Blockchain – Marching Towards Creation of 'No Boundary' Economies
It is a transparent, yet secure way to convert any asset into liquid asset with minimum formalities
Financial management is all about right investments. People like to invest in different kinds of assets worldwide for gains. However, at times it is not possible to have or issue smaller denominations of the assets of choice and, at times, operational hurdles would not allow acceptance of public money for these assets so that these can be traded.
However, Blockchain is poised to change all of that soon. With possibility of user- issued assets or tokens, everything can be floated on the Blockchain, whether backed by collateral or not.
What is Blockchain?
To substantiate, realty on Wall Street could be worth so much that despite will and wish, it may not be possible to partly own it. Even if a small group of investors agree, operational challenges will not allow exit of these investors easily. If a realty is worth, say US$ 10 Million, then any one person or corporation or consortium would need that much money – directly or funded to own it. This may or may not be possible all the times.
If this apartment is now floated as an asset on Blockchain with its 1 million shares, immediately this realty seems within reach of so many people and corporations, in full or in parts. One organization may own 100 thousand shares, spending USD 1 million and again a common man may hold 1000 shares of the same asset investing 10000 USD. Now, holding as well as the appreciation for both would be equal proportionate to their holding.
Another example of Blockchain usage is in international payments. There is a large volume of payments that needs to be executed worldwide by different entities through different banks. Some decades back, the task was being performed via Telex, which was extremely slow and error prone. The banks were to receive telex instructions for transfers and then were to execute them post necessary verifications. To manage these inefficiencies, SWIFT™ came in to being and as of today most of the banking industry uses SWIFT™ for international transfers in some or the other form. Almost all banks worldwide have SWIFT™ codes and basis that transactions are initiated and concluded.
However, due to involvement of financial transactions, it is very common for hackers to attack SWIFT™ transfers and they do keep attempting every now and then. Apart from safety, there is a substantial cost involved for transfers via SWIFT™ as there are intermediary banks involved for these transfers.
Average cost of a transfer via SWIFT™ could make user shell out as much as 25 USD, whereas it would a few cents in case of a Blockchain transfer.
An article about a year back in American Banker discussed if Blockchain can replace SWIFT™? Though it is difficult to claim this, but Blockchain in international payments is sure making headways. In fact SWIFT™ is also exploring Blockchain as a part of its global payments innovation initiatives.
The Banking and Fintech companies around the world today are working on various aspects of Blockchain because of its huge value in terms of safety and speed that Blockchain can bring to the International payments.
Benefits of Blockchain
Since banks trade something like $5 trillion a day in currencies alone, and most of that is handled by message exchanges to and from the Swift network, payments are one of the prime areas, which are being pursued by most banks that are embarking on the Blockchain journey.
While this promises value in the domestic payments as well, its exceptional value is being seen in international payments. This process of payments through Blockchain would be:
- Hacker-proof, as transaction written in multiple nodes
- Highly cost-efficient as no intermediaries involved
- Available 24 x 7
- Immediate Transaction
If a working Blockchain network exists and has X nodes where business is being transacted of various natures, including that of payments.
When a new bank, say ABC Bank, joins the network, it will need to join in as a node in the chain and accept the terms of the said Blockchain network. This process will essentially mean augmenting worldwide Blockchain network with network of the ABC bank.
Similarly, it would be possible to use this technology in many use cases — trade finance, centralized KYC, institutional portfolio syndication, P2P loans, crowd funding, eVoting, Entertainment IP protection. These are some of the top of the table use cases that can come in to being very soon.
Putting it simply Blockchain technology is a transparent, yet secure way to convert any asset into liquid asset with minimum formalities. Once financial institutions start adopting Blockchain, with the help of Smart Contracts and Dapps, there would be a new economic world that would be boundary less.
Rajneesh Kumar Chadha is an adviser to top banks and financial institutions on digital transformation. He is a Blockchain enthusiast. He has over 29 years of experience, mostly in the digital sector and has handled many major projects, the Passport Seva Project being the most significant of them all. He has worked as a business relationship manager for some of the important GE Businesses like GE Plastics, GE Capital Corporate and GE Indsys.