• If asked then ‘what is the Internet’? – Dial-up modem, finicky software – Netscape Browser, Email, Chat-Room … AOL, Compuserve
• In 2016 Internet means much more… – TV, Movies, Music services – Facebook and social media – Ubiquitous, real-time, broad-band – Low cost computing and connectivity – Companies run on internet infrastructure
• Blockchain could be same thing for financial services companies… Amara’s Law – Real time – Sharing ledgers between systems, vendors in ecosphere – Standardization and transparency
Remember 1994?
• Blockchain technologies describe distributed ledger technologies that enable real-time, non-repudiable transactions between counter parties. – Every counter-party has a real-time ledger … Transactions
are applied to all ledgers simultaneously … makes fraud complex
– Enacts message in real time – Defines and protects a given “true” record – Transactions are transparent, historical, forming a “chain”
on a given company, or specific instrument history. – Traditional 3rd party roles such as clearinghouses are not
required – Reconciliation is automated
What is Blockchain?
• Real-Time, Non-Repudiable – Hastens transactions …. to immediate
• Cost Savings – Replacing intermediaries in transactions (clearing houses et al) – Reducing costs / risks of reconciliation – Position/regulatory reporting
• Robust – Cryptography – Distributed networks with failure resistance – Scalable
• Accurate – Documents, records, transactions agreed on and encrypted – Tampering expensive/difficult
Why are Blockchains Being Considered?
• The Clearinghouse Model(s) – Industry intermediary to facilitate trade and transactions
– Example TMX, CDS
• The Transaction Facilitator Model(s) – Intermediary such as a bank to enable payments
• The Messaging Model(s) – Intermediary such as SWIFT to enable communication of
instructions
• True Source Model(s) – Intermediaries that validate and maintain legal/certificates
(eg. Title)
Blockchain Replaces 4 Business Models
Concept 1: Today’s Securities Model
Counter Party 1
Counter Party 2
Counter Party 3
Counter Party 4
Counter Party 5
Counter Party 6
Counter Party 7
Counter Party 8
Clearinghouse
• Time to settle • Cost of Clearinghouse • 4x Reconciliation / NIGO clouds • Clearinghouse counterparty, defines membership
Concept 2: Blockchain Ledgers
Counter Party 1
Counter Party 2
Counter Party 3
Counter Party 4
Counter Party 5
Counter Party 6
Counter Party 7
Counter Party 8
• Real Time/Non-repudiable • All ledgers updated (transparency) • No reconciliation • Direct counterparty, all counterparties in blockchain
network
• Unique documents and chain of transactions. – Blockchain cryptography can be used to create definition
of “true” document, changes in document and show history of use/ownership in real time. • Use cases:
– Legal documents – legal, real-time record of backlines and proof of authorization.
– Bonds/Securities/GICs – Unique certificates can show ownership in real time and history of ownership without impacting issuer books/transfers. Also communicate special/unique elements that define value.
– Trade finance – Definitive invoicing, real time item tracking and customs audit
– Invoices
– Shared in real time with counter-parties, regulators etc.
Concept 3: Blockchain “Chain Value”
• Blockchain can be used to replace value facilitation roles and messaging.
Concept 4: Transaction Facilitation
Traditional P2P Payment Blockchain P2P Payment
• Crypto Currencies • Direct advice • Open access
• There will be a variety of public, limited counter-party, private and internal applications of blockchains. – Definition of Blockchain in use will evolve.
• Counter-Parties and stakeholders
• Blockchain data and use pattern
• Systemic risk and importance
– Early experiments have been mixed
• RPM pilot
• Ripple
• Bitcoin
• R3
– Government of Canada is pushing for more roles
• Bank of Canada
• CDS/TM
Concept 5: Blockchains Will Evolve
• Crypto-currency
• HV Payments
• Securities, bonds, GICs
• Legal document retention
• Trade finance
• Public land title
• Internal finance applications
• Music / movies / IP
Future Use Cases
• Legacy inertia • Role of messaging, clearing house and facilitation models • Access to Blockchain networks
– Selection of counter-parties – Enforcement risks – Regulation
• Systemic risks (real time, immediate) – Flash trade risk – Intermediary SRO, Stabilization, Vetting roles
• Cost savings realization • Transparency/privacy and arbitrage • Fraud/Gaming of system • Public/Open, Closed and Internal uses
Risks of Blockchain
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