One of the most discussed topics in the financial services industry today is blockchain technology. We are beginning to understand what a blockchain is, but how can we best use this technology within our business?
In this series we describe 5 blockchain use cases, such as smart contracts, identity management and share trading. We hope they will enhance your understanding of the opportunities and challenges of this technology, and we welcome your feedback and further discussion.
What is a blockchain?
Most parties in the financial sector already have a grasp of concepts such as bitcoins and other cryptocurrencies. These concepts work on the blockchain technology, which is a digital, distributed transaction ledger with identical copies maintained on each of the network’s members’ computers. All parties can review previous entries and record new ones. Transactions are grouped in blocks, recorded one after the other in a chain of blocks (the ‘blockchain’). The links between blocks and their content are protected by cryptography, so previous transactions cannot be destroyed or forged. This means that the ledger and the transaction network are trusted without a central authority – a ‘middleman’.
#1. Blockchain – speeding up and simplifying cross-border payments
The transfer of value has always been an expensive and slow process. This is particularly true for cross-border payments. The blockchain is able to speed up and simplify this process – and also reduces the costs significantly.
#2. Blockchain – the future of share trading
Share trading will soon be impacted by the blockchain. Utilizing blockchain technology allows for greater trade accuracy, and a shorter settlement process.
#3. Blockchain – the benefits of smart contracts
One of the most promising applications of blockchain technology is the smart contract. It can execute commercial transactions and agreements automatically. It also enforces the obligations of all parties in a contract – without the added expense of a middleman.
#4. Blockchain – how to improve online identity management
When identity management is moved to the blockchain, users are able to choose how to identify themselves and who will be informed. They still need to register their identity on the blockchain somehow, but after that, they can re-use that identification for other services.
#5. Blockchain – loyalty and rewards
Blockchain offers many benefits, including transparency and traceability of transactions. This will help banks and insurers to create a more captivating loyalty and rewards program that fits 24/7 performance management and enhances engagement.