How Blockchain Will Revolutionize Banking

I wanted to share this research paper I wrote please let me know what you think.
Perhaps by now you’ve heard of bitcoin? Light coin? Ethereum? There are 100 more crypto currency’s as well, Some of value and some monetarily worthless, but The distributed ledger technology behind them; block chain; as banks and venture capitalists investing hundreds of millions of dollars in research and development of block chain solutions for banking. Block chain is set to revolutionize banking in such a way that I could save them up to $12 billion a year.{1} “Blockchain Will do to banks with the Internet did the media. As of 2016, 60% of financial organizations plan on using block chain for international money transfers, 23% for security clearing in settlement, and 20% for know your customer (KYC) regulations and anti-money laundering services”- Harvard Business Review{2}.
Block chain is an open distributed ledger that can record transactions between two parties efficiently and a verifiable, permanent way{3}. Each block in a chain contains a hash of the previous block with a timestamp and transaction data that cannot be altered. Each year businesses spend about $150-$300 trillion for payment across national borders. Fees for those transactions average around 10% and transfers take anywhere from 2 to 5 business days{4}.
The first block chain was conceptualized by a person (or group) known as Satoshi Nakamoto in 2008. It was implemented the following year by Nakamoto as a core component of the crypto currency Bitcoin{5}. Although the tech was initially treated with skepticism by banks, this has changed dramatically. Blockchain firms raised more than $240 million a venture capital in the first six months of 2017 including $107 million raised by R3, The New York based firm on by 40 of the worlds biggest lenders. Venture capital investment last year [was] $364 million{6}.
Satoshi Nakamoto Is an alias. There’s been much speculation over the years about the true I’ve done any of Nakamoto. Wide range of people including Elon Musk, Dorian Nakamoto, and Mt. Gox CEO Mark Karpeles have been named as possible candidates, but the true identity remains unconfirmed. “Satoshi Nakamoto”…”Is rumored to be in control of around $400 million in bitcoin’s” and was rumored to have been behind a massive 180 thousand bit coin transfer on July 3, 2014{7}.
The investment in block chain shows no signs of slowing down anytime soon. There have been 165 Initial Coin Offerings (ICOs) Since the beginning of this year. It’s estimated that they have generated more than $500 billion and we are just finishing up first quarter earnings. According to International Data Corporation, worldwide spending on blockchain is forecast to grow with a five year annual growth rate of 81.2% in 2021. Bill Fearnly, research director of Worldwide Blockchain Strategies, said: “ Interest and investment in blockchain and distributed ledger technology (DLT) is accelerating as Enterprises aggregate data into secure, sequential, and immutable blockchain ledgers, transforming their businesses and operations.”
In a world of rising inflation, higher interest rates, cyber crime, and slow transaction times, banks; investment banks in particular; I looking for innovative solutions that will increase profitability and security while substantially reducing transaction times. Blockchain offers a solution. Banks are looking to improve on five key sectors of their businesses and are eager to reap the rewards. The sectors are: Clearing and Settlement; Payments; Trade finance; Identity Verification (KYC); and Syndicated Loans. Let’s look at how block chain can be used to improve each sector.
Clearing and Settlement- DLT Could simplify existing process flows by reducing friction to information sharing among participants… The overall cost of maintaining an updated to distributed ledger would need to be compared to the cost of current practices and other viable alternatives industries exploring a variety of DLT arrangements for their potential to reduce costs in certain parts of the value chain… By allowing information that is in a common format to be shared across participants to a transaction, do you serve DLT may reduce data discrepancy, facilitate quicker reconciliation and eliminate or reduce [costly] back office activities{8}.
Payments- Speed and ease of transaction between almost any parties or two of the main reasons cited for blockchain having such a dramatic affect on payment processing. It is for this reason that giants such as Visa and MasterCard have developed payment services in conjunction with blockchain. [Blockchain is now a threat to] Merchant account companies that haven’t fully embraced the possibilities of blockchain and cryptocurrency’s{9}. The Lack of need for centralized institutions in order to transfer value will substantially lower the costs of processing payments.
Trade Finance- Trade Finance is still a largely paper based business. This makes it more error-prone, time-consuming, and fraud sensitive then it could be. Block chain has the potential to change this. It provides an efficient and secure way of settling trade transactions. This brings down costs, lowers operational complexity, reduces risk, and lowers working capital needs{10}. It is a win-win for trade finance.
Identity Verification- Perhaps most costly part of identity verification and banking is compliance with the SEC’s Know Your Customer anti-money-laundering regulations (KYC). “ While financial firms’ Costs to meet their obligations are $60 million, some spend up to $500 million on compliance with KYC and Customer Due Diligence (CDD),” May 9, 2016 {11}. Peer Mountain; a decentralized trust and compliance platform; Currently has a patent pending block chain solution that claims it could save banks around $50 million in costs related to KYC and client on boarding. “A Ballpark estimate of the potential cost savings that result from implementing a block chain KYC utility solution would include a reduction of approximately 55% and operations labor hours, and the reduction of at least 30% in compliance costs associated with KYC. A large bank with 100,000+ clients spends up to $100 million yearly on KYC and client on boarding. Therefore, savings from block chain implementation could exceed $50 million”, said Dennis Martens of business consulting and technology services firm Synechron{12}.
Syndicated Loans- Today, the exchange of information in the syndicated lending market is predominately done manually. This means that accessing deal data, including transparency into accruals and interest rates can be a time-consuming process{13}. DLT is Inherently contrary to this. Using immutable cryptography to display transaction data in a public ledger, anyone can access the data almost instantaneously. It is the be-all, end-all in transparency.
Banking Remains the largest US industry. In 2016 the finance industry [which includes insurance, real estate, rental and leasing] contributed $3817.4 billion U.S. dollars to the total U.S. GDP according to a report by Statistica {14}. That is about US$1.4 trillion more than the second highest contributing industry, Government. According to the report, total 2016 GDP amounted to US$18.57 trillion. With block chain already being implemented in real estate and financial sectors the likelihood that the gap will widen is astounding if one considers the cost savings to banks and the likelihood that government will be slow to adapt to any new or experimental technologies.
If the strength of the U.S. economy can be measured by the strength of our industry then blockchain will substantially improve the country. Blockchain technology will create jobs by freeing up working capital for companies to reinvest in growth and cost savings on loan transactions can be passed along to borrowers to combat high interest rates. Savings in the real estate market due to blockchain implementation has the potential to re-stimulate the housing market. There is no doubt that blockchain will transform the financial sectors of the entire world. With the U.S. being the “financial capital of the world”, it sure looks good from here.

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