The Role of Blockchain in the Asset Servicing Industry

How would you describe blockchain to those in the industry still grappling with the meaning and its significance?

For those still trying to understand blockchain and how it could be relevant to them, I try to relate it by exampling how it could actually work in an instance and how they can apply it to their own needs.

I’ve heard many describe the blockchain as a type of database but that sells it short and doesn’t describe the features that would convince someone that they need more.

But, most people relate immediately to the protection of user data and fraud protection. Other immediate uses are transparency and permanency of records, whether these are asset transfers or voting records or any other feature of our blockchain platform.

Visualizing how blockchain features can solve their problems and make their lives easier is the way people can understand it best.

What role can blockchain play in asset servicing?

One immediate role that blockchain can play in asset servicing is the movement of cash flow from and between assets. This can be more immediate than typical bank transfers and more reliable when it is across borders. The payments feature of blockchain can be useful when buying and selling assets.

The immutability and transparency of blockchain records can provide a guaranteed safeguarding from the vantage point of asset custodians and owners. Security of record keeping protect the interests of both the custodian and the asset owner.

Asset custodians who use blockchain records for asset performance analytics, tax reporting and payment tracking add an increased level of trustworthiness to their services and reputations.

To what extent would you agree that blockchain is the most disruptive change the industry has seen in decades?

It has been some decades since the introduction of the internet and the world wide web. Meanwhile, the quick and wide adoption of the world wide web has exposed weaknesses — mainly with security, privacy and fraud. The disruptive contribution of blockchain will be the solutions it offers for these problems and more.

It will be most disruptive in the finance and asset servicing industries as agents and providers who use blockchain records will set themselves apart and above their peers with regard to the safekeeping of data and the security of payments and transfers of assets and funds.

Do you think we are going to see a complete overhaul of the transfer agency model as we know it today?

Eventually, there will be a complete overhaul as asset service agencies adopt the use of blockchain technology. The landscape of the industry will change quickly as those not using the technology will be reduced in number, size of operations and perception of value. Many will realise the need to adapt and incorporate the features of blockchain or lose business.

There will also be changes within agencies as job requirements will change as more tech skills will be needed to navigate blockchain integration and contract writing. The trustless nature of the blockchain will eliminate the need for many intermediate steps of guarantee and trust built into current systems. Trustlessness eliminates the need for so many middle-men and the jobs situation will likely be affected and restructured to adapt.

At this year’s ALFI conference, one panellist said: “If you don’t innovate in technology you will fall by the wayside”. Do you think the same could be said for embracing blockchain?

It is important that we don’t force a blockchain solution to situations where it isn’t warranted. Having said that, there are huge opportunities for innovation within the asset servicing and asset management industries.

One innovative idea is the actual issuance of assets on a blockchain that can be easily done by a person or agency within minutes. This is a working feature, tested for several years, on the blockchains I represent — Ardor and Nxt. In fact, I just wrote an article with a video demonstration of the creation of a singleton asset representing a piece of original art.

Assets can be created to represent shares in a company or shares in ownership of tangible goods. Smart contracts can be created using more features on blockchain. An example would be to set up voting rights within a corporation based on how many assets are owned by an account (owner).

Blockchain innovation and ideas for applications and use cases is very exciting. The possibilities for how this technology will improve our world and positively advance our future are endless.

The last five years have seen blockchain technology gain considerable recognition from within the mainstream financial services sector. Where do you see blockchain’s position in financial services in the next five years?

In the near future, we will begin to see the projects that have been developing behind the scenes begin to roll out. This will cause excitement and invite more projects to develop on blockchain technology. I think the snowball effect could be measurably more significant than the adoption and participation in the dotcom boom.

Let’s see!