Blockchain use in transaction assurance
Blockchain has the capacity to influence the way business is done in the investment industry. Its greatest potential seems to be in boosting trust in the system by providing improved transparency to transactions and ownership at much lower costs than the prior systems in which assurances were delivered by intermediary organizations. The issues are how blockchain will be developed and how much trust is given to it.
- As outlined in the Fintech Disruption scenario, blockchain can intermediate trust in various areas where our current financial system is effective but uses a clunky central counterparty model. Blockchain removes the need for any kind of third party to facilitate an exchange in a transaction. Trust must exist in the blockchain concept, and people must trust the platform, interfaces, spreadsheets, and time stamps—but trust in another person is not required.
- Through the distributed ledger system, which gives all participants confirmation simultaneously in a so-called consensus process, blockchain systems remove the need for existing intermediation dedicated to confirming authenticity.
- In The Next Generation of Trust (CFA Institute 2018), 63% of institutional investors said they think blockchain has the potential to increase trust in markets.
- Investment in blockchain and initiatives to develop new applications are growing quickly. The effect of blockchain is to make the investment industry’s infrastructure more streamlined and less expensive. Applications include the faster settlement of financial transactions (so-called T0 dealing) and automated contractual agreements.
- A more universal acceptance of the technology must arise before it can make an industry-wide impact. For benefits to materialize, careful construction of contracts that feature universally accepted clauses, extreme clarity on cyber-security, progress on regulatory frameworks, and a fuller understanding generally are necessary.