10 Blockchain applications in financial services

blockchain example
blockchain example

Blockchain is a technology that creates a distributed ledger of transactions on a network that is secure, tamper-proof, and easily accessible. The largest and best known blockchain implementation is the Bitcoin network.

A new model emerges

Banks and other financial institutions (FIs) have traditionally served as the guardians of financial activity—safeguarding accounts, extending credit, and facilitating payments—keeping the wheels of commerce turning. The entire financial system has been built on a model of centralized trust, where most financial activity is required to flow through and be controlled by financial institutions.

This model enables financial institutions to perform various services, including recordkeeping, account balancing, exchange of funds, fraud detection, and others, which provide markets with the necessary stability, security, accuracy, and confidentiality to operate effectively. The model is complemented by government legislation and monitoring bodies that provide oversight to ensure a reliable banking ecosystem.

Over the past several years, the pace of technological innovation across various industries has drastically increased. Advances in networking, storage, and computing power have produced an expanding array of new technologies and business models—changes that threaten to disintermediate incumbent players in the financial services industry.

New models, based on eliminating the “middle man,” have also disintermediated traditional incumbents in other sectors. Companies such as Amazon, eBay, Uber, and Airbnb have been able to remove friction from the value chain in their respective industries, resulting in new innovative products and services that provide the consumer a higher purchasing power (control).

A new term, “uberization,” has even been coined to describe this type of disruption. The latest in this line of innovations has the potential to strike at one of the core value propositions of the financial industry itself—the notion of trust. The technology that represents this challenge? Blockchain.

Blockchain—enabling a distributed ledger In simple terms, blockchain is the technology that creates a distributed ledger of transactions on a network that is secure, tamper-proof, and easily accessible. It is a shared record of transactions, distributed over a network of users. A blockchain is made up of a series of data blocks, each of which contains a set of transactions. Blocks are electronically chained together and locked with cryptography, and a public record of every transaction is established. The more blocks there are, the less probability exists that blocks can be altered. The biggest and best known blockchain implementation is the Bitcoin network.

In 2008, a pseudonymous person (or group) named Satoshi Nakomoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” describing an open, real-time, distributed payments network. What made the idea unique was that it was an entirely peer-to-peer system that was not based on a centralized trusted authority. It allowed anyone to participate and was not controlled by any one entity. The record of transactions was openly available for all to see—a model that is in direct contrast to the current banking system. Bitcoin, built on blockchain, was subsequently implemented as an open source project that was released in January 2009.

It is important to draw a distinction between Bitcoin and blockchain. Bitcoin is a widely available, electronic cryptocurrency that can be used to purchase goods or services. Bitcoins are awarded to specialized network participant nodes, called “miners,” for validating transactions. This serves to incentivize and strengthen the network. Blockchain is the underlying technology that enables the Bitcoin network to operate in an open, autonomous, decentralized model, where trust is enforced through cryptography and not its participants. In essence, there would be no Bitcoin without Blockchain, but there can certainly be Blockchain without Bitcoin. The distinction is important because blockchain technology can be applied to other uses—for example, property deeds or tracking of diamonds from source to buyers—beyond the processing of electronic currencies.

1 – Commercial Bank, Qatar’s first private bank has announced the successful completion of an international money transfer pilot using a cloud-based blockchain developed by a subsidiary of Indian software giant Infosys.

2- Wells Fargo bank, RBC among six engaging in Swift blockchain trial. The goal of this project is to ascertain whether distributed ledger technology is up to the challenge of helping banks to manage funds held in overseas accounts. Bank messaging network Swift has collected the participants as part of a global payments innovation (gpi) plan.

3- Ripple Signs Up Another 10 Banks As Blockchain-Based Payments Grow. Ripple lists the banks: MUFG, BBVA, SEB, Akbank, Axis Bank, YES BANK, SBI Remit, Cambridge Global Payments, Star One Credit Union and eZforex.com. An interesting trend shown in the current list of clients is the addition of new payment service providers (PSPs). It shows that Blockchain related payments are efficiently entering the remittance market.