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OVERVIEW OF BLOCKCHAIN

What is a blockchain?

A distributed, unchangeable ledger facilitates the procedure of tracking assets (tangible and intangible)

Recording transactions

Widely shared across corporate network

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OVERVIEW OF BLOCKCHAIN

Key elements of a blockchain

Distributed ledger technology

Immutable records

Smart contracts

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OVERVIEW OF BLOCKCHAIN

How Blockchain works

As each transaction occurs, it is recorded as a “block” of data

Each block is connected to the ones before and after it

Transactions are blocked together in an irreversible chain: a blockchain

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Public blockchain (permissionless): there are no restrictions on who may use it

Private blockchain (permissioned): operates in a closed setting, such as a closed ecosystem, or that is controlled by one entity.

Federated blockchain (consortium): private blockchain with restricted access to a specific group.

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OVERVIEW OF BLOCKCHAIN

Three levels of blockchain

Blockchain 1.0: The Origin of the Modern Blockchain

The information recorded was confined to the values of an 'item' that changed ownership over time. E.g. Bitcoin, Coinbase, Binance

Blockchain 2.0: Smart Contracts

Let two individuals or businesses do more than just exchange cryptocurrency. E.g. cryptocurrency platform (Ethereum, Lisk, Neo); DeFi programs (MakerDAO and Uniswap); browser extensions (MetaMask)

Blockchain 3.0: Decentralized Enterprise Level Applications

Has greater scope in terms of industries and sectors that it may embrace. E.g. healthcare (smart contracts for medical services and EMR storage), cybersecurity (multi-factor authentication), supply chain (smart delivery contracts), and manufacturing

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PURPOSES OF USING BLOCKCHAIN

1. Easy money transfers

Online money → supported by many platforms and apps

OTP code was sent → overall secure payments

2. To make lending more accessible

Utilize smart contracts → manage collateralized loans by lenders

Both the lender and the borrower will benefit from these contracts.

3. Safer and smoother financial exchanges

Numerous platforms → support decentralized cryptocurrency exchange → introduced

Users have more control over cryptocurrency

The transactions are quite quick and cost less

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PURPOSES OF USING BLOCKCHAIN

4. Providing transparency in insurance

Blockchain technology provides a platform for insurance companies and customers → interact and transact in a secure manner

All customer claims are documented → kept with supporting documentation → prevents customers from filing duplicate claims

5. To make real estate transactions easier

Blockchain technology facilitates greater access to financial data and ownership in real estate transactions.

Reduction of paperwork and other formalities

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OPPORTUNITIES OF BLOCKCHAIN

Insurance Industry

Customers upload necessary documentation for an insurance claim  → Blockchain will validate and process it.

Utilizing smart contracts → trigger some actions → met conditions

Traditional Banking

Innovation of Internet finance → enhancing application scenarios and laying the groundwork for big data analytics → offer individualized and user-friendly service

Accentures 2017 → investment banks save up to 10B dollars

Global stock exchanges → experimenting with the application of blockchain → speed up settlement process and eliminate administrative hindrances

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THREATS OF BLOCKCHAIN

Scalability

PayPal can process 193 transactions/sec

Ethereum and Bitcoin can only process 20 transactions/sec

Security and Privacy Leakage

Technology can be assaulted by numerous methods

Dominate the network and have full control over the Blockchain

Energy Consumption and Bandwidth

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THE IMPACTS OF DIGITAL FINANCIAL INSTRUMENTS ON FINANCE

Authenticity and scarcity → asset provenance, complete records of transactions, and data accuracy in a single, prevalent source of truth

Streamlined processes → increased automation improves operational effectiveness

Economic benefits → lower infrastructure, operation, and transaction costs.

Market reactivity → allow for more customization and can be issued within shorter timeframes.

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BLOCKCHAIN IMPACT FINANCIAL MARKETS

Impact on financial intermediation

The emergence of DeFi establishes a new method of performing functions like Automatization; Algorithmic risk assessment; Real-time information provision; Creation of a single pool as transaction counterparty.

→ Enhance the efficiency of the financial market with the aim of cost reduction

The role of algorithms and human factor

DeFi facilitates greater human connection, with more individuals being actively engaged, as innovative technology permit more algorithmic-driven behaviors → without human intervention.

Algorithms outshine humans by automating repeated tasks and operations in trading activities but human still act as crucial role in decision making.

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APPLICATIONS OF BLOCKCHAIN IN FINANCIAL SERVICES

Peer to peer economy

Encourages the possibility of trading money and services without the necessity for a centralized authority and additional fees.

Circle offers a Blockchain-powered platform for receiving and sending money immediately across borders with no extra charges.

Billon attempts to capitalize on Blockchain's distributed nature to speed up cross-border transactions.

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APPLICATIONS OF BLOCKCHAIN IN FINANCIAL SERVICES

Insurance Industry

Property and Casualty Insurance: various phases in the claims process can be automated using smart contracts

Fraud Detection: blockchain allows for greater coordination among stakeholders about the single source of truth.

Reinsurance: blockchain is used to boost the flow of information by creating an immutable ledger that serves as a single source of truth for all parties.

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Applications of Blockchain in Finance

Traditional banking

Blockchain encourages models of peer-to-peer mass cooperation by lowering transaction costs across all economic actors.

Traditional banks can save up to $20 billion per year

Investment banks can save up to $12 billion dollars per year

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Applications of Blockchain in Finance

Traditionally, in the early phases, business owners seek investors, then venture capitalists → an initial public offering (IPO) on a stock market.