For context, what are DLTs?
I spent this last summer at The White House researching the potential impact of new and innovative financial technologies. During my time, some of the most interesting innovations I came across were distributed ledger technologies (DLTs). DLTs are generally databases of information, usually assets that are shared across a network of nodes. As opposed to a centralized ledger – which requires the storage of assets in a “clearing house” (a central and secure database) – a distributed ledger allows the owners of the assets to control their assets directly through a network in which copies of the same ledger are stored locally at each node.
So, why should we care about the blockchain?
Because DLTs present an opportunity to disrupt the traditional movement of assets processed by financial institutions. One such DLT is called the blockchain (the name coming from the fact that each block of assets is added to a transparent and permanent chain of transactions that keeps accumulating). You may have heard of the blockchain because it was the underlying platform for the transfer of the first successful digital currency – bitcoin. Fundamentally, the blockchain represents a different way to transact anything – data or assets – that disintermediate the clearing house and provide an ownership and transfer experience that potentially provide more control, security, access, and speed. In financial services, this means it’s possible that blockchain technology could force banks to change the way they have stored and transferred principals’ assets.
How a blockchain company is helping financial services institutions move to the new way…
One blockchain company – Chain – has been working over the last two years to develop and introduce to the marketplace a specific blockchain platform called the Chain Core. Chain Core is “enterprise software that enables institutions to issue and transfer financial assets on permissioned blockchain networks”. Chain serves customers in the financial institutions space from payment processors like Visa to banking institutions like Citigroup and yet others in between. To help these customers realize the benefits of their proprietary technology, Chain partners with them to develop bespoke blockchain networks that have a varied set of protocols, controls, and network operations.
Chain serves as an example of how blockchain technology can help financial institutions operate in a new way. In the old operating model, payment processors and banks use a system of intermediaries to store and transfer value. This means investing in the security of these clearing houses, ensuring high levels of trust between parties involved in the transactions, and taking extra time to verify transactions (especially large ones) even after they have been preliminarily processed. The new operating model begins to change this. Because there are no clearing houses, security investments can be reduced to the cryptographic keys and the network itself, a system of protocols can be developed so that trusted external parties are not needed, and the speed of transactions can increase due to quick verification by the network itself as opposed to a stage-gate.
Next steps for Chain
Of course, Chain must focus on developing its technology, gaining a strong client-base, and delivering on its product’s customer promise. However, Chain has numerous lateral opportunities to help large players in spaces outside of financial services transform the way they deliver value. Below are some high-potential financial and non-financial use cases Chain could pursue next that would maintain its enterprise focus and strong development capability.
- Financial use cases
- Escrow service – Digital assets are created, stored, and managed by a custodian or set of custodians.
- Trading platforms – Individual and institutional players can execute trades on a decentralized platform with protocols that allow for smart execution of contracts and faster trades.
- Peer-to-peer value transfer – The network serves as a system of payments through which enterprise and individual nodes can pay each other.
- Non-financial use cases
- Marketplace for sale of assets – A network protocol allows for secure and fast execution of sales of assets with clear ownership rights and transfers.
- Records management – Records systems are no longer stored and owned by single parties with decentralized but private networks of records for use cases such as healthcare records.
- Election voting – A semi-private network allows citizens to vote in elections through creation of fixed voting “assets” that can be transferred within a given time frame.
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