them for databases in the 1970s and 1980s, they made web pages in the 1990s and they migrated to mobile apps in the new millennium.
But the digital revolution has not yet revolutionized cross-border transactions. Western Union remains a big name, running much the same business they always have. Banks continue to use a complex infrastructure for simple transactions, like sending money abroad.
The following infographic, prepared by Richard Gendal Brown, shows the infrastructure and intermediaries in cross-border banking that have been in place since the '70s.
This architecture is the result of the finance industry using highly secured private databases. Digitization has meant we merely sort information into private databases much faster.
Blockchain technology allows for financial institutions to create direct links between each other, avoiding correspondent banking. R3's principal product to date, Corda, aims at correspondent banking. Corda is a play on words incorporating 'accord' (agreement) and 'cord' (the straightest line between two points in a circle).
In Corda's case, the circle is made up of banks who would use a shared ledger for transactions, contracts and important documents.
Brown used to work on IBM's blockchain products, but has since moved over to work at R3CEV.
Competing financial institutions could use this common database to keep track of the execution, clearing and settlement of transactions without the need to involve any central database or management system. In short, the banks will be able to formalize and secure digital relationships between themselves in ways they could not before.
In the above representation, that means correspondent banking agreements and the RTGS could both be shortcutted.
Transactions can occur directly between two parties on a frictionless P2P basis. Ripple, a permissioned blockchain, is built to solve many of these problems.
Digital assets as a class
Bitcoin created something unique: digital property.
Before bitcoin, 'digital' was not synonymous with scarcity. Anything digital could be copied with the click of a button. A quick look at the music industry and album sales tells this story convincingly.
But bitcoin did something new: it created uncopyable digital code.
So, for the first time since bits and bytes were invented, there was a way to own something digital that couldn't be copied. This gave the digital code value. To this day, bitcoin's value is based on the capacity of its blockchain to prevent double-spending and the creation of counterfeit coins.
With this in mind, bitcoin developers have pioneered coloured coins that can act as stock in a company. The 'color' of the coin represents information about what ownership rights the private cryptographic key provides.
After receiving SEC permission, online retail giant Overstock announced it would issue public shares of company stock on its tØ blockchain platform. We've also seen the advent of 'initial coin offerings' (ICOs) and 'appcoins' (cryptocurrencies native to an app that help fund development of the project).
These examples are only part of the story for blockchains in digital assets. They can be the asset, but blockchains can also be used to run the market itself.
Basically, these efforts are treating digital assets as a bearer instrument, which is a wide and dexterous application.
Governance and markets
This ability, however, extends beyond just recording transactions. Nasdaq, for example, was one of the first to build a platform enabling private companies to issue and trade shares using a blockchain.
Other developers are coding financial instruments that can be pre-programed to carry out corporate actions and business logic.
In 2016, a blockchain project called The DAO, running on the ethereum blockchain, was launched with the aim of emulating a crowdfunding market. Your percentage of contribution to the fund represented the percentage vote in how the total fund would be spent.
Regulatory reporting and compliance
Blockchains can serve as a fully transparent and accessible system of record for regulators. The can also be coded to authorize transactions which comply with regulatory reporting.
For example, banks have severe reporting obligations to agencies such as FinCEN. Every single time they authorize a transaction of more than $10,000, they must report the information to FinCEN, who stores it for use as an anti-money laundering database.
Clearing and Settlement
With paper-world trading, the time frame for clearing and settlement of a transaction is generally referred to as 'T+3' – that is, three days after the trade (T), the transaction is settled.
With blockchain technology, the entire lifecycle of a trade – execution, clearing and settlement – occurs at the trade stage. With a digital asset, trade is settlement, and the cryptographic keys and digital ownership they control can lower post-trade latency and counterparty risk.
Accounting and auditing
Whereas most databases are snapshots of a moment in time, blockchain databases are built from their own transaction history. They are a database with context, a history of itself, a self-contained system of record.
The implications for auditing and accounting are profound.
Authored by Nolan Bauerle; Coindesk
NEXT: WHAT ARE BLOCKCHAIN'S ISSUES AND LIMITATIONS?
INDEX: A BEGINNERS GUIDE TO BITCOIN AND BLOCKCHAIN TECHNOLOGY
What is Bitcoin?
It’s a decentralized digital currency
Why Use Bitcoin?
It’s fast, cheap to use, and secure
How Can I Buy Bitcoin?
From an exchange or an individual
How to Buy Bitcoin in the UK
Buying bitcoin in the UK
How to Store Your Bitcoin
Use a digital or paper wallet
What Can You Buy with Bitcoin?
Spend your bitcoins
How to Sell Bitcoin
A guide on how to sell your bitcoins
How to Accept Bitcoin Payments for Your Store
Learn about bitcoin POS systems
How do Bitcoin Transactions Work?
Bitcoin addresses and private keys
Is Bitcoin Legal?
The current regulation around bitcoin
Who is Satoshi Nakamoto?
The founder of bitcoin
How Bitcoin Mining Works
By confirming transactions
How to Set Up a Bitcoin Miner
Generate bitcoins yourself
What are Bitcoin Mining Pools?
What are pools how and how to join them?
How Does Cloud Mining Bitcoin Work?
Alternative bitcoin mining solutions
How to Calculate Mining Profitability
Can you make a ROI?
How to Make a Paper Bitcoin Wallet
Creating an unhackable bitcoin wallet
Can Bitcoin Scale?
A look at the debate and the tech
What is SegWit?
A new way of storing transaction data
What is the Lightning Network?
Off-chain transaction channels
What is Bitcoin Cash?
Same blockchain, different characteristics.
Hard Fork vs Soft Fork
Why and how do blockchains split?
What is the Difference Between Litecoin and Bitcoin?
It’s the silver to bitcoin’s gold
How to Buy Litecoin
How to buy the bitcoin alternative litecoin
How to Mine Litecoin and other Altcoins
How to generate your own altcoins
Understanding Bitcoin Price Charts
A primer on bitcoin price charts
Bitcoin E-Commerce Services for Merchants
How to accept bitcoin at your business
What is Blockchain Technology?
A system of distributed data and logic
How Does Blockchain Technology Work?
Cryptographic keys, distributed networks and network servicing protocols
What Can a Blockchain Do?
Identity, recordkeeping, smart contracts and more
What is a Distributed Ledger?
A dynamic, independently maintained database
What is the Difference Between Public and Permissioned Blockchains?
Can anyone read or write to the ledger?
What is the Difference Between a Blockchain and a Database?
It begins with architectural and administrative decisions
What Are the Applications and Use Cases of Blockchains?
Tokenization, auditing, governance, settlement and more
How Could Blockchain Technology Change Finance?
Cross-border payments, new asset classes, regulatory compliance and more
What are Blockchain’s Issues and Limitations?
Complexity, size, costs, speed, security, politics and more
Why Use a Blockchain?
To manage and secure digital relationships as part of a system of record
What is Ethereum?
A blockchain application platform and ‘world computer’
What is Ether?
The ‘fuel’ of the ethereum network
How to Use Ethereum
Wallets, trading and ‘dapps’
Who Created Ethereum?
Vitalik Buterin
How Ethereum Mining Works
‘Proof of Work’ and ‘Proof of Stake’
How to Mine Ethereum
GPUs, mining software and pools
How Ethereum Works
‘Turing-complete’ programming, ‘state’ and the ‘EVM’
What is a Decentralized Application?
A distributed ‘smart contract’ system
What is a DAO?
A ‘decentralized autonomous organization’
How Do Ethereum Smart Contracts Work?
Code, transaction fees and ‘gas’
How Will Ethereum Scale?
‘Sharding’ and ‘off-chain’ transactions
What is an ICO?
Initial Coin Offerings refer to the distribution of digital tokens.
Read the full article
R3CEV, a consortium effort financed by some of the world's largest banks, is busy trying to answer this question. Goldman Sachs, McKinsey Consulting and Consumers' Research have all written excellent reports on this question. The UK Government, the Senates of the US, Canada, Australia and the EU have all made inquiries along these lines.
Many startups also produce white papers concerning their particular innovation or use of blockchain technology, and often include the larger social question: "How this will change things?"
Much of this research underlines four major areas of change:
Infrastructure for cross-border transactions
The digital revolution has totally transformed media, as we all know. It's had an effect in the finance industry as well. Of course, financial institutions use computers. They used them for databases in the 1970s and 1980s, they made web pages in the 1990s and they migrated to mobile apps in the new millennium.
But the digital revolution has not yet revolutionized cross-border transactions. Western Union remains a big name, running much the same business they always have. Banks continue to use a complex infrastructure for simple transactions, like sending money abroad.
The following infographic, prepared by Richard Gendal Brown, shows the infrastructure and intermediaries in cross-border banking that have been in place since the '70s.
This architecture is the result of the finance industry using highly secured private databases. Digitization has meant we merely sort information into private databases much faster.
Blockchain technology allows for financial institutions to create direct links between each other, avoiding correspondent banking. R3's principal product to date, Corda, aims at correspondent banking. Corda is a play on words incorporating 'accord' (agreement) and 'cord' (the straightest line between two points in a circle).
In Corda's case, the circle is made up of banks who would use a shared ledger for transactions, contracts and important documents.
Brown used to work on IBM's blockchain products, but has since moved over to work at R3CEV.
Competing financial institutions could use this common database to keep track of the execution, clearing and settlement of transactions without the need to involve any central database or management system. In short, the banks will be able to formalize and secure digital relationships between themselves in ways they could not before.
In the above representation, that means correspondent banking agreements and the RTGS could both be shortcutted.
Transactions can occur directly between two parties on a frictionless P2P basis. Ripple, a permissioned blockchain, is built to solve many of these problems.
Digital assets as a class
Bitcoin created something unique: digital property.
Before bitcoin, 'digital' was not synonymous with scarcity. Anything digital could be copied with the click of a button. A quick look at the music industry and album sales tells this story convincingly.
But bitcoin did something new: it created uncopyable digital code.
So, for the first time since bits and bytes were invented, there was a way to own something digital that couldn't be copied. This gave the digital code value. To this day, bitcoin's value is based on the capacity of its blockchain to prevent double-spending and the creation of counterfeit coins.
With this in mind, bitcoin developers have pioneered coloured coins that can act as stock in a company. The 'color' of the coin represents information about what ownership rights the private cryptographic key provides.
After receiving SEC permission, online retail giant Overstock announced it would issue public shares of company stock on its tØ blockchain platform. We've also seen the advent of 'initial coin offerings' (ICOs) and 'appcoins' (cryptocurrencies native to an app that help fund development of the project).These examples are only part of the story for blockchains in digital assets. They can be the asset, but blockchains can also be used to run the market itself.
Basically, these efforts are treating digital assets as a bearer instrument, which is a wide and dexterous application.
Governance and markets
This ability, however, extends beyond just recording transactions. Nasdaq, for example, was one of the first to build a platform enabling private companies to issue and trade shares using a blockchain.
Other developers are coding financial instruments that can be pre-programed to carry out corporate actions and business logic.
In 2016, a blockchain project called The DAO, running on the ethereum blockchain, was launched with the aim of emulating a crowdfunding market. Your percentage of contribution to the fund represented the percentage vote in how the total fund would be spent.
Regulatory reporting and compliance
Blockchains can serve as a fully transparent and accessible system of record for regulators. The can also be coded to authorize transactions which comply with regulatory reporting.
For example, banks have severe reporting obligations to agencies such as FinCEN. Every single time they authorize a transaction of more than $10,000, they must report the information to FinCEN, who stores it for use as an anti-money laundering database.
Clearing and Settlement
With paper-world trading, the time frame for clearing and settlement of a transaction is generally referred to as 'T+3' – that is, three days after the trade (T), the transaction is settled.
With blockchain technology, the entire lifecycle of a trade – execution, clearing and settlement – occurs at the trade stage. With a digital asset, trade is settlement, and the cryptographic keys and digital ownership they control can lower post-trade latency and counterparty risk.
Accounting and auditing
Whereas most databases are snapshots of a moment in time, blockchain databases are built from their own transaction history. They are a database with context, a history of itself, a self-contained system of record.
The implications for auditing and accounting are profound.
Authored by Nolan Bauerle; Coindesk
NEXT: WHAT ARE BLOCKCHAIN'S ISSUES AND LIMITATIONS?
INDEX: A BEGINNERS GUIDE TO BITCOIN AND BLOCKCHAIN TECHNOLOGY
What is Bitcoin?
It’s a decentralized digital currency
Why Use Bitcoin?
It’s fast, cheap to use, and secure
How Can I Buy Bitcoin?
From an exchange or an individual
How to Buy Bitcoin in the UK
Buying bitcoin in the UK
How to Store Your Bitcoin
Use a digital or paper wallet
What Can You Buy with Bitcoin?
Spend your bitcoins
How to Sell Bitcoin
A guide on how to sell your bitcoins
How to Accept Bitcoin Payments for Your Store
Learn about bitcoin POS systems
How do Bitcoin Transactions Work?
Bitcoin addresses and private keys
Is Bitcoin Legal?
The current regulation around bitcoin
Who is Satoshi Nakamoto?
The founder of bitcoin
How Bitcoin Mining Works
By confirming transactions
How to Set Up a Bitcoin Miner
Generate bitcoins yourself
What are Bitcoin Mining Pools?
What are pools how and how to join them?
How Does Cloud Mining Bitcoin Work?
Alternative bitcoin mining solutions
How to Calculate Mining Profitability
Can you make a ROI?
How to Make a Paper Bitcoin Wallet
Creating an unhackable bitcoin wallet
Can Bitcoin Scale?
A look at the debate and the tech
What is SegWit?
A new way of storing transaction data
What is the Lightning Network?
Off-chain transaction channels
What is Bitcoin Cash?
Same blockchain, different characteristics.
Hard Fork vs Soft Fork
Why and how do blockchains split?
What is the Difference Between Litecoin and Bitcoin?
It’s the silver to bitcoin’s gold
How to Buy Litecoin
How to buy the bitcoin alternative litecoin
How to Mine Litecoin and other Altcoins
How to generate your own altcoins
Understanding Bitcoin Price Charts
A primer on bitcoin price charts
Bitcoin E-Commerce Services for Merchants
How to accept bitcoin at your business
What is Blockchain Technology?
A system of distributed data and logic
How Does Blockchain Technology Work?
Cryptographic keys, distributed networks and network servicing protocols
What Can a Blockchain Do?
Identity, recordkeeping, smart contracts and more
What is a Distributed Ledger?
A dynamic, independently maintained database
What is the Difference Between Public and Permissioned Blockchains?
Can anyone read or write to the ledger?
What is the Difference Between a Blockchain and a Database?
It begins with architectural and administrative decisions
What Are the Applications and Use Cases of Blockchains?
Tokenization, auditing, governance, settlement and more
How Could Blockchain Technology Change Finance?
Cross-border payments, new asset classes, regulatory compliance and more
What are Blockchain’s Issues and Limitations?
Complexity, size, costs, speed, security, politics and more
Why Use a Blockchain?
To manage and secure digital relationships as part of a system of record
What is Ethereum?
A blockchain application platform and ‘world computer’
What is Ether?
The ‘fuel’ of the ethereum network
How to Use Ethereum
Wallets, trading and ‘dapps’
Who Created Ethereum?
Vitalik Buterin
How Ethereum Mining Works
‘Proof of Work’ and ‘Proof of Stake’
How to Mine Ethereum
GPUs, mining software and pools
How Ethereum Works
‘Turing-complete’ programming, ‘state’ and the ‘EVM’
What is a Decentralized Application?
A distributed ‘smart contract’ system
What is a DAO?
A ‘decentralized autonomous organization’
How Do Ethereum Smart Contracts Work?
Code, transaction fees and ‘gas’
How Will Ethereum Scale?
‘Sharding’ and ‘off-chain’ transactions
What is an ICO?
Initial Coin Offerings refer to the distribution of digital tokens.
Read the full article
Satoshi Nakamoto
Keine Verbindung
Verbindung wird wiederhergestellt
Etwas ist schiefgelaufen
Wir sind gleich wieder da