Current Application Areas

Current Application Areas

DOI: 10.4018/978-1-5225-2193-8.ch006
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Financial Services

At present, all the banks and financial institutions are maintaining large databases individually which requires high power consumption, manpower and high-end security platforms. With the advent of blockchains, the need for a database can be completely eliminated and every bank could make transaction on a single chain which could even replace the physical existence of a bank. It can drastically reduce the settlement time between banks and clearing houses from several banking days down to a number of minutes, or even seconds with literally zero possibility for double –spend or fake transaction. Unlike bitcoin blockchain which was anonymous and permission-less, blockchains for financial services would be permissioned and private with potential for permission-less versions also. In future, the banks can cover the clients globally without the need of an office at every location but virtually through the blockchain network. This will reduce the operational cost, transaction fee and need of employees and makes the business highly profitable. Blockchain also explores the potential for linking with other business paradigms which could create opportunity for improving the business models of financial institutions (Hyperledger, 2016). Financial institutions now trust in smart contracts as a practical solution to cut overhead costs and to speed up trading and settlement. Major banks like Citi and J.P. Morgan, along with clearinghouses like the Depository Trust & Clearing Corporation, are in the process of building and testing smart contracts to trade credit default swaps.

An example of bank creating an open access platform for handling currency is LHV (an Estonian Bank). LHV is testing blockchain with EUR 100, 000 worth of ‘cryptographically protected’ receivables claims against the bank. LHV make use of one of the prominent open source protocol over Bitcoin Blockchain, the “colored coins” for creating CUBER (Cryptographic Universal Blockchain Entered Receivables). CUBER represents a novel certificate of deposit which can be used as a building block for developing wide range of financial products and services. This will allow the customers to make free person-to-person fiat currency payments using blockchain. LHV have future plans to promote financial innovation through small-scale software developers, as well as encourages start-ups and crypto-currency exchanges to leverage to potential of this platform (Higgins, 2016).

In general, blockchain-based value transfer and financial systems have some major technical benefits when compared to traditional systems. The private individuals can enjoy more privacy, security and hassle-free monitoring and control over their financial assets at a reasonable cost. For major businesses, blockchain technology could cut the processing fees, enable faster global payment, and reduces the risk of chargeback fraud drastically.

Recently, the Santander Bank - U.K. has introduced a pilot app built on blockchain technology for international payments. This app was developed by Ripple, which can connect to Apple Pay, where the users can perform secure transactions through TouchID. Santander is the first bank in U.K. to adopt blockchain technology for payments and aims at revolutionizing the entire banking operation, infrastructure and systems which this approach (Prisco, 2016a).

Nano-Payments

Nano-payments are tiny payments for a trivial service over blockchains for value – based transfer systems. This is highly useful for very small transactions involving fractions of a currency. For nano-payments, security is associated with the token or means of payment. In the traditional payment systems, there are fixed transaction charges, technological constraints and other overheads which made such transactions more or less unfeasible on a large scale (Mattila, 2016).

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Public Notary System

The notion of public notary system was first released by Bitnation which calls itself a “governance 2.0” service. Bitnation is a blockchain-powered virtual-nation platform which leverages the potential of bitcoin blockchain technology to provide all the traditional governmental services in the distributed environment. Validating identities, notarization and dispute settlement were some of the major services initially provided by Bitnation (Bitnation, 2016).

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