Blockchain is basically a database where recorded transactions are copied to a participating network of computers. Since the information is disseminated across multiple computers using sophisticated cryptography, it can be viewed by all those with access rights to the network. Once the data has been entered, the information cannot be modified.
That means we wouldn’t need confirmation from our bank to know that we paid our utility bill, and our utility company couldn’t claim it hadn’t received remuneration. Once we made the payment transfer, the information would stay on the network for people to see.
This is how blockchain establishes trust among all parties: Trust that is driven by technology.
When asked CFA Institute Financial NewsBrief which area of fintech will bring the most significant changes to the financial services industry. Blockchain was the clear winner.
On question, what specific aspect of finance will be most transformed by blockchain technology in the years ahead:
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Payments earned 50 per cent of the 466 total responses. The World Economic Forum (WEF) report, “The Future of Financial Infrastructure,” listed the benefits of applying blockchain technology in global payments, observing that blockchain “enables the near real-time point-to-point transfer of funds between financial institutions, removing friction and accelerating settlement.”
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Digital currency was also a popular choice, receiving 23 per cent of the vote. With blockchain as its underlying technology, digital currency requires no central issuing authority. Bitcoin, the most popular digital currency, is arguably the only example of large-scale blockchain implementation in finance today.
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Capital markets drew 17 per cent. Quite a few blockchain applications fit within this category, digital assets and smart contracts among them. Digital assets are an extension of digital currency just as stocks and bonds are extensions of cash, albeit with extra conditions and features built into them.
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Digital identity came in at 9 per cent. Know Your Client (KYC) and credit ratings are two examples of how blockchain-backed digital identity technology can be much more efficient than the current practice.
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