Blockchain Technology
Blockchain is Already THE NEXT BIG THING

The Banks and Financial Services Industry have been seen with a complete shift in opinion on Blockchain Technology. For a long period of time, most financial institutions have dismissed Bitcoin as the speculative tool of gamblers and criminals and barely registered blockchain on their radar. From 2015 onwards, all the major banks in the world such as Mitsubishi UFJ, BNY Mellon, Mizuho Bank, Bank of Australia, Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit, just to name a few, have all been investing and involved in Blockchain Technology projects.

In the near future, Blockchain Technology and Financial Services Industry will be inseparable. Most importantly, it is widely believed that blockchain technology would contribute to prosperity for everyone, not just wealth for the few.

Blockchain solutions in finance are virtually endless. Any centralized marketplace that is dominated by a few middlemen is likely to be taken over by blockchain technology sooner than later. A World Economic Forum predicted that by 2025, ten percent of global GDP would be stored on blockchains technology.

Some of the largest Blockchain projects underway include the IBM-backed Hyperledger Fabric project, the Utility Settlement Coin, and R3’s blockchain consortium, signifying a growing acceptance in institutional policy to support blockchain growth.

IBM’s Hyperledger Fabric


To meet the demands of modern business environment, IBM and other huge corporations are collaborating to develop an open source, industry focused implementation of blockchain technology for business use called Hyperledger Fabric. It is one of the Hyperledger projects hosted by the Linux Foundation. Hyperledger Fabric intended as a foundation for developing applications or solutions with modular architecture and allows components such as consensus and membership services to be plug-and-play.

In June 2017, IBM was selected by a consortium of seven of Europe’s largest banks, namely, Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit, to build and host a new trade finance platform based on IBM Hyperledger Fabric and run through IBM Cloud, allowing for interconnectivity between all parties in a particular secure transaction.

This project was designed to be highly scalable, allowing for multiple entrants to easily integrate into the entire financial supply chain process through the secure blockchain, allowing for an unprecedented amount of transaction transparency.

The Utility Settlement Coin (USC)


USC is new digital asset-backed cash instrument implemented on distributed ledger technology for use within global institutional financial markets. USC is a series of cash assets, with a version for each of the major currencies (USD, EUR, GBP, CHF, etc.) and USC is convertible at parity with bank deposit in the corresponding currency. USD is fully backed by cash assets held at a central bank. USC will be its paired real-world currency.

The USC project began as a joint enterprise between UBS and Clearmatics Technologies in late 2015. Banco Santander, Bank of New York (BNY) Mellon, Deutsche Bank and NEX joined the project in 2016 while Barclays, CIBC, Credit Suisse, HSBC, MUFG, and State Street joined in 2017.

The UTC specifically tackles the use of blockchain technologies by traditional banks, utilizing it as a tool for more efficient transactions. Additionally, the UTC addresses the issue of currency backing, with the UTC being backed by cash at a central bank, preventing default and credit risk. These safeguards play a huge role in why the UTC has so much pledged interest, allowing banks to take part in the relatively young digital currency ecosystem. The UTC is definitely a sign of fintech adoption in the banking industry, ensuring the eventual wide-scale use of blockchain technologies on a standardized level across the globe.

R3


R3 is a distributed database technology company. It leads a consortium of more than 70 of the world's biggest financial institutions in research and development of distributed ledger usage in the financial system. It is headquartered in New York City. It was founded in 2014 by David E Rutter. The current CTO is Richard G Brown.

Almost all the major banks and financial institution around the world such as Bank of America, Banco Santander, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsch Bank, Goldman Sachs, HSBC, J.P. Morgan, Mitsubishi USJ, Mizuho, Morgan Stanley, Nomura, Royal Bank of Canada, Royal Bank of Scotland, Société Générale, Sumitomo Mitsui Banking Corporation, UBS, Wells Fargo, Westpac Banking Corporation and many others have joined this R3 Blockchain initiative.

R3 raised $107 million in May 2017, with four of its backers being Temasek, SBI Group, Bank of America Merrill Lynch, and Intel, with further support pledged from industry heavyweights such as Wells Fargo and ING. One of R3’s primary projects has been the development of their Corda platform, with future plans for an infrastructure network specifically geared toward financial institutions to build their own ledger-based applications and services, implying that these banks currently have and will grow their own teams of blockchain developers.

Corda is a distributed ledger platform that is the outcome of over two years of intense research and development by R3 and 80 of the world’s largest financial institutions. A financial grade ledger, Corda meets the highest standards of the banking industry, yet it is applicable to any commercial scenario. With Corda, participants can record, manage and execute financial agreements in perfect synchrony with their peers, creating a world of frictionless commerce.

R3 is also focused on governmental acceptance of blockchain, with buy-in from these institutions signifying a drastic shift in terms of governmental compliance and usage of such fintech.

By presenting credible potential resolutions of current-day issues, these projects represent large-scale efforts by the banking industry to fully embrace and integrate blockchain into their current infrastructures. Everyone is excited to see how the industry develops in the next few years.

1. Decentralization

This is a core concept and benefit of blockchain. There is no need for a trusted third party, intermediary or central administrator to validate transactions. Rather than having some centralized application logic, blockchain transactions have their own proof of validity and authorization to enforce the constraints. Hence, with the blockchain acting as a consensus mechanism to ensure the nodes stay in sync, transactions can be verified and processed independently.


2. Transparency and trust

As blockchains are shared and everyone can see what is on the blockchain, this allows the system to be transparent and as a result trust is established.


3. Immutability

Once the data has been written into the blockchain, it is extremely difficult to change it back. It is not truly immutable but, due to the fact that changing data is extremely difficult and almost impossible; this is seen as a benefit to maintaining an immutable ledger of transactions.


4. High availability

As the system is based on thousands of nodes in a peer-to-peer network, and the data is replicated and updated on each and every node, the system becomes highly available. Even if nodes leave the network or become inaccessible, the network as a whole continues to work, thus making it highly available.


5. Highly secure

All transactions on a blockchain are cryptographically secured and provide integrity.


6. Simplification of current industry practice

The current model in many industries such as finance or health is rather disorganized, wherein multiple entities maintain their own databases and data sharing can become very difficult due to the disparate nature of the systems. But as a blockchain can serve as a single shared ledger among interested parties, this can result in simplifying this model by reducing the complexity of managing the separate systems maintained by each entity.


7. Faster dealings

In the financial industry, especially in post-trade settlement functions, blockchain can play a vital role by allowing the quicker settlement of trades as it does not require a lengthy process of verification, reconciliation, and clearance because a single version of agreed upon data is already available on a shared ledger between financial organizations.


8. Cost saving

As no third party or clearing houses are required in the blockchain model, this can massively eliminate overhead costs in the form of fees that are paid to clearing houses or trusted third parties.

Blockchain is lauded as the technology that will have the greatest impact on the future of the world economy. And it is not hard to see why. It is a revolutionary protocol that allows transactions to be simultaneously anonymous and secure by maintaining a temper proof public ledger of value and trust. It is not by chance that the biggest corporation in the world today is all planning its future with Blockchain Technology and the young generations are actively storing and utilizing Cryptocurrencies.

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