Blockchain in Finance | Top Use Cases Unveiled

The Ethereum blockchain has many advantages such as enabling inclusive, open, and secure business networks, efficient processes, shared operating models, reduced costs, and the creation of new products and services in the banking and finance sectors. Digital securities can be issued within shorter periods, at lower unit costs, and having greater customization levels. 

Over the last five years, this blockchain technology has also emerged as suitable for enterprise-grade use and exhibits the below-said benefits: 

Security: Blockchain’s consensus-based architecture eliminates single points of failure and reduces the need for transfer agents, messaging operators, and other inefficient utilities. It enables the implementation of secure tamper-proof application code against fraud and parties with malicious intent and is impossible to hack.

Transparency: The standards, shared processes, and protocols act as a single shared source of truth for the entire network.

Trust: The immutable ledger is transparent and enables different parties to collaborate, manage data, and reach agreements easily in a business network.

Programmability: Smart contracts can be created and executed easily, those that are automatic and tamper-proof consequently creating more trust and improved efficiency.

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Privacy: It provides data privacy at granular levels by allowing selective sharing in the network thereby improving transparency efficiency and trust.

High-Performance: Private and hybrid networks are designed to manage and maintain hundreds of transactions in a second and handle sudden traffic surges in the network.

Scalability: Interoperability between private and public chains are possible, thereby offering every enterprise solution a global reach, tremendous resilience, and high integrity of data.

Blockchain technology has demonstrated tremendous (almost 10x) cost advantages as against prevalent technologies. This type of distributed ledger technology is predicted to save billions of dollars for major financial institutions in this decade. 

Digitization of Financial Instruments and its Impact on Finance

Digitized financial instruments such as those of smart contracts, digital assets, and programmable money enjoy the benefits of blockchain by allowing unprecedented levels of programmability and connectivity among services, products, assets and holdings. Such digitized instruments have served to redefine commercial processes and financial markets, thus creating a new paradigm shift. 

Business Benefits of Digital Financial Instruments:

• Digitization ensures the integrity of the data and enables full transaction history in a single shared source of truth at any point in time
• Code blocks addressing compliance, governance, data privacy, system incentives, and identity features can be built into the assets
• Overall operational efficiency is increased because of heightened automation

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• Efficient and automatic processes lead to reduced infrastructure, operation, and transaction costs
• Digital securities allow more customization and can be issued within shorter timeframes
• Digital financial instruments make for secure, scalable, and rapid asset transfers and allow fractionalized ownership of assets

Blockchain Use Cases

Capital Market

By capital markets meant the pairing of issuers together with the demand for capital and investors with the corresponding risk and return profiles. Whether these are entrepreneurs, startups, or large organizations, it is not easy to raise capital. There are stringent regulations, longer times to get to market, interest rate volatilities and liquidity risk. In emerging markets, there is no rigorous monitoring nor regulations and strong market infrastructure for issuing, settlements, clearing, and trading. 

Benefits of using blockchain 

• Decentralized utilities and elimination of a single point of failure
• Streamlines processes and reduces costs and settlement times 
• Digitization of processes and workflows
• Digitization or tokenization of assets and financial instruments

Asset Management

Private equity firms, venture capital firms, real estate funds, and specialty markets face demands to improve liability risk management, adopt dynamic decision-making structures, and address the complexity of regulations. 

Benefits of Using Blockchain

• Automated fund launches
• Seamless stakeholder engagement 
• Digitization of portfolio and existing holdings 
• Automated fund administration
• Voting and other shareholder rights programmed into digital assets
• Creation and enforcement of incentive mechanisms to punish nefarious activity
• Improved governance and transparency for stakeholders
• Efficient cap table management

Global Payments/Remittances

Global payments/remittances are plagued by intermediaries, time delays, and high costs. This runs into billions for the world over. Blockchains can streamline payments/remittance processes and reduce settlement times and significantly reduce costs. 

Benefits of Using Blockchain

• Rapid, secure, domestic retail payments and wholesale and securities settlements
• Rapid and secure cross-border payments
• Real-time gross settlements between central, commercial, and independent banks
• Digitized KYC/AML data and transaction histories
• Automated regulatory oversight and audits
• Multiple payment forms Tokenized fiat, cryptocurrency, and stablecoin

Banking and Lending

Core banking comprises activities such as transactions, loans, mortgages, and payment services. Many of these services still follow legacy processes and take a long time to complete. Blockchain helps to streamline these activities and in effect reduces counterparty risk and issuance and settlement times. 

Benefits of Using Blockchain

• Authenticated documentation of KYC data
• Streamlined credit prediction and scoring markets
• Facilitated asset collateralization 
• Automated syndicate formation, underwriting, and funds disbursement

Trade Finance

Trade finance includes the infrastructure, processes and funding that support international trade supply chains. 

Benefits of Using Blockchain

• Digitized and authenticated KYC data and documentation 
• Asset digitization enables quicker settlements 
• A more efficient financing structure
• A consistent financing vehicle for the trade lifecycle

Insurance

Casualty and property insurance claims are prone to fraud and assessments can take long periods. Blockchain can streamline claims processing, data verification, and disbursement, thereby reducing processing time.

Benefits of Blockchain

• Authenticated documentation and KYC/
• Automated claims processing by using smart contracts
• Automated insurance payment disbursement 
• Automated parameterized contracts 
• Tokenization of reinsurance markets 

Compliance

Regulatory compliance has become very important in the finance and commerce sectors. This ensures that financial institutions respect rules, laws, and regulations applicable to activities.

Benefits of Blockchain

• Unique programmable governance and compliance attributes 
• Streamlined processes that automate various real-time processes
• Creation/enforcement of incentive structures 

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