Blockchain uses in finance

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From security issues to inefficiency, the finance industry has been facing several issues. Blockchain can become a one-stop solution for tackling most of these issues in finance industries. Some of the blockchain benefits in finance are the following. The current financial structure lacks transparency in the system. Transparency benefits both financial institutions as well as customers.

It brings effective communication between banks and their stakeholders. Blockchain records every detail of a transaction in a public ledger. So, it provides visibility to the whole lifecycle of a transaction. The technology has two keys-private and public keys. All the users of a network will have the public key while only the stakeholders of the transaction will have the private key. The public key will show the transaction history and the private key will show the exact transaction details.

In this way, the blockchain provides transparency to the users while maintaining the privacy of transaction holders. Financial service institutions like banks have to identify and evaluate risks when providing services like loans. Then, they have to make decisions on which risks to take and which to avoid. These risks may include credit risk, trusting intermediaries, missing the commitment by a counterparty, and more. Additionally, users have to rely on intermediaries to monitor and track their loan uses in commercial banks.

It adds another risk to the financial systems. Blockchain technology can manage risks with accuracy, visibility, reliability, and timeliness of transactions. Moreover, the peer-to-peer P2P network of blockchain eliminates the need for any intermediaries. Since blockchain stores all the transactions, it reduces the risk associated with funds and credits. It improves reliability as data is immutable on the network.

Lastly, smart contracts solve the problem of slow transaction settlement. To sum it up, blockchain enhances accountability, decision-making, transparency, and robustness in risk management. Firms need to pay these costs regularly. All these factors make the system more costly without guaranteed data protection.

Blockchain technology can eliminate all the extra costs associated with the financial system. The blockchain is itself a public ledger that so institutions do not need to purchase a separate central database. It maintains the security of the system. Smart contracts , self-executing programs based on blockchain technology, can remove the need for intermediaries, bookkeeping, and value transfer.

All these features of blockchain reduce the overall costs for financial institutions. Effective identity protection, traceability, immutable transaction record-keeping, document management, and affordability of blockchain results in various blockchain use cases in finance. We have curated the following list comprising the most popular blockchain use cases in the finance sector. Many financial institutions use manual document verification process that takes a lot of time.

Often, this identity verification is inefficient and prone to human errors. When firms integrate blockchain in the identity verification process, customers get the benefits of quick, secure, and effective procedures. For instance, customers only need to register one time for identity verification. Borrowing and lending generally require an intermediary in the conventional financial system.

But, blockchain can create a trustless system without any intermediary. A lender and borrower can develop a custom smart contract, based on blockchain. They can decide on the rate of interest, duration, and installments of the transaction. Some esteemed banks like Credit Suisse and ING have implemented blockchain-based lending applications. Banks charge high transaction fees for every cross-border payment. On blockchains for business, participants are invited to join, and their identity is controlled with cryptographic keys.

Before any financial transaction is updated to a blockchain, its validity must be verified by the participants through a consensus protocol. If anyone tries to modify data in a block, the hash notifies participants. Once the parties have agreed to certain conditions, the self-executing and self-enforcing code automatically implements the contract terms.

The technology has several key attributes that make it uniquely suited to enable direct and trusted interaction between two business trading parties. Those characteristics include :. As finance grows increasingly automated and digitized, blockchain will increase in strategic importance. What blockchain does Blockchain can be used to remake a wide range of finance processes: intercompany transactions when there are multiple ERPs , procure-to-pay, order-to-cash, rebates, warranties, and financing such as trade finance, letters of credit, and invoice factoring.

Any place paper piles up presents an opportunity for blockchain to move in and knock it down. For example, using blockchain as a transaction platform for a supply chain can improve performance. The back-and-forth transaction, conducted among parties on a shared platform, could conceivably be completed in hours, compared to the five days a paper-based system devours.

Blockchain can also reduce the cost and friction involved in repetitive finance tasks, cutting both errors and delays. Having both parties share access to a single source of truth can eliminate such inefficiencies. By giving finance leaders a real-time picture of a given financial situationпїЅeven an intercompany transaction, which involves such shifting components as tax laws, exchange rates, and compliance requirementsпїЅblockchain equips them to improve their decision-making.

Where blockchain fits Beyond its impact on any individual organization or function, blockchain may ultimately disrupt paper-clogged industries, such as health care and insurance. At this point, the earliest rumbles of those upheavals are now barely audible. Among respondents to the global blockchain survey, 84 percent say that blockchain will eventually reach mainstream adoption.

For now, CFOs should consider beginning the journey with a few steps that can provide them with a better understanding of the technology. From there, they can identify and prioritize the finance pain points that the technology could potentially address. For CFOs, blockchain is one of many tools that can reshape the finance function process by process.

Only by gaining a practical understanding of blockchain now can CFOs position finance to fully realize its benefits by the time it reaches the mainstream. Questioning blockchain Before your company begins evaluating blockchain, CFOs should look for certain answers:. JP Morgan: Making bank with blockchain. Banks are actively rethinking how blockchain can enable them to reinvent various forms of financing such as trade finance, letters of credit, and invoice factoring.

Earlier this year, JP Morgan Chase became the first bank in the country to launch its own blockchain-based digital currency. Any money exchanged over blockchain is converted into digital tokens, with each JPM Coin valued at one dollar.

The digital currency should enable the bank to reduce risk, save money, and improve efficiency in business-to-business payments. Theoretically, that means that the JPM Coin could eventually be made available to consumers. CFO Insights , a bi-weekly thought leadership series, provides an easily digestible and regular stream of perspectives on the challenges you are confronted with.

The CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead in the face of growing challenges and demands. For more information on the financial reporting implications of disasters read this edition of the Financial Reporting Alert , which covers asset impairments; income statement classification of losses; insurance issues; environmental remediation, liabilities, clean-up and operating losses; stock compensation performance conditions and modifications; derivative and hedging considerations; employee benefits issues; assistance received from outside entities e.

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My Deloitte. Undo My Deloitte. Unleashing blockchain in finance CFO insights. Save for later. For blockchain, the future is now The distributed ledger technology first gained prominence years ago as the backbone of bitcoin, the pioneering crypto-currency.

How blockchain works Put simply, a blockchain serves as a distributed, shared ledger that can be integrated with the existing applications enterprise resource planning ERP , order entry, etc. Those characteristics include : Cryptographic security. To write to, or read, any private blockchain requires the use of two cryptographic keys.

Blockchains come in both a public and permissioned private incarnation. With bitcoin, participants could come and go without any permission. But on a permissioned blockchain, which would be used for financial applications, companies must be invited to participate.

Built-in redundancy. Should one fail, there are many others. More important, there is no single point of failure. Process integrity. In addition to having the correct credentials, users can only update the blockchain once a consensus of participants has validated the information. Here are a few steps for CFOs to consider: Assign a blockchain champion. Blockchain should be a business-led initiative, requiring strong sponsorship and leadership provided from the ranks of finance executives.

The designated leader can assign a few junior resources to study the ever-growing body of literature about blockchain. While doing so, they can start to envision how the various functions might benefit from implementing blockchain, identify value drivers, and build business case frameworks.