Blockchain Technology Could Change The Way We Invest

Author

Nikolai Kuznetsov

December 13, 2016

Blockchain is still in its “early” stages of development, but corporations and regulators are opening up to the idea of leveraging its benefits. Blockchain could help to reduce costs, and increase security and transparency in the financial world. The technology allows for the tracking of the ownership of assets, both during and after transactions are completed. Consequently, this innovative technology could transform the way we invest.

Blockchain Technology

A blockchain or distributed ledger is simply a database of unalterable transaction data that are in packages known as blocks. Each block that’s in the chain is a record of the transactions, which contains information about the previous transactions. Therefore, this could modernize and simplify the current clearing and settlement and trading operations.

Although blockchain technology has many advantages, there is one key regulatory issue. Regulators need to determine whether blockchain applications would need to register under the existing regulations. However, the Advanced Notice of Proposed Rule-making and Concept Release on transfer agent regulations issued in December 2015 asked for transfer agents to comment on blockchain technology and whether this type of system would fit in the current regulations. This gave the SEC useful insight on how to regulate the industry.

Peter Smith, chief executive officer of Blockchain Ltd., speaks during the Lisbon Web Summit in Lisbon, Portugal, on Tuesday, Nov. 8, 2016. The government is wooing the 50,000 tech leaders and their followers descending upon Lisbon this week for a gathering described as the “Davos for Geeks,” hoping they will bolster investment and create much-needed jobs in the southern European country. Photographer: Paulo Duarte/Bloomberg

SEC Leading the Push for Blockchain

The U.S. Securities and Exchange Commission (SEC), U.S. government agency, enforces federal securities laws, proposes securities rules and regulates the securities industry. With the SEC acting as the voice for the blockchain industry, corporations will start to implement the technology.

When speaking on why the SEC is taking a public stance on blockchain technology, the head of the SEC’s Distributed Ledger Working Group Valerie Szczepanik stated, “It should signify to the industry that we are seriously looking at these areas — that we’ve been thinking about them, that we’ve been keeping up to speed and that we are studying the regulatory issues.”

Corporations Are Using Blockchain Technology

Bank of America – Merrill Lynch, Citigroup Incorporated, Credit Suisse, Markit and JPMorgan Chase & Co. have already used blockchain technology. In 2016, these financial services companies used blockchain technology in order to process trades on credit default swaps (CDS). The Depository Trust & Clearing Corp. also tested blockchain technology and is determining whether it could be used for live trades in over-the-counter trades.

UBS Group AG is also investing money into blockchain technology and applications. UBS is working with BNP Paribas and Barclays on Ethereum, a blockchain-based platform. Moreover, Citigroup created three blockchains and currency, known as Citicoin.

Now, with more banks moving towards blockchain technology, regulators may be more inclined to implement it. The SEC approved Overstock’s plan to issue stock using Bitcoin’s blockchain in December 2016. Source Capital Group Inc. will serve as Overstock’s dealer-manager in its blockchain-based preferred stock offering. According to Overstock’s SEC filing, the maximum price is set at $15.68 per share and the broker-dealer will receive $1.25 per share sold. Consequently, if all 2 million shares are sold, Overstock will raise close to $30 million.

Central Bank of Germany Looking Into Blockchain Technology

The Central Bank of the Federal Republic of Germany, also known as Deutsche Bundesbank, and Deutsche Börse, a marketplace organizer for securities trading, launched a blockchain prototype for securities settlement.

This prototype has blockchain-based payments, security transfers, settlement of securities transactions. The functional prototype allows for the settlement of securities in delivery-versus-payment mode for digital coins. Moreover, the prototype could settle corporate actions. Deutsche Bundesbank, and Deutsche Börse plan to further develop and analyze the performance of the blockchain-based platform.

The Bottom Line

With government agencies, corporations and central banks looking into blockchain, there could be streamlined use of this innovative technology. The SEC’s approval of Overstock’s issue using blockchain technology on its platform and companies developing blockchain platforms should continue to drive innovation in the industry.

This article was written by Nikolai Kuznetsov from Forbes and was legally licensed through the NewsCred publisher network.

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