Tag Archive for: blockchain

Industries are ready for blockchain take off

| 16-8-2017 | Carlo de Meijer |

An interesting study was released recently by Juniper Research. Given its findings this survey needs some more widely spread recognition and that’s the reason for this blog. Named “Which industries are the best fit for blockchain”, this study came to some interesting conclusions, that were broadly in line with my blog of early June (see: Blockchain technology by 2018: a breakthrough, June 3, 2017). Their findings may underline my statement that we are further in the Gartner Cycle and that 2018 may be the year of the real breakthrough for blockchain technology for a number of industries. But for whom? Let’s have a look.

The study and its main finding

The survey’s main finding is that almost 40% of all interviewed (almost 370 executives, managers and IT profs) including 56% of the largest companies were either “considering” or “were in the process of employing blockchain solutions”.

This indicates that a majority of companies nowadays have a much greater understanding of blockchain and distributed ledger technology. They are recognizing that blockchain has the ” potential to be deployed in a variety of use cases”. There is also increased awareness amongst industries to consider deployment to gain competitive advantage.

Other findings

This “dramatic” increase in awareness is shown by the outcome that more than 80% of the surveyed companies have ‘a little’ or ‘a good’ understanding of blockchain

“It is clear that companies across the board have a significantly greater understanding of blockchain technology than was the case 12 months ago,”Juniper report.

More than three quarter of the respondents believe that blockchain could be ‘very useful’ or ‘quite useful’ for their company.
The time of exploring what blockchain is and what corporates can do with it lies largely behind us. It is now more about what blockchain systems to choose and how to integrate it in their legacy systems. Or as the study stated “It’s now much more geared to competing protocols, or the vetting of use cases …”.

Companies anticipating integration of blockchain

The survey also shows that many corporates are actively considering blockchain deployments.

Amongst the largest companies even 54% are in the so-called Proof of Concept (PoC) stage, while a further 16% is already involved in blockchain trials.
And those who already are in the PoC stage, two-thirds expect blockchain will be integrated in their legacy systems by the end of 2018.
While 81% of the smaller companies surveyed expect integration to be completed by the end of 2018, almost 60% of the large companies surveyed say they will reach that stage at that date.

Corporates and disruption

Despite the dramatic increase in blockchain awareness and identified benefits over the past 18 months, however, it is “critically important that companies consider all alternative options before deciding whether or not to deploy blockchain” according to the report.
Juniper mentioned that companies should consider whether blockchain is the necessary solution to their needs, as some companies under-estimate the challenges of deployment. They should seek “systemic change, rather than technological” innovation.

That “might be a better and cheaper solution than blockchain, which could potentially cause significant internal and external disruption.” Juniper report.

One main concern for the surveyed companies is in what way, who and where blockchain might disrupt not only their legacy systems but also their relationships with their clients. This is in part due to their fears around interoperability. Customers’ systems may no longer integrate with (or be compatible with) their upgraded systems.

The survey further shows that:

  • 35% of all corporates surveyed are considering or actually deploying blockchain and feel it will cause ‘significant’ disruption (in general)
  • And more than half of these corporates considering or actively deploying blockchain feel it will cause ‘significant’ disruption to their partners/customers
  • 42% of them were concerned that the reluctance or refusal of their clients or partners to deploy blockchain might cause them difficulties , compared with a quarter of all companies surveyed.

“Companies may have underestimated the scale of the blockchain challenge. For issues such as interoperability, the proportion of survey respondents expressing concerns progressively increased as companies proceed towards full deployment, while concerns also rose sharply regarding client refusal to embrace blockchain”. Juniper research

Who are the industries with largest blockchain opportunities?

This is a very interesting part of the survey. Jupiner Research conducted a comparative assessment of blockchain’ potential’s across 9 key industry areas. Main conclusion is that “in most cases, the more a vertical (industry) is suited to blockchain deployment, the greater the degree of implementation challenges”.

“Essentially, blockchain offers particular benefits to improve efficiency and corporate transparency; if an enterprise is heavily dependent upon paper-based storage and has high volumes of transactions or transmitted information, it can be especially effective.”  says Windsor Holden, blockchain specialist at Juniper

Deployments in verticals such as Utilities and Content Publishing do not pose the scale and variety of challenges involved in Financial Settlement, according to the survey. They however “will not achieve the extent of gains, cost savings, efficiencies and risk reduction as is possible in the financial settlement industry”, according to the Juniper Research survey.

And what industries are (already) fit for blockchain

According to the survey, when challenges are measured against the scale of the opportunity, industries like Automotive, Financial Settlement and Land Registry emerge as particularly interesting prospects for blockchain application. This compared to other segments such as Utilities, Telcos a.o.

This is not that strange as next to the relative successes achieved in blockchain integration especially in the financial sector thus far, blockchain may bring more benefits as it will be a real problem solver for these industries challenges. While the inherent characteristics of these sectors make them more suitable for blockchain technology.

What else is needed?

But that is not the whole storey. Corporates are not isolated entities. To be successful corporates should raise the awareness of blockchain’s capabilities at their customers. And before integrating blockchain in their own systems they should get a greater understanding of the scale of potential hurdles.

 

Carlo de Meijer

Economist and researcher

 

SWIFT Blockchain POC: Enhanced cross-border payments

| 8-8-2017 | Carlo de Meijer |

Early July SWIFT announced that 22 global banks recently joined its Blockchain proof of concept (PoC) initiative introduced in January this year in collaboration with six leading correspondent banks (ANZ, BNP Paribas, BNY Mellon, RBC Royal Bank and Wells Fargo). The PoC is part of SWIFT’s ‘gpi’ (global payments innovation) service, the new standard for cross-border payments, aimed to “re-arm the correspondent banking system for a new age of technological disruption”. 

This Blockchain PoC initiative is designed to explore whether blockchain technology can help banks to improve the reconciliation of their international nostro accounts in real-time, optimising their global liquidity. If so, that would be a break through event for both SWIFT and blockchain.

Present state

Currently, banks cannot monitor their account positions in real-time due to lack of intraday reporting coverage. The present pain points banks currently experience when making cross-border payments center around a lack of visibility into the end-to-end transactions lifecycle. Under the current correspondent banking model, banks need to monitor the funds in their overseas accounts via debit and credit updates and end-of-day statements. The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments.

“Cross border payments are like a black box for us. We don’t know when the funds will be credited, we don’t know what fees will be charged and we also have problems with reconciliation”. states Martin Schlageter, head of Treasury Operations at Swiss healthcare conglomerate Roche.

As such, the POC recognises the need for banks to receive real-time liquidity data in order to manage funds throughout the business day.

SWIFT GPI service

The PoC is being undertaken as part of SWIFT gpi, a new service that “may revolutionise the cross-border payments industry by combining real-time payments tracking with the speed and certainty of same-day settlement for international payments”.

The SWIFT gpi should be seen as SWIFT’s response to the problems they faced after a series of attacks events that showed that “all was not as secure as everyone believed”. SWIFT gpi initiative was first announced at the annual Sibos conference in 2015. The project went into live production in January this year to address core problems related to speed, transparency and traceability of cross border payments.

SWIFT gpi not only delivers a much-needed improvement in the speed of transaction, but also improves overall customer experience by creating predictable settlement times and clear statuses, through additional (unaltered transfer of) information on remittances and transparency around the FX rates and fees applied throughout the payment cycle.

“The ability to deliver enhanced remittance information alongside the payment will help customers make better decisions along the payment chain, while also creating better efficiency opportunities. The decision to make gpi available in the “cloud” is also exciting, and we anticipate this will lead to the development of entirely new services, that combine SWIFT gpi with capabilities provided by banks, clients and vendors.“ says Tom Halpin, Global Head of Payments Product Management, HSBC Global Liquidity and Cash Management

Key features

Key features of the SWIFT gpi service include a secure tracking database in the cloud accessible via APIs, and enhanced business rules.

Cornerstone of SWIFT gpi is the highly innovative new cross-border TRACKER, a special tracking feature that enables international payments to be traced real-time. It allows banks to provide corporate treasurers with a real-time, end-to-end view (visibility) on the status of their payments, including confirmations of the amount credited to the beneficiaries’ account. The Tracker is available via an open API, making it compatible with proprietary banking systems worldwide – helping to ensure maximum impact of gpi benefits at a greater adoption speed.

A second key feature is the OBSERVER, a quality assurance tool that monitors participants’ adherence to the gpi business rules. Gpi’s transparency ensures that remittance information such as invoice references, is transferred unaltered to recipients.

Gpi uptake

Membership is open to any supervised financial institution that agrees to comply with SWIFT’s business rules. But also non-bank organisations can join SWIFT gpi initiative. The SWIFT gpi service has received considerable bank support across the globe. And the number of global transaction banks that are actively using SWIFT’s gpi service is continuously growing. Since its launch the number of banks that are live with SWIFT gpi has risen beyond 100, and hundreds of thousands GPI payments have already been sent across 85 country corridors. This represents more than 75% of all SWIFT cross border payments.

“The increasing number of banks going live on this service addresses the demands of corporate treasurers. Hence, banks cannot afford to not join the initiative and go live as soon as possible. Our expectation is that all of our cross-border payments will be end-to-end Swift gpi payments in the future.” Group of Swiss corporates

SWIFT expects that numerous additional banks will join the gpi initiative in the coming months. The ambition is for all countries to be live by the end of 2017.

Phased approach

Next to the design of the second phase of SWIFT gpi, that is already underway focusing on additional digital capabilities and further enhancements such as ‘a rich payment data service’, for its third gpi phase SWIFT started exploring the potential of new technologies such as Distributed Ledger Technology (DLT), including blockchain, through a Proof of Concept (PoC).

SWIFT Blockchain PoC

Launched in January 2017 with six founding banks the SWIFT Blockchain PoC initiative, designed to validate/explore whether blockchain can be used by banks to improve the reconciliation of their international nostro accounts (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) (these are accounts that a bank holds in a foreign currency in another bank to handle international financial transactions for their customers) in real –time, optimising their global liquidity. At its core, the PoC builds on SWIFT’s rulebook as part of the intraday liquidity standard gpi.

This SWIFT Blockchain PoC initiative aims to help banks overcome significant challenges in monitoring and managing their international nostro accounts, which are crucial to the facilitation of cross border payments.

“Whilst existing DLTs are not currently mature enough for cross-border payments, this technology, bolstered by some additional features from SWIFT, may be interesting for the associated account reconciliation,” “This PoC gives us the opportunity to test DLT and determine if it can be applied to this particular use case.” Wim Raymaekers, Head of Banking Market and SWIFT gpi at SWIFT

Characteristics

In developing the POC, SWIFT is leveraging the Hyperledger Fabric v1.0 technology, and combining it with key SWIFT assets, to bring it in line with the financial industry’s requirements.

“SWIFT will leverage its strong governance, PKI security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT PoC platform for the benefit of its community.” Damien Vanderveken, Head of R&D, SWIFTLabs and User Experience at SWIFT 

The PoC application will use a private permissioned blockchain in a closed user group environment, with specific user profiles and strong data controls. User privileges and data access will be strictly governed. This to ensure that all the information related to nostro/vostro accounts is kept private. Only account owners and its correspondent banking partners will see the details.

Collaboration

SWIFT gpi member banks can apply to participate in this Blockchain PoC. Next to the 6 founding banks, another 22 banks have recently joined the SWIFT blockchain PoC. They include include:

ABN AMRO Bank; ABSA Bank; BBVA; Banco Santander; China Construction Bank; China Minsheng Banking; Commerzbank; Deutsche Bank; Erste Group Bank; FirstRand Bank; Intesa Sanpaolo; JPMorgan Chase; Lloyds Bank; Mashreq Bank; Nedbank; Rabobank; Société Générale; Standard Bank of South Africa; Standard Chartered Bank; Sumitomo Mitsui Banking Corporation; UniCredit; Westpac Banking Corporation.

“Collaboration is the cornerstone of innovation,” “This new group of banks allows us to greatly extend the scope of multi-lateral testing of the blockchain application and thus adds considerable weight to the findings. We warmly welcome the new banks and look forward to their insights”  says Wim Raymaekers, head of banking markets and SWIFT gpi at SWIFT.

Process

Moving forward, the SWIFT PoC Blockchain application will undergo testing, with the results scheduled to be published in September and presented at Sibos in Toronto in October. Working independently of the founding banks, the 22 institutions will act as a validation group to test in a deeper way the PoC’s Blockchain application, that is currently under development by SWIFT and the group of six founding banks. They will evaluate how the technology scales and performs.

Benefits

For banks

The potential business benefits ensuing from a successful SWIFT blockchain POC may be significant. If it proves to enable banks reconcile those nostro accounts more efficiently and in real time, that may lower costs and operational risk.

“The potential business benefits ensuing from the PoC are clear,” “If banks could manage their nostro account liquidity in real-time, it would allow them to accurately gauge how much money is required in each account at any given point, ultimately enabling them to free up significant funds for other investments.” Damien Vanderveken, head of R&D, SWIFTLab and UX at SWIFT.

It brings together banks worldwide who want to offer an enhanced cross-border payments experience to their corporate clients. By being part of SWIFT gpi, banks may improve the quality of their correspondent relationships and networks, helping to reduce risks and management costs and improve compliance.

“Transparency is key to a good end-to-end client experience. SWIFT gpi is a significant step in the evolution of correspondent banking, which remains the primary means through which cross-border payments are delivered worldwide. Bank of America Merrill Lynch is pleased to be working with like-minded institutions around the world to better serve each other and our respective customers.” states Greg Murray, head of Global Product Management for High Value Payments and FI/NBFI Products in Global Transaction Services at Bank of America Merrill Lynch.

For corporate treasurers

SWIFT gpi may enable corporates engaged in international trade to get paid for services, or delivery of goods, in a more timely fashion, enabling a faster supply chain process. It also enables a more accurate reconciliation of payments and invoices, optimizes liquidity with improved cash forecasts and reduces exposure to FX risks with same-day processing of funds in the beneficiary’s time zone.

“Being part of SWIFT gpi, and working with our industry counterparts, is giving correspondent banks a platform to examine and refine current processes, and to collaborate and explore different, more efficient ways of doing things. Ultimately, our clients will benefit most from this initiative,” Kent Marais, head of TPS product management at Standard Bank SA.

SWIFT and the banks have designed the gpi services so that banks have flexibility in how they offer the new services. They can deliver the gpi service in very different ways. Services could potentially include enhanced invoice presentment and reconciliation to facilitate financial supply chains, exchange of supply chain documentation to improve global trade, exchange and interactive enquiry of account and processing conditions to improve end-to-end straight through processing, and providing additional party and transaction information to support compliance and sanctions screening of cross-border payments.

Enhanced cross-border payment service

“SWIFT has addressed several of the pain points corporates have had with cross-border payments,” “Changes to existing corporate payments infrastructures should be very limited, if any. So hopefully, corporates won’t need to make any major investments to benefit from smoother cross-border payments.” says Magnus Carlsson, AFP’s manager of treasury and payments

Given the size of the number of banks and corporates participating in SWIFT gpi, the SWIFT Blockchain PoC may face the challenge of scalability. If that could be solved in a successful way it may be another prove of the viability of blockchain and DLT to enhance cross-border payments.

 

Carlo de Meijer

Economist and researcher

 

 

 

More on blockchain from this author:

Blockchain: accelerated activity in trade finance

Blockchain and derivatives: Re-imagining the industry

The digital trade chain: The blockchain train is rolling

Please feel free to visit the treasuryXL/articles page to see more articles.

 

Bitcoins or banks, who is taking care of the business?

| 2-8-2017 | Hans de Vries |

Banks have long been target of wild spread ideas that their role as facilitator in the (inter) national money transaction industry will soon be overtaken by new Fintech initiatives like PayPal, Bitcoin and recently Ethereum. The idea behind these new technologies is that the Trusted Third Party (TTP) role of the conventional banks which is crucial for the operational day to day operations of the economic systems can be overtaken by the new block chain technology. Main advantages are clear: transactions are no longer limited by timing (no dependency on the operational boundaries of clearing houses, cut-off times of banks per currency, immediate processing etc), account opening procedures at the banks, the costs involved in maintaining accounts and transactions themselves etc.

The recent Ransomware attacks, that had an enormous impact on numerous companies and governmental institutions at a global level, showed however a less favorable aspect of this new technology. Due to its lack of control on the specifics of account ownership, Bitcoin proved to be the ideal means to collect the ransom money the victims have to pay to free their systems. This piracy trend will in my view also seriously hamper the future development of these sort of bank independent transaction mechanisms. Even more threatening for the Bitcoin development are the recent crypto robbery cases in which millions of dollars’ worth balances were stolen from the accounts. These incidents show the vital role of the banks as TTP since most banks are obliged to deliver their services according to the rules and regulations of their national and super-national banks. As indicated before, this means that for opening accounts lots of formalities have to be endured (the KYC rules are in some countries stretched to the absolute max). At the same time., due to the international regulations the control on international transactions are very extensive and therefore at the same time very costly for the banks. Every violation of the international code book on transactions to banned countries can have severe financial consequences for the banks involved. An last but not least banks have to maintain an international network of correspondent banks to make sure that the international transactions reach their beneficiaries in a reasonable timeframe and at reasonable costs.

This whole system has of course been developed to gain maximum control on transaction flows locally and worldwide. However it also provides the trust needed to be able to deal with (inter) national trade flows crucial to our economic day to day operations. As long as there are no ways to secure your transactions and balances in a bitcoin like environment as most transaction banks are providing today, Bitcoins remain a very interesting technological experience but will in no way replace the role of banks as TTP shortly.

 

 

Hans de Vries

Treasury/Cash Management Consultant

 

 

More articles of this author: 

Will the European banks strike back?

The Euro from a treasury perspective

New norms in banking: More than 30 new areas emerging. Pick your fights!

The Digital Trade Chain: the blockchain train is rolling

| 28-7-2017 | Carlo de Meijer |

Trade finance is increasingly becoming the number one use case for blockchain with the greatest potential to benefit from this technology. In previously blocks I already showed the accelerated activity in this area (see: Blockchain and Supply Chain Finance: the missing link May 7, 2017 and Blockchain: accelerated activity in trade Finance, January 26, 2017).

End seven European banks, forming the so-called Digital Trade Chain consortium, announced their plans to develop in collaboration with IBM a trade finance platform based on blockchain technology. This is said to become the first real-world application of blockchain technology and might become the start of more of the blockchain train.

What is the Digital Trade Chain consortium?

In January this year seven European banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit) signed a Memorandum of Understanding (MoU) in Brussels to create the Digital Trade Chain consortium. Under this MoU the banks intend to collaborate on the development and commercialisation of a shared supply chain management and trade finance platform for small and medium-sized companies (SMEs) using blockchain technology. That platform, called the Digital Trade Chain (DTC), should make domestic and cross border commerce easier for European SME business.

The aim of the project is to simplify trade finance processes for SMEs by “addressing the challenge of managing, tracking and securing domestic and international trade transactions.

Read the full article of our expert Carlo de Meijer on LinkedIn

 

Carlo de Meijer

Economist and researcher

 

Stock exchanges and blockchain: open positions

| 18-7-2017 | Carlo de Meijer |

Just like banks, a growing number of exchanges worldwide have already taken a serious look at the way they can leverage blockchain technology. This in order to ‘get rid of’ the existing time consuming, cost inefficient and risky operations. Ranging from Abu Dhabi to Toronto they are experimenting with various use cases ranging from settlement, over-the-counter trading to proxy voting. Others have just started and have or are having hosted blockchain events such as the Jamaica Stock Exchange (Blockchain Masterclass) and the Tel Aviv Stock Exchange (Hackathon) not wanted to be left behind. In this blog I will make a ‘tour de table’ (in alphabetic order) around the various blockchain-related activities of stock exchanges worldwide.

Exchanges: Tour de Table

Abu Dhabi Securities Exchange (ADX)

The Abu Dhabi Securities Exchange (ADX) has started implementing blockchain technology, enabling shareholders to participate ‘with further transparency’ while using e-voting techniques. The technology was used recently (end March 2017) at the annual general meetings (AGM) for six listed companies, including two private joint stock companies and four public joint stock companies, on the ADX.

“I encourage companies to use blockchain technology. I am confident that more training and practice of this technology will widen positive outcomes and bring more companies to use this technology. This will go in line with Abu Dhabi 2030 Economic Vision that seeks to strengthen digital transformation in the UAE.”Rashed Al Blooshi, ADX chief executive

Australian Stock Exchange (ASX)

One of the forerunners in the blockchain race is the Australian Stock Exchange (ASX). The ASX already announced early 2016 that it had teamed up with blockchain startup Digital Asset Holdings to develop a new distributed ledger solution for investors, listed companies, and intermediaries, for clearing and settling trades. This to replace the existing Clearing House Electronic Subregister System (CHESS).

The exchange has now completed the initial phase of its DLT testing, and their blockchain prototype has ‘met performance, security and scalability thresholds’. The company’s shareholders report, released in February, stated that the ASX is on track for a decision in late 2017 on whether distributed ledger technology (DLT) represents a suitable replacement for the ASX’s CHESS system. The final decision on the company’s post-trade infrastructure will be made in 2018. Only then will a blockchain solution progress into full production

The ASX recently built a dedicated blockchain showcase space, called ‘acceler8’, in their Sydney headquarters. The set-up of a ‘purpose built demonstration suite’ is aimed to ‘bring to life’ the possibilities of distributed ledger technology, to help stakeholders understand what is possible.

“It is one thing to talk about blockchain, but in order to really understand its capabilities, you need to see it in action.” Peter Hiom, ASX deputy CEO

Deutsche Börse Group

Deutsche Börse Group has been making substantial investments in the development and introduction of ‘state-of-the-art’ blockchain services. The German exchange is working on several prototypes related to blockchain technology and DLT.

Recent developments include a solution for cross-border securities transfer in cooperation with the Liquidity Alliance and a functioning prototype for the settlement of securities transactions in cooperation with Deutsche Bundesbank, Germany’s central bank.

Deutsche Börse and Deutsche Bundesbank presented their first functional prototype for the blockchain technology based settlement of securities transactions against instant and delayed payments in November 2016. This concept is based on a blockchain from the Linux Foundation’s Hyperledger project, and will allow for functionality for the settlement of securities in a delivery-versus-payment mode for centrally-issued digital coins (as collateral).

“Along with the Deutsche Bundesbank we are innovatively and creatively addressing potentially radical technological opportunities for the financial sector. We will continue to do our utmost to leverage blockchain’s efficiency potential and to better understand and minimize the associated risks of this technology.” Carsten Kengeter, CEO of Deutsche Börse

The system will also be capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities. Next to that the prototype will enable the maintenance of confidentiality and access rights, which will be done in a blockchain-based concept on the basis of a flexible and adaptable rights framework.

The Deutsche Bundesbank and Deutsche Börse stated that they plan to further develop the prototypes during 2017. They said that the developed products will be used to “analyse the technical performance and the scalability of this kind of blockchain applications”.

Euronext and others develop blockchain infrastructure for SME post trade

Euronext (Amsterdam, Paris and Brussels) and a number of financial institutions including names like BNP Paribas Securities Services, Caisse des Dépôts, Euroclear, S2iEM and Société Générale, in collaboration with Paris EURPLACE, last year June signed a Memorandum of Understanding to explore together the development of a post-trade blockchain infrastructure for SMEs in Europe.

“We wanted to engage collaboratively in order to mount an innovative project with the potential to drive the transformation of the post-trade market. By pooling our strengths in this ground-breaking area, we are focusing on new solutions that will give small and mid-sized companies — key actors for growth in Europe – easier access to the financing they need. With this project, we are securing the means to seize opportunities that blockchain distribution can offer: speed of execution, low cost and security.”

Open to other international partners, this pilot agreement aims to improve SMEs’ access to capital markets while facilitating secure and transparent post-trade operations. It is part of the development of a new regulatory environment in France that allows the issue and circulation of securities using blockchain technology.

Mission will be to harness blockchain technology in the design, development and deployment of innovative solutions for post-trade. By reducing transaction costs while maintaining a high level of security, the company would help SMEs raise funds more easily on capital markets.

National Stock Exchange of India (NSE)

The National Stock Exchange of India (NSE), HDFC Securities, along with a group of domestic Indian banks are collaborating on a know-your-customer (KYC) data trial, testing blockchain technology. Blockchain startup Elemential provided the technology for the trial. 

The NSE has been testing the tech since as early as September last year. The test involved a shared environment in which the stock exchange would on-board customer data, while different entities (banks and regulators) could access this information in real-time. The first stage of the trial was completed in January. The next stage is expected to see the use of real customer data.

Japan Exchange Group (JPX)

Early last year, it was revealed that IBM had teamed up with Japan Exchange Group (JEX), which operates the Tokyo exchange, to start experimenting with blockchain technology for clearing and other operations. The Japan Exchange Group (JPX) and IBM are working towards testing the potential of blockchain technology for use in trading in low transaction markets. JPX is embracing a proof-of-concept that is investigating how blockchain could be used to create new systems for the trading of low-liquidity assets.

They had run two separate trials and concluded that digital ledger technology “has the potential to transform capital market structure by encouraging new business development, improving operation efficiency, and contributing to cost reduction”.

JPX is also working on trials with Nomura Research Institute (NRI) to examine how blockchain technology could be applied in the securities market.

Korea Exchange Exchange (KRX)

South Korea’s securities exchange operator the Korea Exchange (KRX) launched a blockchain-powered platform for the off-board trading market, linking sellers and buyers to trade securities. This platform named Korea Start-up Market (KSM), is an OTC- platform for using blockchain technology to enable equity shares of startup companies to be traded in the open market. South Korea’s exchange was revealed to be developing a blockchain platform to facilitate securities trading between buyers and sellers, directly, as early as March 2016.

The new feature will see its roll-out by implementing a blockchain platform called ‘Coinstack’, developed by Korean startup Blocko. With a focus on document and identity authentication, Coinstack is serviced both via cloud and on location, while supporting all protocols and applications build on the blockchain technology.

“This is the first example of commercialization in which blockchain is applied to the Korean over-the-counter market. Notably, the Coinstack development platform supports both Bitcoin blockchain-based contracts and Ethereum-based smart contracts.” Blocko CEO Won-Beom Kim

London Stock Exchange (LSE)

The London Stock Exchange (LSE) has emerged as one of the most active on blockchain technology. In late 2015, the exchange was already among a cross-industry group of institutions investigating how blockchain technology could be used to change the way securities trades are cleared, settled and reported in Europe. The group — named Post Trade Distributed Ledger Working Group — also includes UBS, CME Group, Societe Generale, LCH.Clearnet and Euroclear. The consortium, which is particularly interested in using blockchain for post-trade processes, now has nearly 40 members.

If you want to read about more stock exchanges please refer to the full list in Carlo de Meijer’s article on LinkedIn.

Open positions of exchanges towards blockchain technology

The number of exchanges worldwide that is joining the many financial institutions in the blockchain and distributed ledger technology race is continuously growing. The potential to enable stock exchanges to significantly reduce the cost, complexity and increase the speed of trading and settlement processes in a secure manner, has attracted many exchanges worldwide to explore this new technology. However, it remains to be seen whether blockchain will soon be accepted by exchanges on a large scale and form the backbone of future stock exchanges. This given the many remaining challenges. But the optimism is certainly high. For the time being stock exchanges are taken open positions.

 

Carlo de Meijer

Economist and researcher

 

The EU and blockchain: taking the lead? (II)

|6-7-2017 | Carlo de Meijer | treasuryXL |

In his article ‘The EU and blockchain: taking the lead? ‘, our expert Carlo de Meijer writes that the EU, after having a ‘wait and see’ attitude for a long time, seems to be taking steps (may be) to become one of the leading economic blocks in the blockchain race. He believes that it is worthwhile to take a closer look at the EU initiatives. We have made a summary of this article. In part (I) we dealt with the European Commission. Today we present you the summary of what Carlo de Meijer writes about the European Parliament, the European Central Bank and the European Supervisory Authorities.

European Parliament

European Parliament  votes for smart regulation of blockchain technology

Last year June the European Parliament voted for ‘smart regulation’ of blockchain technology, taking a hands-off approach. The MEPs voted in a proposal set out in a resolution drafted by Jakob von Weizsäcker, suggesting that a new task force established at the EU level which would be overseen by the European Commission, should build expertise in the underlying technology. It would also be tasked with recommending any necessary legislation, but the text warns against taking a ”heavy-handed approach” to this new technology.
The proposal clearly stated that distributed ledger technology should not be stifled by regulation at this early stage.

EPRS blockchain report

In February the European Parliamentary Research Service (EPRS) published a new report “How blockchain technology could change our lives”, providing an introduction for those “curious about blockchain technology” and aimed at stimulating reflection and discussion.

“Spotlight on Blockchain” workshop

In collaboration with the European Commission, the European Parliament has organised various blockchain events including a kick-off conference on “Demystifying Blockchain” and a series of workshops to look at blockchain developments and use case applications.
A session of discussion early May held at the European Parliament (EP) centred on the future of blockchain regulation in the 28-nation economic bloc. The “Spotlight on Blockchain” workshop, was hosted jointly by the European Parliament and the European Commission.
Part of the program initiated by the Blockchain Observatory was to cautiously approach the who, what and why of blockchain legislation.

European Central Bank

Report: Distributed Ledger Technology (DLT) – challenges and opportunities for financial market infrastructures

The European central bank (ECB) has led a study to analyse the benefits and risks of blockchain technology and consider its possible integration in its market infrastructure. The final report named Distributed Ledger Technology (DLT) – challenges and opportunities for financial market infrastructures was published in March this year.

In the report the ECB acknowledges the various benefits of DLT, such as the ability to lower back office costs and improve reconciliations by enabling automatic updates of records as well as shortening settlement cycles and therefore reducing collateral requirements.
The ECB however concluded that the distributed ledger technology does not (yet) meet the Bank’s requirements in terms of safety and efficiency. The bank is not firmly opposed to blockchain, but it considers that the technology is not mature enough to be integrated into its infrastructure as it is constantly evolving, citing deficiencies in safety and security. The report’s tone is in keeping with the ECB’s cautious approach to DLT and mirrors previous statements made by bank executives.
The European Central Bank has ruled out using distributed ledger technology within the so-called Eurosystem’s market infrastructure for the foreseeable future, until the software meets high safety and reliability standards.

“Yet the technology does not yet meet the ECB’s standards for safety and efficiency, says the report” “The ECB is open to considering new ways to enhance its market infrastructure. However, any technology-based innovation would have to meet high requirements in terms of safety and efficiency.

DLT Project Team

Nonetheless, the ECB is keeping its options open, recognising the benefits that the technology could bring to securities settlement. To this end, the ECB has created a DLT Task Force to “bring together market experts on financial innovation and cyber security. Its objective is to avoid any negative consequences of technological innovation regarding the harmonisation and integration of post-trade markets in Europe and to explore the potential of DLT to help remove some of the remaining barriers to a fully integrated post-trade market in Europe”. For that they hired a senior technology executive, Dirk Bullman, with practical experience in distributed ledger applications and front and back office project management expertise

T2S

The ECB will continue to monitor DLT’s developments and could use the technology in the administration of Target2Secrities. The report states that DLT could play an important role in the administration of Target2Secrities, as well as helping to achieve its overall aim of “deeper integration of financial markets”.
Bullmann’s group is now exploring how DLT could be used in its new securities clearance platform T2S. Central securities depositories (CSDs) that participate in T2S today can effectively pool their securities so they can be bought and sold by investors across Europe. Since some technology would need to be selected in standardizing the issuance, Bullmann said DLT was a natural candidate for testing.

ECB – Bank of Japan joint initiative

The ECB has also launched a joint research project with the Bank of Japan in December last year to study the impact of new innovations of the global financial market and explore possible use of blockchain technology for market infrastructure services.
Bullmann’s task now is to coordinate with the Bank of Japan (BOJ) to explore topics such as how financial market participants could send payments using the technology, prioritizing how a certain payment might be cleared, for instance.

European Supervisory Authorities

The joint committee of the European Supervisory Authorities has released a report in April on Risks and Vulnerabilities in the EU Financial System, in which cybersecurity, including the rising use of blockchain technology, is marked as a major concern for the financial sector.

While further study is required before the EU submits new regulation regarding the financial sector and FinTech adoption, also the European Securities and Markets Authority (ESMA) has undertaken a study of cyber risk and controls of financial institutions throughout the EU. These results will be analyzed in light of existing regulations and used in making future recommendations. In June the ESMA publicized its response to the commission’s proposal on FinTech regulation following a public consultation.

ESMA and regulation

The ESMA, has stated in a new report that the current regulatory framework in effect does not pose a hurdle for the adoption and development of blockchain or distributed ledger technology in the short term. The report acknowledges the benefits of adopting blockchain before notably adding that blockchain applications are still at a nascent stage and, as such, do not require regulation. Regulatory action for blockchain technology at this ‘early stage’ is ‘premature’, said the European Securities and Markets Authority (ESMA) in its report.

The ESMA states that it does not see blockchain technology, through its fundamental core concept of decentralization, post a threat to central financial market infrastructures. The ESMA deems it “unlikely” that blockchain technology would eliminate financial market infrastructures such as Central Securities Depositories (CSDs) and Central Counterparties (CCPs). Still, the watchdog says it “realizes” that blockchain technology may render some traditional processes redundant, or affect and “change the role of some intermediaries through time”

ESMA adds that the presence of blockchain technology “does not liberate users from complying with the existing regulatory framework, which provides important safeguards for the well-functioning of financial markets.” The ESMA will continue to monitor developments in the Fintech space, to assess if blockchain technology requires a regulatory response.

European Union Agency for Network and Information Security (ENISA)

The European Union Agency for Network and Information Security (ENISA) also entered into the blockchain debate with a report launched in December 2016 aimed to provide financial professionals in both business and technology roles with an assessment of the various benefits and challenges that their institutions may encounter when implementing a distributed ledger.
ENISA analysed the technology and identified security benefits, challenges and good practices. There are however new challenges that the technology brings, like consensus hijacking and smart contract management. Additionally, it highlights that public and private ledger implementations will face different sets of challenges.

ENISA has identified good practices to overcome the issues identified as well as introduce the key concepts that decision-makers should be aware of when approaching this technology. Some good practices are: using recovery keys; using multiple signatures for authorizing and processing transactions; and, using library of standardized smart contracts.

In this paper, they also identified that there are challenges that may require further development, such as: anti-money and anti-fraud tools; interoperability of blockchain protocols; and, legal provisions and tools for implementing privacy and the right to be forgotten.

You can read the full article by clicking on this link.

 

Carlo de Meijer

Economist and researcher

 

 

The EU and blockchain: taking the lead? (I)

| 3-7-2017 | Carlo de Meijer | treasuryXL |

In his article ‘The EU and blockchain: taking the lead? ‘, our expert Carlo de Meijer writes that the EU, after having a ‘wait and see’ attitude for a long time, seems to be taking steps (may be) to become one of the leading economic blocks in the blockchain race. He believes that it is worthwhile to take a closer look at the EU initiatives. We have made a summary of this article and start with the European Commission.

European Commission

#Blockchain4EU Project

Last week the European Commission’s Joint Research Center (JRC), together with The Directorate-General for Internal Market, Industry, Entrepreneurship, and SMEs, have announced the launching of the #Blockchain4EU Blockchain for Industrial Transformations initiative to develop industrial use cases for blockchain and DLT.
The project, which will run until February 2018, will take a look at how blockchain technology and other distributed ledger technologies (DLTs) can be applied to nonfinancial sectors.

The project’s objective is to identify, discuss and communicate possible uses and impacts of blockchain and other DLT objects, networks and services within EU industrial or business contexts. The project will thereby initially focus exclusively on logistical and validation use cases, such as supply chains, assets monitoring, intellectual property rights, and certification authentication. Outputs from the project will contribute to the risks and opportunities assessment that will ultimately outline the approach that Small to Medium Enterprises (SMEs) will take with blockchain and DLT applications in the future.

Virtual currency legislation

Last year July the European Commission adopted a proposal for legislation to amend the 4th Anti-Money Laundering Directive (4AMLD) that will bring virtual currency exchanges and wallet providers into the EU’s anti-money laundering framework. In this proposal only those engaged in exchanging between virtual and fiat currencies are included. Virtual currency to virtual currency exchanges are not covered (for example, Bitcoin-to-Ether exchanges will not be regulated). And only those wallet providers offering custodial services “of credentials necessary to access virtual currencies” are to be included in the legislation.
The proposal is now under the European Council and the EP. Member states will have to transpose the Directive into national law and that is expected by half 2018.

EC February Statement on blockchain

In February this year the European Commission Vice President Andres Ansip published an official statement in reaction to EP questions, saying that “the Commission is planning to grow its support for blockchain projects”, and that ”the Commission is actively monitoring Blockchain and DLT developments”. This statement went into detail about the efforts the Commission is undertaking, both within and beyond the scope of the task force (see below), highlighting potential technology pilots focused on ‘decentralised innovation ecosystems”.

“The Commission is already supporting [distributed ledger tech]-enabled projects (DECODE, D-Cent, MyHealth MyData). Support activities are going to increase in the coming months (e.g. Decentralised Data Management). A study will be launched to investigate how DLT can help in reshaping public services and preparing for EU specific DLT actions to address relevant EU challenges.” Andres Ansip

The Commission has set up an internal FinTech Task Force, following a report on virtual currencies from European Parliament Member Jakob von Weizsäcker, published in May 2016. This Task Force involves all relevant services working on financial regulation, technology, data and competition to ensure “that our assessment reflects the multi-disciplinary approach that FinTech developments ask for”.

Blockchain Observatory

The European Commission (EC) established/set up a European Union (EU) Blockchain Observatory in April this year in response to a European Parliament mandate to strengthen technical expertise and regulatory capacity. The EU blockchain observatory is being developed under the framework of the European Commission’s Task Force on FinTech. It is expected to deliver its final recommendations in the course of this year.
The observatory task is to create a platform for the European blockchain community and provide up-to-date information on relevant initiatives around the world as well as development of the technology and related opportunities and challenges. Aim is to assist the EC in determining what role – if any – public authorities can play to encourage the creation of such technologies and to develop policy recommendations.

Blockchain proof-of-concept on blockchain

According to a Communication of February this year addressed to EU institutions including the European Parliament and the European Central Bank, the European Commission wants to create a Blockchain proof-of-concept focused on regulation.
A pilot project is aimed at reinforcing the capacity and technical expertise of national regulators with regard to distributed ledger technology. The pilot would center on improving knowledge and awareness of the technology among the EU’s regulatory community. For that purpose the Commission launched a public consultation effort on financial technology more broadly, one that is seeking input on how it can improve market efficiency and accessibility. This consultation focused on three areas: increasing consumer trust and empowerment reduce legal and regulatory obstacles; and, support developments of ‘and innovative digital world’.

As for next steps, the Blockchain Observatory will continue to engage industry representatives to get a feel for where to focus their regulatory efforts.

You can read the full article by clicking on this link. The second part of our summary will be published soon.

 

Carlo de Meijer

Economist and researcher

 

Blockchain technology by 2018: A breakthrough

| 19-6-2017 | Carlo de Meijer |

Last year August I wrote a blog on what to expect for 2017. Now we are halfway 2017, so it is time to look forward to next year: 2018. According to the Gartner Hype Cycle we are now in the “Trough of Despair” stage. That indicates that we have left the overhyped period behind us, and entered a more realistic period with real-world applications. Some see this market as the classic S-curve: periods of little news flow, followed by a significant market-moving announcement, a significant uptick in activity followed by another plateau.

What did I forecast for 2017?

1. We are beyond the hype

2. Focus on blockchain integration

3. Private blockchain networks

4. Use cases will be further broadened to non-financial applications

5. Blockchain technology will become more mature enabling better and more secure application …

6. …… and also directly chained solutions

7. In 2017 we will see real-world applications

8. The year of the smart contracts

9. Growing competition for blockchain platforms

10. Increased discussion about standards

11. Security gets priority

12. Regulators enter the scene

What may we expect for 2018?

A lot is happening in the blockchain arena. And many announcements are being made of new proof of concepts, and initiatives in a large number of areas. But does that mean that 2018 will be the year of the breakthrough of blockchain? Let’s look what the various organisations think. That could give some indications.

Accenture

First of all Dutch-based consultancy Accenture. According to them, the years 2015 and 2016 focused on research and proof of concepts (PoC’s ) in a broad spectrum of blockchain use cases. But for 2017 – 2018 the organisation expects Dutch banks will concentrate on a number of real-world application areas and use cases. Thereby the focus will be on solutions that are ripe for commercialisation. During these years blockchain will develop in the banking world form promise to a valuable solution, Accenture expects.

Banking group: Blockchain to be “widely adopted by 2018“

Another interesting initiative is that of Deutsche Bank, UBS, Santander und BNY Mellon. They have announced a blockchain product cooperation and develop a digital currency of their own, to be market ready by 2018. According to the group, reliable, ready-to-run products across industries will have a positive business case within the next few years. “By that time, we will not even notice that Blockchain is the enabling technology anymore. It will have matured enough to promote itself in widely accepted, evolutional steps rather than in a disruptive, revolutionary manner”.

BTMU plans international fund transfers via blockchain in 2018

Also worthwhile to mention is the cooperation between Bank of Tokyo-Mitsubishi UFJ (BTMU) and six other international banking groups, including Bank of America Merrill Lynch, Standard Chartered Bank of the U.K., Royal Bank of Scotland, Spain’s Banco Santander, Canadian Imperial Bank of Commerce and Australia’s Westpac Banking. They will launch a faster and lower-cost cross-border wiring service that uses blockchain, in 2018. US start-up Ripple will thereby provide blockchain technology. This group will initially offer the global blockchain transfer service to individuals in early 2018, and then slowly expand to corporate clients.

Capco

According to financial service business and technology consultant Capco, 2018 will be the year blockchain technology comes into production. The company names lending, CDS swap trade and post-trade lifecycle, trade finance and business-to-business payments as some of the areas that would first benefit from blockchain technology. This is supported by the many announcements by the industry of “movements from small proof of concepts within innovation centres of financial institutions, to C-level mandated proof of concepts supported by actual business cases and a roadmap into production”.

DTCC to Adopt Blockchain Tech by 2018

Also in the US blockchain developments are challenging. The Depository Trust & Clearing Corporation (DTCC) announced that it plans to go live with its blockchain-powered credit default swaps (CDS) reporting platform in the first quarter of 2018. The project to rebuild its existing credit derivatives clearing platform using distributed ledger technology started in January 2017 with the help of fintech startup Axoni, technology giant IBM and the R3 blockchain banking consortium. It aims to improve its process by revamping its Trade Information Warehouse using distributed ledger technology to increase operational efficiencies. The DTCC’s new CDS reporting solution will launch in shadow mode and run alongside currently existing post-trade infrastructure. It will allow multiple financial institutions to view and update transactions at the same time.

IBM study: 90% of governments plans to invest in blockchain by 2018

According to a recent IBM Blockchain research report titled “Building trust in government – Exploring the potential of Blockchains”, government organizations across the globe are exploring use cases for blockchains that can impact their jurisdictions. The IBM Institute for Business Value surveyed 200 government leaders in 16 countries on their experiences and expectations with Blockchains.

One of the outcomes was that nine in ten government organizations plan to invest in Blockchain for use in financial transaction management, asset management, contract management and regulatory compliance by 2018. And seven in ten government executives predict Blockchain will significantly disrupt the area of contract management, which is often the intersection of the public and private sectors.

Infosys study : one third of banks expect commercial blockchain adoption in 2018

A study by Infosys Finacle, a global leader in technology service & consulting, that polled over 100 business and technology leaders at more than 75 financial institutions across the world revealed that, while 50% of banks are already investing in blockchain or will do so in 2017. These investments not only support blockchain initiatives, but also explore use cases beyond the traditional realm of cross-border remittances, clearing, and settlement. Banks are now moving towards commercial adoption, and one in every three banks expects to see commercial adoption by 2018. While 50% of the surveyed banks expected to see mainstream commercial adoption only by 2020. Cross-border remittances, digital identity management, clearing and settlement, letter of credit processes, and syndication of loans are the most likely candidates for commercial adoption.

McKinsey

McKinsey, the world-wide management consultancy firm, recently submitted a blockchain Technology report to the US Federal Advisory Committee on Insurance. The firm analysed how the technology may disrupt a range of industries, emphasizing banking and insurance, and predicts commercial deployment of blockchain technology at scale by the year 2021. The firm states that more mature businesses using the technology have now entered the market, and over a hundred blockchain solutions have been explored. The firm expects 20 to 30 proof-of-concept use cases for blockchain technology to be tested in 2018, with 10 to 20 successful business cases surviving and deployed commercially by late 2020.

Thailand adoption of blockchain technology by 2018

As the blockchain technology continues to expand and take root and expand, Thailand also stands to see its widespread adoption in the country. According to the Bangkok Post, a number of sectors, including finance will adopt this new technology by the year 2018. Blockchain specialist Bhume said that the country is poised to see the technology take over banking and financial services in the near future.

“The adoption of blockchain technology is expected to be widely seen here by 2018, thanks to its capability of transferring valued assets with trustworthiness, transparency and security.” Bhume Bhumiratana, Bangkok Post.

What do I expect?

We are beyond the hype, a growing number of private blockchains arrived, use cases are further broadened to non-financial applications, and we see the first real-world applications. But still a large number of things have to be realised. We also see some disappointments like Project Jasper in Canada that sees many challenges to overcome before realisation. Bank-based collaboration R3CEV has lost a number of its founding members. That means we have entered the reality stage. But that is also a breakthrough!

 

Carlo de Meijer

Economist and researcher

 

Payment threat trends

| 12-6-2017 | Lionel Pavey |

In the article ‘payment threat trends’ on FinExtra.com you can read that the European Payments Council provides an insight into the latest developments on threats affecting payments, including cybercrime. You can also download the document, which is divided in two sections. One analyses threats including denial of service attacks, social engineering and phishing, malware, mobile related attacks, card related fraud, botnets, etc… Another section aims to include early warnings on threats related to emerging technologies which could lead to potential fraud, including cloud services and big data, internet of things and virtual currencies.

Payment policies

Generally, companies will have a secure, written policy for making payments. These will be generated from the purchasing and bookkeeping systems and should be reconciled. Beneficiary static data should be restricted to view only for the staff – only authorized staff can make and amend the data.
Payments relating to creditors should only be processed if a purchase order has been originated internally and is approved. All payments should be uploaded to recognized bank systems and verified with a six-eyes doctrine.

The biggest area of concern relates to electronic payments outside of the abovementioned process – namely via credit cards. If inventory levels are not correctly monitored then it can occur that a one-off purchase order is made. Payment should be made through a recognized payment provider such as Ideal or PayPal. Furthermore, the issuing of credit cards to key personnel leads to many more risks that can not be directly controlled by the company.

Risks for companies

When using a credit card in a public area, there are a few obvious dangers:

  • Card being stolen
  • Open WIFI in the area
  • Skimmers applied to hand held card devices

Up to now, the majority of payments have occurred on stand-alone bank software. As we enter the electronic age of disintermediation, there are many companies offering payment services. Blockchain and bitcoin are the obvious examples. No system is completely secure but, in the past, banks have made good on any loses if it was shown that the banks systems were at fault. However, hacking into Blockchain wallets and taking electronic coins has occurred and the losses are not covered as they are not run by banks or governments.

For a company this leads to direct risks such as monetary loss, fraud and loss of reputation. Also of concern is the danger of company data being stored by external third parties.

Clearly defined doctrine

Despite all the technological advances being made that make payments easier, companies need to stick to a strong clearly defined doctrine for payments:-

  • Only payments via purchasing and bookkeeping systems
  • Restricted use of credit cards
  • Elimination of petty cash
  • Secure protection of the static data relating to creditors
  • Payments offered only through recognized bank software

Blockchain

Blockchain is a reality – its uses go far further than just payments. The technology can not be stopped – the major issues (in my opinion) revolve around the electronic currencies (Bitcoin).
Companies would do well to investigate the advantages that Blockchain offers and consider how it can be implemented within a company. Some of the potential uses include compliance, insurance, finance, energy, supply chain management, human resources, accounting, data, taxes etc.

As for payment threats – stay alert, identify and manage risks, and keep abreast of changes.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist


Safety of payments

Payment fraud – Leoni case

What is the Blockchain and why you should care

| 7-6-2017 | Carlo de Meijer | treasuryXL |

You might visit this site, being a treasury professional with years of experience in the field. However you could also be a student or a businessman wanting to know more details on the subject, or a reader in general, eager to learn something new. The ‘Treasury for non-treasurers’ series is for readers who want to understand what treasury is all about. Our expert Carlo de Meijer is a blockchain specialist and tells us more about this new technology.

Blockchain

Blockchain is an immutable digital database or ‘distributed ledger’ that allows multiple parties to  transfer and store information (records) securely and reliably, shared via a peer-to-peer network of computers. There are public (or permissionless) blockchains where everybody is free to participate and private (or permissioned) distributed ledgers where only selected parties may enter the network.
The ledger is maintained collectively by all participants in the blockchain system based on a set of generally agreed and strictly applied rules.  It enables digital transactions to be validated quickly and to be securely maintained through cryptography, computational power and network users without the need  for a trusted third party.
In addition to transactions, blockchain has also the ability to run so-called smart contracts, to be coded and connected in such a way that the contract automatically executes an event if certain preconditions are met. Smart contracts could be used in real estate transactions to transfer title and release escrow when ownership is confirmed. Peer-to-peer insurance is potentially another use case.

Main characteristics

What are the main characteristics of a blockchain?
Blockchain has special qualities that makes it better than traditional databases: trusted, decentralised, shared, secure and automated.
·         Trusted: the distributed nature of the network requires computers servers to reach consensus, which allows for transactions to occur between unknown parties in a trusted way.
·         Decentralised: Blockchain allows to trade directly with any counterparty in a secure, fast and cost effective way, without making use of a central authority or third party intermediaries (middlemen) to approve transactions and set rules.
·         Shared: servers or nodes, maintain the entries (known as blocks) and every node sees the transaction data stored in the blocks when created. Each counterparty has its own copy of the same ledger. It allows anyone to obtain an accurate view.
·         Secure: the database is built to be immutable and irreversible, which means that there is inherent security. Posts to the ledger cannot be revised or tampered with. The information is tamper-proof and visible for all parties involved.
·         Automated: Software is used to generate and record information about the transaction (when it took place, and the chronological order of all transactions). This results in a chain of information, stored in a so-called block; hence the name blockchain.

Use cases

What are use cases for blockchain?
As the blockchain can be used to store and send anything of value, applications may be numerous. These do not limit to financial transactions such as payments, remittances, supply chain finance, securities settlement, stock trading etc. The potential may well be beyond the financial sector ranging from securing  intellectual property, health records, land registry and ownership records, marriage contracts, identity management, voting records, vehicle registries, tax collection etc.
What are the benefits of blockchain?

Conclusion

There are many benefits to be gained from using blockchain technology. Immutability, coupled with its immediacy, assured provenance  and transparency are core blockchain attributes. Removing the middlemen for transaction increases the speed and eliminates transaction fees for consumers and institutions alike. Other business benefits are also relatively easy to imagine, such as in facilitating identity authentication, privacy, access management, regulatory compliance.

 

Carlo de Meijer

Economist and researcher