Recent Innovations in the Application of Blockchain to the Financial Sector and Associated Industries

This article discusses the recent innovations in the application of blockchain technology to the financial sector and associated industries. It explores the advantages, process, and use of blockchain in investing capital and trade financing. The article also highlights the benefits of using blockchain technology in the financial sector, such as increased security, reduced costs, and improved transparency.

RECENT INNOVATIONS IN THE APPLICATION OF BLOCKCHAIN TOTHE FINANCIAL SECTOR AND
ASSOCIATED INDUSTRIES
Financial sectors analysis
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Table of Contents
Introduction...........................................................................................................................................1
Problem statement................................................................................................................................1
Technology formulates a digital and distributed transaction ledger.....................................................2
Use of blockchain in investing capital....................................................................................................2
Trade financing and blockchain.............................................................................................................3
Advantages of use of blockchain technology.........................................................................................4
Process of blockchain technology..........................................................................................................8
Conclusion.............................................................................................................................................8
REFERENCES....................................................................................................................................10

RECENT INNOVATIONS IN THE APPLICATION OF BLOCKCHAIN TO
THE FINANCIAL SECTOR AND ASSOCIATED INDUSTRIES
Introduction
With the changes in time and ramified economic factors each and every organization are
inclined towards using the advance technologies and system process in their value chain
activities to expand the business on international level. It is analyzed that everyone has heard
that, “NECESSITY IS THE MOTHER OF INNOVATION” and it keeps business to win
overthe market in the competitive business environment. This is not just a phrase, but the
fact. Especially when we talk about business, nowadays there stand a stiff competition among
all the industries. It’s not about competing with the other business party but with self also.
The business organizations and corporations who tap the opportunities at the right time stand
at a step ahead of their competitors and the ones who strategize at the correct time when the
threats arise are also at an excel footing than the others. As far as financial sector is
concerned, this industry specifically needs high end inventions to help the whole economy
harness the multiple opportunities available for growth. Recent advancement in this sector
tends to be that of Blockchain technology. The blockchain technologies are used to develop
growing list of records by using the cryptography. It is also described as global network of
computers to jointly manage the database that records bit coin transactions. Although, the
technology is certain to have enormous potential but at the same time has to deal with several
issues which are demanding urgent attention or could deliver the negative outcomes to
companies and investors at large. Therefore, use of the blockchain and risk associated with
the same will be completely based on the internal and external factors of the financial sectors
(Aitzhan, and Svetinovic, 2016).
Problem statement
Financial sector has emerged as the core of the whole economy by providing financial
services to the commercial and retail customers. It is the market where investors and
borrowers meet to help each other’s while satisfying their ultimate objectives. By financial
services, it means the economic services that involve managing money. All the organizations
are facing high complexity in the financial business due to the increased complexity. The

banks, credit card companies, insurance companies, accountancy firms, credit unions,
consumer-finance companies, stock brokerage houses, investment funds etc. all come under
the umbrella category of finance sector. The most important of all being commercial banks,
which stand as the backbone of all the money related activities as the monetary requirements
of all big business houses are fulfilled by them. The customers can be retail as well as
commercial (Aitzhan, and Svetinovic, 2016).
Technology formulates a digital and distributed transaction
ledger
With the ramified changes in technologies, Blockchain technologies have been gaining
momentum throughout the time. Blockchain technology has got its name from the way this
technology processes functions. Basically, this technology work in blocks and form a chain,
blocks being a budding list of records. The chain is the linkage of this list of records using
cryptography. Blockchain strictly adopts privacy and is resilient to any alteration of
information (Crosby, et al. 2016). Although the information is secure yet it can be read using
crypto currencies. In the early phase blockchain was not used as a single word but as block
chain. The whole concept belongs to Satoshi Nakamato, who abstracted it in year 2008.
When financial sector is sought, the concept of bitcoins and other cryptocurrencies which
work on the blockchain technology is highly prominent (Bonneau, et al. 2015). Blockchain
technology formulates a digital and distributed transaction ledger. Alike copies of such digital
ledger are kept on all the computers of the members of network. This means that the data can
be managed independently by all the parties.
Use of blockchain in investing capital
The autonomy provided to the members of network allows them the power to review and
record entries. There is no intermediary party which makes the security of transactions the
top priority. As discussed already, the blocks are the data entries and the chain is their
security maintained by cryptography. The key features involve maintenance of a record of all
data exchanges where the records are called as “ledger” and data exchanges are called
“transactions”; presence of a distributed and not a centralised system; and zero alteration after
verification of the transaction. The security issues and increased return on investment in the

financial sectors are the major aspects which need to be considered while determining
whether the blockchain technologies would be good or bad while investing capital.
This technology has completely changed the scenario of working of the finance
sector. The recent innovations that happened in this technology have made the user
organisations completely transparent, efficient, democratic and secure and decentralised. The
usage of internet technology has become much safer with the use of blockchain technology.
Various applications of this technology are made in the recent times in the banking and
financial sector. The most discussed application in the current scenario is of Cryptocurrencies
which is a medium of exchange. The types of cryptocurrencies include Bitcoin, Ethereum,
Ripple, Litecoin etc. Cryptocurrencies uses cryptography which enhances security and
prevents amendment (Aitzhan, and Svetinovic, 2016). The crime involved with identity theft
are removed all the users have complete control on their identity. Along with users the
merchants are also saved from the identity frauds. After implementation of the block chain
technologies in process, it is analyzed that financial sectors has been more advanced and most
of the securities have been coverted into the scriptures in market.
Trade financing and blockchain
Trade financing is also made super simple with the use of blockchain technology. If financial
organization uses the blockchain technologies in their system process then it would not only
strengthen the overall outcomes but also increase the output of the process at large. A
blockchain network can be created wherein all the big corporates, shippers, manufacturers
etc. can join. E.g. letter of credit can be completely simplified and done at a faster pace by
framing this group. The group though is created but it is present for private distribution only.
Presence of smart contracts has also made the trade financing easier (Guo, and Liang, 2016).
Inter-bank financing is also made prompt with this technology. Blockchain technology has
said to innovatively disrupt the way things are managed in the financial sector. There is a
complete denial to the need of intermediaries being the lawyers, brokers, bankers etc. now.
Millions of people who do not know each other are able to transact in spite of any kind of
trust inside for each other. This elimination has successfully discarded a major cost
consuming area.
The capital market industry is certainly to revolutionise with the upsurge of this
blockchain technology. These technologies eliminate the meditators issues and increased

business complexity which strengthen the overall outcomes of the process. This technology
has got the power to eliminate the intermediaries who presently deal with the clients using a
process that is very time consuming and is very costly. A real time trade is possible with
maintenance of automatic DVP on a cash ledger. Automation is also achieved in reporting
and supervision by market authorities has become transparent. Due to the elimination of
intermediaries and central clearing system, real time cash transactions are now done fast and
with lower margin or collateral requirements (Aitzhan, and Svetinovic, 2016). Even pre IPO
allotments of shares of companies to the first investors are made using blockchain based
platforms. Several companies are looking for separate platforms or mechanism for dealing in
their securities using the blockchain technology. The blockchain system provides the
separate user ID to clients to undertake the strategic investment program. After undertaking
this investment strategic program, clients could easily tap the financial capital market through
online system modes to create value on the investment.
Blockchain technology is all set to innovate the way in which consortium accounts are
managed. It shall involve the monitoring of all the transitions that a customer’s account is
involved in case where there is a consortium of banks. The reason is simple. When a
customer transfers money from one bank to another, it become difficult to trace the end use
of that fund and ultimately it leads to diversion of funds. With the help of distributed ledger
system, collaboration shall be created and this will help in tracking the movement of money
(Peters, and Panayi, 2016). Even the loan amount extended by the banks shall be under a
complete watch of the banking authorities. It will get possible to analyse whether the loan
amount is used for the purpose it was obtained or not. As the ledger is distributive, the
information and tracking shall be available with all consortium members. As a result at every
node the chances of any anomaly shall be reduced (Aitzhan, and Svetinovic, 2016).
Advantages of use of blockchain technology
Many advantages are bestowed on the financial sector. Cross country boundaries are
transcended. Billions of people and several places which earlier were not connected that
easily and required long time frame to be connected with huge costs are now truly simplified.
The blockchain technologies assists in reducing the overall costing and increasing the overall
return on capital employed of the investors if undertaken properly. The time taken to process
cross country transactions is significantly reduced and the costs are cut extensively. Now it

takes just a few clicks and the transaction gets successfully processed. With online tracking
of all the transactions, the accuracy is much better. When share trading in financial sector is
concerned blockchain technology offers high end accuracy and the settlement time is also
reduced. The ledger being shared enables processing of any transaction only after both the
parties extend agreement over that. The tracking of all the past settlements and trading is
available. Neither party can bring a modification in any of the transaction after it gets
finalised. With the advent of blockchain technology, the contracts between two parties, one
being the finance sector, are made directly without the involvement of any middlemen. This
non-interference of the mediators has been good opportunities for the clients to increase thei
overall return on capital employed. It will mitigate the middle costing which is deducted from
the return available to investors in financial sectors. However, after eliminating the issue of
the mediators, companies and investors could easily increase their overall outcomes. It would
be easy for investors to tap the investment financial opportunities. As after reduction of the
mid expenses, investors could easily create value on their investment. This ensures clarity in
communication and reduction in the costs to both the parties. The rights and obligations of
both the parties are available at hand and the agreement is executed robotically. There exist a
complete transparency and any mistakes are spotted as and when they happen. It’s easier now
to enforce accountability. Both parties are able to view the contract in the same manner and
hence there are no chances of any discrepancy. However, it is analyzed that The transactions
in both parties requires high level of securities and shall involve movement of assets from
one place to another, database of clients etc. The security considerations involve resistance to
modification, multi-level authorisation, high level encryption, new identity creations etc.
(Beck, et al. 2016).
As its mandatory these days to update the client or user details for every financial
sector industry, blockchain technology has allowed the business to store all the client
information with utmost security and without even wasting storage on it. This technology
helps in maintaining a complete database of all the clients which can be assessed from all the
ports in case of need. Although the information is readily available, yet it requires same
cryptography keys to unlock the security to access the information. The information stored
like this is highly updated and the credibility is also high. Another advantage that this
technology offers to banks is enabling then to easily trace all the transactions that different
clients have entered with the bank. By this the banks get a clear picture and a crystal perfect
idea of the loyal customers. It helps in creation of better reward and loyalty programmes.

Further the reviews put forward by the clients are also stored which helps in improving the
management and performance.
Although blockchain technology is yet developing, its recent innovations have
expressively reduced the frauds that were happening in the financial sector. It also lower
down the chances of the insider trading in financial sectors. However, sudden surge in market
price and situation like financial crises in particular sector could also be curbed if the
blockchain technologies are used in the particular sector. The data is stored online and is
highly vulnerable to hacking and other cybercrimes. The old banking system used to have a
centralised system of working which was highly insecure as a crime at the central node was
affecting the whole system. In blockchain technology a distributed ledger is maintained and
different blocks are framed for different transactions. This distribution has certainly reduced
the frauds that were happening (Hyvärinen, Risius, and Friis, 2017). Banks act as an
intermediary for their clients by helping them in processing their payments which are bound
to be made to the third parties or are to be received by them. This technology helps in
providing high end security for these monetary transactions and also the cost is reduced
(Kosba, et al., 2016).
Blockchain technology is meant to increase credibility and create trust among the
users. If clients could understand the proper use of the blockchain technologies then they
could easily create value on the investment and save themselves from the fraudulent acts of
companies. This being the main requirement of insurance company is successfully fulfilled
by this technology. It’s possible because of the emergence of smart contracts and
maintenance of verified data. Blockchain technology provides standard level security to the
users by eliminating the risk that is present at different points in a system. The main
considerations being confidentiality, integrity and availability are all solved using this
technology. A complete history of all the transactions is maintained using block and chain
method which integrates the transactions preventing them from leaving footprints, but at the
same time helps in mounting accountability (Swan, 2015). It not only keeps the business
transactions transparent to clients but also strengthen their investment decision to increase the
overall outcomes. This also enhances the quality of the audit done as the tracing is easy. A
multi-level security approach exists at the ledger level, network level, transaction level,
associated surround system level, and smart contract level (Al-Bassam, 2017).

The main outcomes of the blockchain technologies in the system process are related
to increasing the transparency of the process system. It not only increases lower down the
complexity of the investment but also assists investors to analysis all the historical data of the
particular company for the effective and better investment decision. This outcomes not only
increases the overall outcomes but the overall efficiency of the investors in the financial
sector (Swan, 2015).
At the ledger level, it is ensured that the entities who are directly concerned with a
particular matter are made part of the network. It shall restrict public flow and shall maintain
privacy (Zyskind, and Nathan, 2015). Identity of the members plays a crucial role and only
legitimate members shall have the access. When network level security is sought, the main
focus is on the communication between different nodes over the network. Strong
communication network is required to be built which shall restrict any external or internal
malicious attack. External attacks can involve spamming of network with unlimited service
requests (Dorri, Kanhere, and Jurdak, 2017). Transaction level security is a high end need
when it comes to the financial institutions. The transactions shall involve movement of assets
from one place to another, database of clients etc. The security considerations involve
resistance to modification, multi-level authorisation, high level encryption, new identity
creations etc. (Beck, et al. 2016). The digital or self-executing or blockchain or smart
contracts use computer languages being C++. JavaScript, Java, Go, Python etc. which when
framed can be intentionally defective and cause vulnerability to the assets involved. Further
the use of external data also need verification as it may be false of tapered (Kosba, et al.
2016). These advancement in the technologies are undertaken by the investors then they
could easily strengthen the overall return on capital investment (Guo, and Liang, 2016).
Being a newly introduced technology, blockchain in spite of blooming with
overwhelming applications and vast advantages, is bound to face certain challenges which are
yet to be resolved. Although, the technology is certain to have enormous potential but at the
same time has to deal with several issues which are demanding urgent attention. The
technology is not having any standard in the international market to compete with the similar
kind of technologies (Swan, 2015). There is a need of high interoperability to increase its
compatibility at a large level and to add to its integration with the wider web. Secondly, there
are both private and public blockchain. The public blockchain are unsecure as compared to
the private ones as transactions are not shared publically among all the members of the

network in private blockchain. But they tend to be costlier. However, the cost of the
blockchain would be high in the initial time but with the increasing return on investment,
investors could easily compensate that extra cost. It will be beneficial for the investors to
invest their capital in blockchain technologies to create value on the investment (Guo, and
Liang, 2016).
Process of blockchain technology
The process of the blockchain technologies might be complicated for the first time users who
are going to invest in the financial sectors. Even when the blockchain tends to be highly
secure for being distributive, but this is only possible when security is present at multiple
levels as already discussed. In order to maintain high speed to command the needs of rising
demand of technology at a larger space, there stand a need for a large blockchain database.
This is to be done to ensure that the network is able to handle large volumes of data and make
the use of this technology commercially viable. In the list of challenges, one of the most
alarming issues is environmental degradation. The reason is high consumption of energy
while using blockchain technology. This consumption releases high amount of carbon gases
as the faster and efficient a computer system is, the more energy it uses. Moreover, no
standard legal regulations are framed for the application of this technology. As a result, there
is no clarity regarding the laws that are required to be followed for the application of this
technology. So there are chances of facing legal outcomes due to this (Herrera-Joancomartí,
and Pérez-Solà, 2016).
All the aspects regarding this technology have been discussed including its features,
applications, advantages and challenges. With the increasing automation of the economy,
blockchain technologies have been gaining momentum in the financial market. Banking
industry being the largest investor in the monetary resources is completely affected with this
technology. At the global level, it is required to enhance the working procedure of this
technology to create more benefits and decrease the chances of any failure. Many radical
changes are needed to be done. New ways of using the technology are to be devised to find
the ways to reduce the harmful emissions due to the use of high levels of energy. Anyways,
this technology has got all the traits to possibly disrupt the functioning of financial sector.

Conclusion
The main advantage of these blockchain technologies would be for the investors while opting
for the financial investment decision in particular investment option. The blockchain
technologies will provide clients options to analysis whether the available option will give
proper return on the investment of not (Guo, and Liang, 2016). There are several issues if
client does not use the block chain technologies in their investment cycle. The certain issues
regarding security, privacy and scalability need to be addressed in near future to make the use
of blockchain technology more efficient and effective. After analysing all the detail and
factors of the business, it is analyzed that if clients could use the blockchain technologies in
their investment decisions then they will tend to be creating more value on their investment
capital. In financial sector, block chain technologies assists in analysing the historical
financial data of particular company then after on the basis of same data, investors take their
investment decisions. Now in the end, it could be inferred that blockchain technologies are
the most beneficial tool in the financial sectors for the investors. It also curbs the insider
trading and other high level of fluctuation in the share price of listed company.

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