Chain Bazaar Make it easier for the blockchain to land
Chain Bazaar Make it easier for the blockchain to land
Author丨Blockchain landing expert
Author丨Blockchain landing expert
Column introduction
Column introduction
The column of Blockchain Application Cases is intended to explore the real implementation of the blockchain through some specific cases of the combination of the blockchain and the real industry, and to inspire enterprises or blockchain practitioners.
Unknowingly, the blockchain has been developed for nearly 10 years, but even now some people still question that the blockchain has no practical application at present, but on the contrary, with the technology accumulation and industry exploration in the past few years, the blockchain It has quietly taken root in some industries...
As a well-known foreign new technology consulting organization, CB Insights used the 4D report to dismantle how blockchain technology will affect the traditional banking industry in detail. Enjoy as follows.
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Blockchain is changing everything from payments to private capital markets, so will traditional banking embrace the technology or be replaced by it?
Over the past decade, blockchain technology has received a lot of attention, surpassing the acclaim of bitcoin enthusiasts in the niche market, while becoming a mainstream topic among banking experts and investors.
In September 2017, JPMorgan Chase CEO Jamie Dimon scoffed at bitcoin, noting, “It’s worse than a tulip bubble,” citing a 17th-century bubble in the Dutch tulip market. He said more arbitrarily that the bitcoin market will not have a good result, and someone will be killed for it. Lloyd Blankfein, senior chairman at Goldman Sachs, echoed the statement, saying: “Something that moves 20% in price overnight doesn’t feel like a currency, it’s more like a currency. a fraudulent means.(Editors note: Later, Dimon began to support the blockchain technology that is the basis of cryptocurrencies such as Bitcoin. JPMorgan Chase invested heavily in this field, created its own cryptocurrency JPM coin, and established a dedicated blockchain company. new department)
Despite skepticism about the Bitcoin market,
And does the seriousness and public opposition of banks to cryptocurrencies reflect another question: What are banks afraid of?
In short, there are many.
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Blockchain and Banking: The Role of DLT in Financial Services
Blockchain is a technology that allows untrusted parties to come to an agreement on the stable state of a database without using a middleman. By providing unmanaged distributed ledgers, blockchains can provide certain financial services such as payments or securitization without the need for banks.
In addition, blockchain allows the use of tools such as smart contracts, that is, blockchain-based self-executing contracts, which may enable the transformation of agreements and claims contracts, distribution of wills and other processes from manual to automated processing.
Distributed ledger technology (DLT) does not require a high degree of decentralization, but benefits from better coordination of its technology, which can help enterprises establish better governance methods and standards around data sharing and collaboration.Blockchain technology and DLT have a great opportunity to disrupt the 5T+ banking industry by disintermediating key banking services, including:
1. Pay: By establishing a decentralized payment distributed ledger (such as Bitcoin), blockchain technology can complete payments faster and with lower fees than banks.
2. Clearing and settlement system: Distributed ledgers can reduce business costs and bring daily transactions closer to real-time transactions between financial institutions.
3. Financing: Initial public offerings are experimenting with a new funding model that unties traditional financing services and companies with entirely new access to capital.
4. Securities: By tokenizing traditional securities such as stocks, bonds, and financial derivatives and placing them on public blockchains, blockchain technology can create more efficient and interoperable capital markets.
5. Loans and credit: By removing the need for gatekeepers in the lending and credit industry, blockchain technology could make borrowing and lending more secure and offer lower interest rates.
6. Trade financing: By replacing the cumbersome paper-based bill of lading process in the trade finance industry, blockchain technology can create more transparency, security and trust between parties in global trade.
: By storing customer information on the block, financial institutions can share information more easily and more securely.
payment system
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Blockchain technology offers a secure and inexpensive payment method that reduces the need for third-party verification and outperforms the processing time of traditional bank transfers.
Ninety percent of the members of the European Payments Council believe that blockchain technology will fundamentally change the industry by 2025.
Today, trillions of dollars circulate around the world through an outdated system of slow payments and surcharges.
If you work in San Francisco and want to send part of your paycheck back to family in London, you may have to pay a flat wire fee of $25 plus a 7% service fee. Both the sending bank and the receiving bank charge fees, you also pay an exchange rate fee, and your family may not get the money until a week later.
(Source: Blockchain)
The daily confirmed Bitcoin transaction volume has increased sixfold over this past period, from over 50,000 in 2014 to over 300,000 in February 2021.The payments industry is highly profitable for banks, with little incentive to reduce fees, and cross-border transactions from payments to credit notes generated $224 million in revenue for the banking industry in 2019.。
Cryptocurrencies like bitcoin and ethereum are built on public blockchains (the bitcoin and ethereum networks, respectively) that anyone can use to send and receive money. In this way,
Bitcoin transactions take an average of 10 minutes to settle, although in extreme cases this can stretch to hours or even days. While still not perfect, its a definite improvement over the average 3-day processing time for traditional bank transfers. Due to its decentralized and complex nature, blockchain-based transactions are difficult for regulators to control, trace and shut down.
Developers are also working on scaling cheaper solutions to process payment transactions faster. For example, Bitcoin Cash (BCH) and Tron are trading at relatively low prices.
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Examples of improving payment systems through blockchain
While cryptocurrencies are still a long way from completely replacing fiat currencies such as the U.S. dollar when it comes to payments, transactions in cryptocurrencies such as Bitcoin and Ethereum have mostly seen an upward trend over the past few years. In fact, the Ethereum network became the first network to settle $1 trillion in transactions in a calendar year in 2020.
Several companies are using blockchain technology to improve B2B payments in developing economies. An example is .(Source: BitPesa)。
BitPesa is also widely used in the remittance industry throughout Sub-Saharan Africa, a region with the highest remittance fees in the world,Crypto payment platforms like BitPesa have reduced transfer fees in the region by more than 90%Blockchain companies are also working to enable businesses to accept cryptocurrencies as payment. For example
BitPay is a payment service provider that helps merchants accept and store Bitcoin Airfox, which integrates a lot with eCommerce platforms like Shopify and WooCommerce.Ethereum-based payment platform。
Acquired by Brazilian retailer Via Varejo in May 2020, and reached a cooperation with MasterCard,Allow customers to pay with the Banqi app at their global points of sale。
South Korea-based cryptocurrency payment startup HUPAYX partnered with several South Korean businesses in 2019 to create a payment network.Consumers can now use the Hupyx mobile app and point-of-sale infrastructure to pay at more than 400,000 stores, including duty-free and shopping mallsBlockchain technology is also being used to facilitate micropayments, usually less than a dollar. For example, as an online cryptocurrency wallet
. Users can load Bitcoin, USD, or any other payment token (token) supported by the application into the wallet.
Clearing and Settlement Systems
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Distributed ledger technology allows for direct settlement of transactions and better tracking of transactions than existing protocols such as SWIFT.
Companies like Ripple and R3 are partnering with traditional banks to bring greater efficiencies to the banking industry.
As mentioned earlier, it takes an average of 3 days for a bank transfer to be settled, which has a lot to do with our traditional financial infrastructure construction methods.
Its not just consumer pain. Moving money around the world is also an organizational nightmare for the banks themselves. Today, a simple bank transfer from account A to account B must go through a complex system of intermediaries, from correspondent banks to escrow services, before reaching the destination where the funds are going.
Money from the two banks had to be reconciled in the global financial system, passing through a network of traders, funds, asset managers and more.
If you want to send money from a UniCredit Banca account in Italy to a Wells Fargo account in the US, the transfer will be performed through the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The Society for Worldwide Interbank Financial Telecommunication ( SWIFT ) sends 37.7 million messages to more than 11,000 financial institutions every day.
(Source: Aite Group)Since there was no established financial partnership between UniCredit Banca and Wells Fargo, they had to search the SWIFT network for a fee-collecting correspondent bank that had a relationship with both banks and was able to settle transactions. Each correspondent bank maintains different ledgers at the originating bank and the beneficiary bank, which means that these different ledgers must eventually be reconciled.
The centralized SWIFT protocol does not actually receive and pay, it just sends payment instructions, and then processes the actual currency through an intermediary system. Each intermediary will add additional costs to the transaction, and there is a potential risk. In addition, 60% of B2B payments require manual intervention, costing about 15-20 minutes each time.。
Blockchain technology, as a distributed ledger of transactions, may change the status quo. Compared with the current situation of using SWIFT to check the books of each financial institution,
The use of blockchain technology between banks can openly and transparently track all transactions. This means that transactions can be settled directly on the public blockchain without having to rely on a network of escrow services and correspondent banksBlockchain technology can help alleviate the high cost of maintaining a global network of correspondent banks. A survey of eight global banks by Accenture found that,。
Blockchain technology could reduce the average cost of clearing and settling transactions by $10 billion per year
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Examples of improved clearing and settlement transactions through blockchain technology
Ripple is an enterprise blockchain service provider and currently the largest provider of clearing and settlement work. Although the company is best known for its associated cryptocurrency XRP, the venture-backed tech firm itself is developing blockchain-based solutions for banks to use for clearing and settlement.The Society for Worldwide Interbank Financial Telecommunication (SWIFT) message is one-way like an email, meaning the transaction cannot be settled until it has been screened by both parties.Through direct integration with the banks existing databases and books,
Ripples xCurrent product provides banks with a faster, two-way communication protocol, allowing real-time messaging and settlement
. Ripple currently has more than 300 customers in more than 40 countries conducting trials on its blockchain network.(Source: Ripple)
Another Ripple product, xRapid, is helping solve cross-border transactions in less time
. If a trader in Mexico wanted to send money to a counterpart in the United States, a traditional banking transaction would require the two traders to have local accounts in the countries where they wish to receive funds.
XRapid omits this requirement. Traders in Mexico can use Mexican pesos to buy XRP tokens through exchanges to pay their American counterparts, and U.S. traders can exchange those XRP tokens for U.S. dollars. And Ripple states that this entire transaction can be completed in under a second.
R3 is another major player in developing distributed ledger technology for banks. It aims to be the new operating system for financial markets. In May 2017, the company raised $107 million from a syndicate of banks including Bank Of America Merrill Lynch and HSBC.But in this momentous event, R3 also lost some key members, such as Goldman Sachs. Goldman Sachs wants more operational control of the system, and there is no consensus on that.
Swiss National Bank uses R3s technology for pilot to address issues posed by large-scale transactions between financial institutions using digital currencies
financing
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In an initial public offering (ICO), entrepreneurs raise capital by selling tokens or coins, allowing them to raise money without traditional investors or venture capital firms (and along with a companys investment due diligence).
In 2018, blockchain company EOS raised more than $4 billion in its year-long ICO.
Getting venture capital is a tough process. Entrepreneurs come together, hold countless meetings with partners, endure long-term equity and valuation negotiations, hoping to exchange a piece of the company for a check.
In contrast, some companies are raising capital through initial offerings (ICOs), which are provided by public blockchains such as ethereum and bitcoin.(Editors Note: At 3 pm on September 4, 2017, the Peoples Bank of China led the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission. The Announcement for short), the Announcement points out that token issuance and financing (IC0) is essentially an unapproved illegal public financing behavior, and requires that all types of token issuance and financing activities be stopped immediately from the date of the announcement)。
In IC0, projects sell tokens (tokens) or local currency (coins) in exchange for funds (usually denominated in Bitcoin or Ethereum). In theory, the value of the token is tied to the success of the blockchain company. Investing in tokens is a way for investors to bet directly on the usage and value of their applications.
With IC0s, blockchain companies can shorten the traditional funding process by selling tokens directly to the public
Some high-profile ICOs have raised hundreds of millions or even billions of dollars in funding before proving a viable product. Blockchain data storage startup Filecoin raised $257 million, while EOS, which is building a world computer, raised more than $4 billion in its year-long ICO.
After a surge in early 2018, I0 funding has plummeted, and in fact, only $371 million was raised in 2019, a 95% drop from the same period last year.
first,At the same time, initial public offerings (ICOs) represent a paradigm shift in the way companies raise capital.ICOs happen globally and online, enabling companies to access exponentially sized investors
second,. You are no longer limited to high net worth individuals, institutions or others who can demonstrate to regulators that they are credible investors.second,
IC0 allows businesses to obtain immediate liquidity of funds
VCs are starting to pay attention to ICOs, with firms like Sequoia, Andreessen Horowitz, and Union Square Ventures all investing directly in ICOs and through investments in Cryptocurrency hedge funds gain exposure.
David Pakman, a partner at VenRock, said: There is no doubt that blockchain technology will disrupt the venture capital business. And I hope so. I am excited about the democratization that this technology will bring.
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Examples of improving financing transactions through blockchain technologySo far, most ICOs have been for blockchain projects that have yet to generate revenue, but we are seeing more and more tech companies being built around a decentralized paradigm.
Messaging app Telegram raises $1.7 billion in ICO. The idea behind its ICO is to sell tokens to users and bootstrap a payment platform on top of messaging apps. If, as blockchain proponents predict, the next Facebook, Google, and Amazon are built around decentralized protocols and launched via ICOs, it will directly eat into investment bank profit margins.Several promising blockchain companies have emerged around this space.
CoinList was originally a product of the cooperation between Protocol Labs and AngelList, bringing digital assets into the mainstream market by helping blockchain companies build legal and compliant ICOs. Since 2017, CoinList has facilitated nearly $1 billion in transactions.
In another instance, the huge demand for Filecoin IC0 overloaded CoinList servers within an hour of launch.
Filecoin ended up raising $257 million through ICO.CoinList has developed a bank-grade compliance program that blockchain companies can access through a streamlined API, helping projects handle everything from due diligence to investor qualification. While CoinLists platform is designed for blockchain projects, its focus is on reducing the organizational and regulatory burden of financing, which can also be reflected in the public market. Today, investment banks are experimenting with automation to help eliminate the thousands of man-hours required before going public.。
CoinList is just the beginning. Many companies are emerging around the new ICO ecosystem.
securities
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Blockchain technology eliminates middlemen in asset transfers, reduces asset transfer fees, accesses a broader global market, and reduces uncertainty in traditional securities markets.
Trading securities on the blockchain could save $17 billion to $24 billion a year in global trade processing costs.
If were buying and selling assets like stocks, bonds, and commodities, you need a way to keep track of who owns that asset. Todays financial markets operate through a complex network of brokers, exchanges, securities depositories, clearinghouses, and custodian banks. These various institutions are all built around an outdated paper title system that is not only slow, but also potentially inaccurate and prone to deception.
Say you want to buy a portion of Apple stock, you might place an order through a stock exchange, which matches you with a seller, which in the past meant you would pay cash in exchange for certificates of title to the shares.
This gets even more complicated when we try to execute this transaction electronically. We dont want to deal with the day-to-day management of assets such as trade certificates, bookkeeping or managing dividends, so we outsource our shares to a custodian bank for safekeeping. Since buyers and sellers do not always rely on the same custodian bank, the custodian itself needs to rely on a trusted third party to hold all paper certificates.
(Settlement and clearance of orders from exchanges involves multiple intermediaries and points of failure)
In practice, this means that when you buy or sell an asset, that order is confirmed by a large number of third parties, and the transfer of ownership is complex as each party maintains its own ledger in a separate ledger.The system is not only inefficient but also imprecise, securities transactions take 1-3 days to go through the entire process as everyones ledgers have to be updated and reconciled at the end of the day and often have to be verified manually due to the number of parties involved Transactions, and fees are charged to all parties.
Blockchain technology promises to revolutionize financial markets by creating a distributed database of unique digital assets. Using a distributed ledger, rights can be transferred to on-chain assets through encrypted tokens representing off-chain assets
. “While Bitcoin and Ethereum have achieved this with purely digital assets, new blockchain companies are working on ways to tokenize real-world assets, from stocks to real estate and even gold.”
(Source: Trefis)
Additionally, through smart contracts, tokenized securities can work like programmable equity — paying dividends or executing stock buybacks with a few lines of code. Finally, putting real-world assets on blockchain technology has the potential to lead to broader global market access.
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Examples of improved securities processes through blockchainPolymath is one of the blockchain technology companies that hopes to help move trillions of dollars of financial securities onto the blockchain.
Polymath is building a marketplace and platform to help people issue security tokens and implement governance mechanisms to help these new tokens meet regulations
. So far, Polymath has announced partnerships with Blocktrade, Corl, and Ethereum Capital to launch security tokens on the platform.
Meanwhile, financial institutions are not sitting still. The Australian Securities Exchange plans to replace its bookkeeping, clearing and settlement systems with a blockchain solution developed by Digital Asset Holdings by mid-2022.Similarly, in 2019, HSBC said it planned to digitize the records of the $20 billion in assets under custody. The banks platform, called Digital Vault, will digitize the paper records of private placements. This will provide investors with real-time information on the status of their placements.。
Since 2017,
loans and credit
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Blockchain-enabled loans could provide a safer way to extend personal loans to a larger group of consumers and make the lending process cheaper, more efficient and safer.
The first real-time securities lending between Credit Suisse and ING took place in 2018 for $30.5 million.
We know that while traditional banks and lenders underwrite loan amounts based on credit reports, blockchain technology opens up peer-to-peer (P2P) lending, a complex procedural loan that can approximate a mortgage or syndication loan structure , generally a faster and safer lending process.
When you fill out a bank loan application, the bank must assess your risk of not being able to repay the loan. They do this by looking at factors such as your credit score, debt-to-income ratio, and home ownership status. To obtain this information, they must access a credit report provided by one of the three major credit bureaus: Experian, TransUnion, and Equifax (foreign credit bureau).
Based on this information, banks factor the risk of default into the fees and interest charged on the loans.
(Top 5 U.S. banks control $3.7T worth of business loans)
Such a centralized system can be bad for consumers, with the FTC estimating that one in five Americans has potentially significant problems with their credit scores, impacting their ability to get loans negative impact. In addition, centralizing this sensitive personal information in three institutions creates many vulnerabilities of information, and in September 2017, Equifax hackers exposed the credit information of nearly 150 million Americans.
While blockchain projects in the lending space are still in their infancy, there are some interesting projects in P2P lending, credit and infrastructure.
(The Bloom protocol seeks to record credit based on a track record of identification on the network without a trusted third party)
secondary titleExamples of improving lending through blockchainA company called SALT Lending uses the blockchain to lend money.
Users of the SALT Lending platform can borrow with any Bitcoin, Ethereum or blockchain asset as collateral Dharma Labs. Loans are approved not based on the borrowers credit score, but on the value of the collateral. To use the platform, users must purchase the platforms cryptocurrency, SALT, which grants users membership and enables them to obtain loans.Another example of using blockchain to improve lending comes from。
, a protocol for tokenizing debt.Its goal is to provide developers with the tools and standards needed to build online debt marketplaces。
Bloom wants to bring credit scoring to the blockchain and is building a protocol to manage identity, risk and credit scoring using blockchain technology
trade finance
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The use of blockchain and distributed ledger technology can support cross-border trade transactions that would otherwise be uneconomical due to the costs associated with trade and documentation processes. It also shortens delivery times and reduces paper usage.
As approximately 80-90% of world trade relies on trade finance, blockchains market impact will permeate all industries globally that use cross-border trade.
Trade finance exists to reduce risk, extend credit, and ensure that importers and exporters can engage in international trade.
It is a key component of the global financial system, but it often uses outdated, manual paperwork. Blockchain represents an opportunity to rationalize and simplify the complex world of trade finance, saving importers, exporters and their financial institutions billions of dollars every year.
Blockchain technology has been appearing with increasing frequency in trade projects for several years, but its mainstream position in bills of lading and credit has only recently begun to take hold.
Like many industries, the trade finance market has suffered logistical setbacks over the years due to archaic, outdated and uneconomical manual documentation processes. Physical letters of credit, extended by one bank to the other, are still often used to ensure payment is received.
Blockchain technology can help exporters and importers provide each other with more visibility of cargo on their routes by enabling companies to securely and digitally certify country of origin, product and transaction details (and any other documentation), and Better guaranteed delivery.
One of the biggest threats to trade is the risk of fraud, which is exacerbated by the lack of confidentiality and little oversight over the flow of goods and documents. This brings up the possibility of the same cargo being mortgaged repeatedly, an unfortunate occurrence that occurs so often that Commodity Trade Finance Banks write it off as a cost of doing business.
Through blockchain technology, payments between importers and exporters can be tokenized, depending on the delivery or receipt of goods. Through smart contracts, importers and exporters can create rules to ensure automatic payments and reduce the chance of missed, delayed or double-mortgaged shipments.
The adoption of blockchain technology in trade finance could mean increased trust between trading parties and global business growth, while also hiding confidential information such as prices and trade secrets where necessary.
It also gives buyers a better understanding of where their items come from and when they will be shipped. Under traditional systems, this information is often incomplete. However, blockchain can further enhance trust and transparency by enabling consumers to have up-to-date information at every step of the transaction.
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Examples of improved trade finance through blockchain
It can be said that the era of blockchain in the field of trade finance has arrived, and many companies and banks are weighing and looking for an effective solution.
Standard Chartered and HSBC are the two banks that have joined the Trade finance blockchain consortia, a consortium dedicated to using blockchain technology to solve trade finance problems.One of these is Voltron, run by R3 and CryptoBLK, which operates a blockchain platform for digitizing paper letters of credit.In October 2020, DBS and Standard Chartered said they were developing a blockchain-based trade finance platform called
Trade Finance Registry. The platform is designed to help detect fraud and double financing on individual transactions in real time. The two banks launched the project in partnership with 12 other banks, including ABN AMRO, Deutsche Bank, ICICI and Lloyds.
headquartered in israel
Fintech companies such as Wave have also developed platforms that enable financial conglomerates to offer letter of credit transactions as a blockchain solution.
Through the Wave platform, Barcelona-based EuroFinance was able to provide Ornua and Seychelles trading companies with a blockchain solution to streamline their supply chains, reduce transaction costs and documentation errors, and quickly deliver documents to clients around the world.In this case, the nearly $100,000 cheese and butter transaction took less than 4 hours from L/C opening to approval, a significant reduction from the traditional 7-10 days.
. Here, the transaction process is carried out by Hyperledger Fabric built by the Linux Foundation and secured by IBM.
Customer KYC and Fraud Prevention
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Blockchain can store customer information on different blocks, which helps prevent attacks on customer information.
Blockchain technology for KYC purposes could save the banking industry $160 million in annual costs.
In addition to day-to-day activities such as clearing transactions and processing payments and transactions, banks need to register customers, verify their identities, and ensure their information is valid. This process is called Know Your Customer (KYC).
Banks can take up to 3 months to perform all KYC procedures, including verification of documents such as photo ID, proof of address, and biometrics. A protracted KYC process may cause some clients to terminate their relationship. According to a Thomson Reuters survey, 12% of companies said they had switched banks due to delays in the KYC process.In addition to spending time and effort, complying with KYC rules also requires banks to spend money. Ultimately, banks are spending as much as $500 million per year on KYC compliance and customer due diligence.
Blockchain technology can help reduce human input and costs in the KYC compliance process。
. By storing KYC client information on the blockchain, the decentralized nature of the platform will allow all KYC-requiring institutions to access this information. Using blockchain for KYC could allow banks to reduce staffing needs by 10%, equating to annual cost savings of $160 million.
An increase in fraud and cyber-attacks is one of the main causes of concern for the banking industry, according to BNY Mellon Treasury Services. Since most banks have centralized ledger systems where all customer information is stored, it is easier for hackers to attack and access that information.
By storing information decentralized, blockchain technology helps prevent hackers from easily obtaining all information at once. Another way to ensure secure transactions online is by using blockchain-based smart contracts. These contracts operate on an if/then basis, which means that if the previous process has not been completed, the next step will not occur, allowing for more failsafes during transactions (failures are automatically insured of).
secondary titleExamples of improving KYC through blockchain。
Blockchain-based credit scoring platformxCurrentBloom allows customers to create blockchain-based personal profiles using its app. Meanwhile, Blooms identity monitoring tools constantly scan the internet and dark web to identify any potential leaks of customer informationRipples
This allows for the exchange of messages in real time to verify customers and transactions, resulting in faster settlement of transactions.
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beyond the hype
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