Blockchain application and the financial industry

by Lumai Mubanga

When bitcoin was invented, it had clear goals of eliminating the controlling financial authorities over personal funds. It aimed to eliminate banks and other financial institutions and give power back to the owners. However, when enterprise blockchain became popularized, blockchain found fertile soils for easy incorporation into its genetic code. Diverse applications resulted.

Tokenizing Assets

Bonds, stocks, and many other items dealt with by banks are not physical in nature. This makes the financial sector particularly well-situated for the blockchain revolution. Tokenizing most of these assets is slowly becoming the norm. Take for example the dharma protocol. It is a limitless and borderless way of sending and receiving USD without ever needing a bank account. It goes further to be 100% free. The Dharma protocol is even planning to move forward with this idea and release a token that represents part of a debt asset. As a protocol for tokenized debt, its aim is to create a standard to administer tokenized debt. It’s the same concept as securitization where you turn an illiquid asset into a tradeable one.

Many large banks notably Goldman Sachs is also just investing in cryptocurrencies. Many other assets associated with blockchain are able to pass across borders and jurisdictions largely unimagined by regulation. It is now a well-known fact that many cryptocurrencies can be bought in one country and sold in another for local currency, without ever having to pay a premium for exchange. This is particularly good news for large banks, whose large-scale transfers might have otherwise cost them a fortune.

 Interbank transfers

One of the most effective uses of blockchain in the financial sector is in the Interbank transactions. JP Morgan launched the Interbank Information Network, and Ripple launched the Global Payments steering group, gathering support from groups such as the Royal Bank of Canada. SWIFT, the current global financial transfer and standards organization is also heavily invested in the blockchain – their test project launched on Hyperledger Fabric and yielded positive results. It provides users with instant GPI payments, an innovation that could pave the way for its survival and maintain its popularity.

Privacy and Traceability

Privacy and traceability is another avenue why financial institutions have taken interest in blockchain. For example, the Industrial and Commercial Bank of China is using blockchain as a verification mechanism for digital certificates. Another one, Wells Fargo is using it to track securitized mortgages. JPM Chase has launched its own ethereum-esque enterprise blockchain platform, Quorum, which is optimized for finance use cases such as private transactions, permissioned network access, and smart contracts. On the other hand, Deloitte and KPMG are also banding together with Taiwanese banks to use blockchain to help audit financial reports.  The transparency and immutability afforded to blockchain-based systems are particularly enticing for accounting applications.

This has been another sector were blockchain has found fertile soil to flourish, grow, and mature.