Blockchain technology celebrated its 10th birthday in 2019. As with many new ideas, the potential uses we have discovered since its initial introduction for Bitcoin have far exceeded expectations.
It might be complex in its implementation, but the primary idea that blockchain provides is still quite simple. The database or distributed ledger simultaneously run on potentially millions of nodes. Balanced geographic distribution can happen across individuals or organizations.
This setup makes it possible to provide cryptographic verification, making it almost impossible to alter the state of the data. It also reduces the risks in compliance associated with human error, creating a series of results that can immediately streamline compliance needs.
Data Accuracy Is What Makes Blockchain Attractive
Once someone saves data into the blockchain, it cannot be deleted or altered. That feature is the reason why it is useful as proof or documentation of digital asset transfers. Cryptocurrencies take advantage of this technical feature every day.
The process is also useful when recording ownership of physical property. The National Land Survey in Sweden uses blockchain to register and record land titles so that real estate processes become digitized and stay in compliance. The financial services industry could take a similar approach to its regulatory needs.
According to Deltec Bank, “Blockchain naturally makes itself useful to the application of proof-of-process. Recording actions and outputs without the option for alteration or deletion creates a clear audit trail that would immediately indicate compliance.”
Regulators checking on financial services industry providers would have read-only, virtually real-time access into the blockchain. Instead of being customers or delayed observers, auditors could become proactively involved with information analyzing.
This outcome would reduce time, effort, and cost when agencies need to provide evidence of compliance.
Smart Contracts Could Automate Some Compliance Needs
Blockchain provides more features than a distributed ledger to the financial services industry. It also offers “smart contracts.”
A smart contract is a self-executing program that runs on the blockchain. Each one is 100% customized to meet the needs of each party involved in a transaction. When external events or data occur, then the feature triggers an automated response that allows for the modification of other information.
Then the smart contract can update the blockchain as needed based on the predefined rules it was given upon creation.
Regulations rarely receive implementation without several months (or years) of preparation. Adding one step to the approval process that requires the inclusion of smart contracts makes blockchain technology one of the most exciting new ideas to come along for the financial services industry since the introduction of HTML.
Using smart contracts for regulatory needs would eliminate inefficient and costly intermediaries while increasing accuracy rates.
As we celebrate the tenth birthday of Blockchain and look forward to the future, it is essential to remember that this technology is still under development. It requires refinement to maximize its full potential. Look for the financial services industry to begin large-scale implementation for compliance needs in the next decade.
Disclaimer: The author of this text, Robin Trehan, has an undergraduate degree in Economics, Masters in international business and finance and an MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.