People often call all the technologies based on the distributed ledgers the blockchain. Actually, the blockchain is a new type of database management system that allows a wide group of participants to get practically simultaneous access to the shared data at the same time having an unprecedented level of confidentiality.
Today, reconciliation makes the core of most business models. However as each company independently maintains the relevance of the data within its systems many processes take much time and lose in efficiency because of the need to constantly conduct bilateral data exchange to solve this or that issue. The blockchain can substitute numerous and consecutive models of data reconciliation with a more efficient and integral approach in frames of which the reconciliation makes an integral part of the transaction processing.
Let us cover a couple of aspects the blockchain could change to the better.
The cryptocurrencies created on the basis of the smart contracts and the blockchain have already become an independent financial instrument that is now encroaching on the banking territory. They can be stored, used, relocated without relying on any bodies or institutes. The network insures the risks itself. Nobody has to vouch for the security of funds. At the same time, there are no barriers for international transactions and payments. It is likely that these very types of operation will be the first to be substituted by the blockchain.
Cryptocurrency can be sent from anywhere in the world to any state – the Internet is the only thing a sender needs. The transactions take little time and commission. In comparison, international bank transfer takes days or weeks and is more expensive.
Venture Financing & ICO
The ICO Process (Initial Coin Offering) is another bright example of how digital money is conquering the world. One day banks may accept this type of operations as well. Currently, they are the alternative to start-ups venture financing.
Several billion dollars have already been invested in the ICO projects. Tokens in such projects can present anything – from contracts to coupons or new types of money. They give its owner the right to have some certain privileges in the service use, technology or ecosystem. Sometimes, they become some kind of shares.
Blockchain & Mortgage Lending
The mortgage market is an example of how banks can tokenize securities. A bank can borrow some money to thousands of borrowers, and then collect all the mortgages (in the form of mortgage-backed securities) into one security that can be sold through over-the-counter transactions. The pricing models of the mortgage-backed securities secondary market are weak mostly thanks to the lack of transparency.
We can also imagine how the same bank records all the mortgages in the blockchain, dividing the overall money flow into smart contracts and creating mortgage securities that can be examined in real time. The auditors could see how payments were made. This could save time spent on the estimation of credit risks that makes the mortgage basis.
We gave you just a couple of examples of the panorama of infinite opportunities the distributed ledger technology can suggest. Tokenization is the symbol of transformation, the transition from the economy of papers and bureaucracy to the economy of digital assets. Traditionally illiquid or complicated asset classes can be transformed into intellectual assets and depositors and investors can gain profit from new sources and more efficient liquidity capitalization.