Blockchain, a secure distributed-ledger technology, is the future of financial transactions

Blockchain is a disruptive new technology that allows for more transparency, ease and security in financial transactions. Also known as distributed ledger technology, blockchain is a web-based peer-to-peer transaction system. All parties in a secure network receive copies of the records of financial transactions. This means that the transactions do not have to be independently verified by third parties. The bitcoin blockchain was one of the first and most successful implementations of blockchain technology. While blockchain was initially introduced for cryptocurrency, the underlying technology can be used on real world money as well. [caption id=“attachment_353323” align=“aligncenter” width=“640”] Image: Reuters[/caption] The World Economic Forum has hailed Blockchain as a technology pioneer. Blockchain technology is seeing an increase in investment, particularly from banking organisations. Blockchain technology is an opportunity to reduce the costs associated with financial transactions. Since part of the blockchain is saved in nodes, there is no requirement for a central authority. The records are not stored in a central database, so a single entity cannot tamper with the data. The current system is susceptible to fraud because the records are controlled by entities. Blockchain technology has the potential of saving $20 billion per year in costs associated with financial transactions. This is apart from the loss that occurs due to fraud. The security and savings offered by Blockchain technology is why  banks want to implement blockchain . In October this year, a milestone was reached in the traditional banking industry when 88 Bales of cotton were purchased for $35,000 in a cross border blockchain based trade . Over 70 banks and financial institutions around the world are part of the R3 blockchain consortium . The R3 consortium is a firm dedicated to accelerate the adoption of blockchain because of the speed, efficiency, security and accuracy afforded by the technology. R3 is looking for ways of implementing smart contracts, that trigger transactions automatically when certain preset conditions by parties are met. In November 2016, the US House of Representatives gave the greenlight to blockchain technologies to encourage consumer empowerment and stimulate economic growth. The central bank is in discussion with both public and private players on the adoption of blockchain technologies. Payment, clearing and settlements can be done with reduced friction on blockchain based platforms. The Institutional Trade Communication ( ISITC ) has proposed benchmarks for blockchain technologies to standardise the implementation. [caption id=“attachment_353325” align=“aligncenter” width=“640”] Image: Reuters[/caption] Singapore launched a pilot project for the implementation of blockchain in interbank transactions earlier this year. The Singapore Central Bank, eight local and foreign banks, as well as the stock exchange were involved in the pilot project. Singapore is looking to attract investment in the fintech sector, and the blockchain pilot was a part of that effort. Cross border foreign currency transactions were also reviewed as part of the pilot. The R3 consortium helped Singapore in the pilot test. Governments and Industries worldwide are gearing up to embrace blockchains . A study done by IBM identified many problems in the current systems used by financial organisations around the world. The intermediaries in these transactions charged a high price, and all participants in a transaction did not have access to the same information. This made financial transactions more complex, and increased the cost as well. The efficiency of transactions are poised to increase with the implementation of blockchain technology. The blockchain technology reduces the extent of these problems , and allows for smoother, more transparent transactions with less risk. (Also read: Blockchain — The underlying Bitcoin technology that’s worth so much more ) While blockchain technology has piqued the interest of first world nations, who are looking to adopt the disruptive new technology, blockchain would be most useful in developing countries. Blockchain helps reduce the institutionalised corruption, because of the inherently transparent nature of the technology. Every transaction is recorded in real-time and is available for all parties in a network. Auditors get access to financial data only at the end of the year, but real time access to such data will significantly ease up the process of auditing. The transparency means that government officials cannot abuse their power , and blockchain technology can help significantly reduce the incidences of graft. [caption id=“attachment_353324” align=“aligncenter” width=“640”] Image: Reuters[/caption] ICICI bank, Axis Bank and Kotak Mahindra bank tested blockchain transactions, according to a report in livemint . While the banking sector in India is convinced that blockchain technology is the future of financial transactions, the immediate practical applications are perceived to be limited. The technology has the potential of reducing the time taken for cross border remittances from a few days down to a few minutes. London based SETL, a fintech company, and Deloitte have tested a contactless card that uses blockchain technology for retail payments . 100 customers were initially provided with the cards, which is expected to see a larger roll out in 2017. On every transaction, the balances of both the customer and the merchant were updated in realtime. The blockchain technology means that merchants can offer transactions at a much lower cost to customers, than those afforded by traditional card based banking systems. A number of tech companies and startups are delivering blockchain based products. Paul Taylor an ex Google engineer is working on Vault OS , a blockchain based operating system for banks . Microsoft and Bank of America Merrill Lynch are teaming up to create a blockchain based framework that can potentially be sold to other organisations. Project Bletchley by Microsoft is a Azure based modular blockchain fabric. IBM launched a cloud based blockchain service for organisations that needed secure environments for blockchain based transactions. Recently, Citibank invested in a Blockchain startup called Cobalt ahead of a second round of funding. A study found that nearly two thirds of global financial services vendors found that blockchain was the most important technological advancement since the internet .