Constructing a Financial Landscape Using Public Blockchains

Previously, we've talked about why the infrastructure that supports capital markets – including shares' registers of ownership – should use a better tech stack, preferably with a better database system. But until now we haven't mentioned what type of database would be most suitable. That's what this blogpost is about. The registers for ownership of securities are currently housed in databases managed by depositaries and custodians. These databases are purposely not interchangeable, resulting in frequent reconciliation issues. This makes the process of concluding transfers of ownership between investors laborious, slow and expensive. To fix this problem, three potential solutions can be looked into. Option 1 has its pros and cons; it has been the main emphasis of existing infrastructure suppliers attempting to enhance their technology stack while maintaining their competitive advantage. However, it is not enough to solve the problem of cash and securities living in different databases, which is one of the main issues with capital market infrastructure at the moment. As long as this split is in place, there is no way to bypass the reconciliation problems that complicate and reduce the efficiency of settlement. Option 2 enjoyed popularity between 2014 and 2017, when there was a wave of "enterprise blockchain" projects with the goal of introducing permissioned networks that would be ran by members of the market. Such projects were mostly spearheaded by businesses in the field, hoping to lower their costs in back-office services. Up to now, these efforts have yet to result in product-market success. We aren't aiming for a fight between different sides, instead we are telling why we consider Option 3 to be a practicable choice, plus others that could measure up with it. Let's examine why Option 3 stands out in comparison to Option 2. Distributed databases are highlighted by public blockchains, which offer equal access to all users in an unrestricted way. Their records are open to anyone for inspection, and can be accessed immediately. Everyone can take part in their processes, launch transactions and comply with pre-defined protocol rules for their confirmation. In comparison to closed off options, permissionless networks that are public have powerful and distinctive advantages, particularly for financial operations. Public blockchains have properties that aid in sparking network effects. In the finance industry, this could mean more capital, liquidity, and efficiency. For private corporate networks, this could eventually become quite challenging if not impossible to rival. Utilizing public blockchains in capital markets can lead to a major shift in the system, resulting in: Despite certain areas that need to be addressed when it comes to blockchain (e.g. issues concerning computing performance), and cultural obstacles to overcome, engineering problems typically have solutions. The expansion of the Bitcoin network and Ethereum ecosystem are an example of how open networks can be intimidating to established financial entities yet are gradually being accepted - and trusted - by the general public. Consequently, we are certain that public blockchains as computing and storage resources are sufficiently promising and advanced enough to construct tomorrow's capital markets. A database can be distributed such that multiple entities hold and manage an up-to-date copy of the ledger. A blockchain can then facilitate the organization and validation of transactions to update the ledger. Pseudonymisation utilizes the technique of obscuring personally identifiable information in order to prevent the recognition of the individual in question without the usage of secondary information which is kept elsewhere. When it comes to a public blockchain, only the public addresses are accessible to all.

Source: https://medium.com/@spiko/building-the-future-of-finance-on-public-blockchains-639bfb82942a?source=rss------fintech-5