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As adoption of blockchain rises, financial transactions will become more streamlined and the number of entities involved in any exchange of capital, equity or securities will decrease. Blockchains will bring disruption and displacement, but for the early movers, they will also bring opportunity and growth. Blockchain is the underlying technology of the cryptocurrency called bitcoin.
Leading up to , publicity and interest revolved around bitcoin becoming an alternate currency — until the price of bitcoin began to crash, leading the gradual shift of interest from bitcoin to blockchain. It is a version of a distributed database — more precisely, a distributed ledger. It can be used to record any transaction including an exchange of value. The entire ledger with all of its transactions is distributed across a network of computers. The transactions recorded on the ledger are verified by members of the network — this is called distributed consensus.
It is mathematically impossible for errors to escape the scrutiny of distributed consensus. The most significant benefit of the blockchain is that it can eliminate inefficiencies in existing financial markets and drive faster, lower-cost transactions that are more efficient and provide increased liquidity, transparency and security.
The blockchain offers trust for the user, eliminating the need for the intermediary and mitigating the risk of human error with complete automation.
Using the blockchain, anyone can create and complete smart contracts that are stored on the public ledger permanently. A smart contract regarding the sale of goods from one party to another would take place using blockchain technology to cryptographically prove transfer of ownership without the need for middlemen.
Financial institutions including banks, clearinghouses and exchanges have focused on the prospect that blockchain might overhaul, if not fundamentally transform, their business models.
Most institutions and start-ups are focused on use cases where there is significant friction and inefficiencies that are in need of an overhaul: This is a complex technology and a lot more education and investigation across all industries will take place over the next couple of years.
There is an opportunity to reduce settlement latency in businesses such as Repo, FX or lending settlement in the loan market can be as long as days where reducing the time between execution and settlement can meaningfully reduce cybersecurity risk, ops risk and funding costs. Many banks are testing out private permissioned blockchain solutions where access to the blockchain is controlled and monitored.
Examples could be externally interacting digital wallets and exchanges. The majority of blockchain initiatives are still in the early alpha or beta stage. While most market participants understand its potential, many financial institutions are still trying to work out whether blockchain technology offers a cost-cutting opportunity or represents a margin-eroding threat to certain areas of their businesses. There is huge promise for blockchain at this early stage and the hype around this new technology can be deafening at times.
Proof-of-concepts and prototypes will be in abundance through this early stage, but many start-ups will continue to gain traction with early enterprise applications and innovation. As the blockchain ecosystem continues to evolve, Thomson Reuters will be a leader and trusted advisor to our customers about blockchain and develop real applications as this technology matures. Fluent is an early stage start-up that is disrupting and automating B2B payment workflows, asset verification, financial wires and the settlement process using blockchain technology as a ledger and payment protocol.
To stay ahead of the competition and remain relevant to customers, businesses need to keep a close eye on blockchain. Thomson Reuters has partnered with Fluent because they have built a team of blockchain experts, and are applying this talent to areas where the core technology could be applied to use cases across all of Thomson Reuters.
Although this is still an early stage start-up firm, Fluent is developing real enterprise technology and continuing to gain credibility. We have been working across Thomson Reuters to educate, collaborate and develop use cases where blockchain technology could make a significant impact for both our products and customers.
Our customers are proactively coming to discuss blockchain initiatives across our businesses. We are on track to deliver prototypes to test the effectiveness of blockchain on Thomson Reuters use cases. For example, can blockchain technology be leveraged with machine-readable rights to enhance Thomson Reuters significant datafeeds business?
Is the blockchain suitable for identity management, validation and authentication? What other digital assets within Thomson Reuters or our customers are suitable for management on a blockchain?
These are just some of the questions we plan to answer in Several unknowns need to be addressed before this technology becomes mainstream.
With that said, the opportunities seem almost endless. Blockchain has the potential to further disrupt banking in the way that we know it today, transform traditional interbank and peer-to-peer payments, open up opportunities to replace existing mechanisms for the exchange of financial information and the method by which customer records are stored and processed. The recent public announcements around blockchain technology from both the public and private sector have added real weight to the importance of this new innovation.
One thing is certain: Blockchain is here to stay. To stay ahead of the competition and remain relevant to customers , businesses need to keep a close eye on blockchain and be prepared to adapt and transform accordingly. Additional sources 1 Aite Group: Demystifying Blockchain in Capital Markets: What is blockchain technology? How blockchain works Source: Financial Times What does blockchain technology solve for? Blockchain in financial services Financial institutions including banks, clearinghouses and exchanges have focused on the prospect that blockchain might overhaul, if not fundamentally transform, their business models.
Investment in start-ups Fluent is an early stage start-up that is disrupting and automating B2B payment workflows, asset verification, financial wires and the settlement process using blockchain technology as a ledger and payment protocol. Customer engagements We have been working across Thomson Reuters to educate, collaborate and develop use cases where blockchain technology could make a significant impact for both our products and customers.
Building and testing proof of concepts We are on track to deliver prototypes to test the effectiveness of blockchain on Thomson Reuters use cases. Conclusion Several unknowns need to be addressed before this technology becomes mainstream. The potential cost of developing and maintaining the blockchain network The lack of a regulatory framework Concerns over the capacity of the blockchain With that said, the opportunities seem almost endless.
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