The rise of Bitcoin technology and its potential to disrupt market has been openly acknowledged by one of the major banks. The French banking major, BNP Paribas in its magazine has published an article by Analyst Johann Palychata about the potential of Bitcoin technology to make existent companies redundant.
In the article, Johann writes about Blockchain, the ledger which keeps track of all Bitcoin transactions happening over the network. He equates the revolutionary Blockchain technology to the invention of steam engine and internal combustion engine. The invention can revolutionize finance and other sectors.
He explains Bitcoin and the technology behind it, along with some backstory about the origin of this popular digital currency. Then he goes on to discussing about various scenarios arising out of Blockchain adoption in post trade infrastructure. If people start recording the ownership of securities on the Blockchain, which is a secure and transparent way of registering proof of existence of any document, then the fintech sector will be faced with two likely scenarios.
In the first scenario, the Blockchain system will allow traders to directly access the Decentralized Securities Depositary (DSD), exchange and post trade infrastructure which includes clearance and settlement processes. By providing direct access, it will leave the middlemen redundant. However, it may create a different kind of business, where the third parties will be entrusted to keep the private keys secure and these third parties can build their own application layer connecting to Blockchain enabling transactions through their application or on their own network.
The second scenario takes a more conservative outlook where no one will be left completely redundant, but the operation flow will undergo a few changes. In this scenario, the Blockchain will be nothing more than the next generation IT infrastructure where the middlemen – custodians and settlement infrastructure will be utilizing Blockchain to create ownership and trade records. These records will be exclusively used by post trade ecosystem. Investors and traders will still have to access the market through custodians like now.
Bitcoin has been a boon for the fintech sector, opening up whole new range of possibilities. There are many Bitcoin based ventures by creating their own Blockchain based network. Johann thinks of the existing Bitcoin based ventures as research and development projects, the success of these projects will pave way for wide scale adoption of Blockchain technology in the mainstream.