Finance Newsletter #4 | IIM Amritsar

Business Bytes

22nd October, 2016

Blockchain: Can it disrupt the traditional

finance ?
Today in this article, we will be focusing on the blockchain technology and its race to
become the technology behind the open finance.
What is the blockchain?
It is a distributed database of computers that maintains records and manages
transactions. Rather than having a central authority (such as a bank), blockchain
uses the network to approve blocks, or transactions, which are then added to the
chain of computer code. Cryptography is used to keep transactions secure, and
the distributed nature of transaction approval makes the system harder to tamper
with.
In the present financial services business model, a central ledger most often acts as
the custodian of that information (such as the Federal Reserve and its member
banks). But in a blockchain world, the information regarding each transaction is
transparently held in a digitally shared database in the cloud, without a single
central body acting as the middleman. This lack of central authority is the very
feature that is turning the current mental and business models of traditional
financial institutions on their heads
There are hundreds of startups with a lot of brains and money working on various
alternatives to traditional banking. Jamie Dimon, CEO, JPMorgan Chase
The basic rules of the game for creating and capturing economic value were once
fixed in place. For years, or even decades, companies pursued the same old
business models (usually selling goods or services, building and renting assets and
land, and offering peoples time as services) and tried to execute better than their
competitors did. But now, business model disruption is changing the very nature of
economic returns and industry definitions. All industries are seeing rapid
displacement, disruption, and, in extreme cases, outright destruction. The financial
services industry, with its large commercial and investment banks and money
managers, is no exception.
There are many innovative, network business models that are coming after
traditional financial services and banking organizations, and big banks are
beginning to realize they must evolve in response if they want to remain viable in a
digitally centric world whether it comes by acquiring, partnering or developing
leading-edge technologies. But whats less clear is why, exactly, these new entrants
are so disruptive and powerful. What enables them to skirt perceived constraints of

these once too large to fail incumbents and exploit unseen possibilities? In short, it
is network-centered thinking with platform-based business models.
For the massive financial services sector, blockchain technology (the software
behind the digital currency, Bitcoin) offers an opportunity to overhaul its existing
business model, including its banking infrastructure, approach to settlements and
customer interactions. But acting on this opportunity, and making the most of the
blockchain, is no easy task given the core beliefs and reinforcing systems that are
embedded in the industry.
Some of the big companies have started adopting blockchain technology in their
internal processes like:

IBM Adoption of Blockchain:

Blockchain is already seeing use outside of the financial services sector, where it
got its start. Technology and services giant IBM is adapting the blockchain
methodology to develop a currency-less system that could be used for any purpose
for example, executing contracts upon delivery.
Arvind Krishna, senior vice president of IBM Research, believes that in the long run,
this technology could facilitate transactions between banks or international
businesses. I want to extend banking to the 3.2 billion people who are going to
come into the middle class over the next 15 years, he said. So I need a much
lower cost of keeping a ledger. Blockchain offers some intriguing possibilities there.
A firm-centered or centrally controlled banking system clearly will not get him there,
and the blockchain will allow him to leverage a digitally-enabled network as the way
forward.

JP Morgan Adoption of Blockchain:

JP Morgan has recently announced an aggressive move to Blockchain technology,
dedicating a significant portion of a $9 billion technology investment. Silicon Valley
is coming, JPMorgan Chase CEO Jamie Dimon warned in his annual letter to
shareholders. He said startups are coming for Wall Street, innovating and creating
efficiency in areas that are important to companies such as JPMorgan, particularly in
the lending and payments space.

Fun Facts :

1. Bitcoin Boulevard located in the Hague, which offers a unique feature: A

high majority of shopkeepers who are located on the two streets that go
alongside the channel Bierkade and Groenewegje now accept Bitcoin,
following an initiative submitted by Hendrik Jan Hilbolling and Peter Klasen.
2. Bitcoin Studies - you are now able to pay your tuition fees with Bitcoins for
the famous New-Yorker university of The Kings College, University of Cumbria
in the United Kingdom, or also by the University of Nicosia, in Cyprus. The
latter also features a degree in Digital Currencies for its student that
highlights Bitcoin.

Manvender Dagar