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Market application of blockchain in financial field

Time : 19/08/2021 Author : i4nek6 Click : + -
        This report is the research result of blockchain technology, referring to several research reports from investment banks and consulting institutions, introducing the technical characteristics and operation mechanism of blockchain, and explaining relevant important technical concepts; The application part analyzes the application scenarios and market prospects of blockchain based on its application cases in financial and non-financial fields. This report is the research result of blockchain technology, referring to several research reports from investment banks and consulting institutions, introducing the technical characteristics and operation mechanism of blockchain, and explaining relevant important technical concepts; The application part analyzes the application scenarios and market prospects of blockchain based on its application cases in financial and non-financial fields.
        This paper introduces four blockchain application scenarios and market segments in the financial field: digital money transfer, payment and lending; Cross border payment and settlement; Supply chain or trade finance. There is a mainstream view that divides the technological evolution and application of blockchain into three categories: blockchain 1.0 is a digital currency application represented by bitcoin, and its scenarios include payment, circulation and other monetary functions; Blockchain 2.0 is an application that combines digital currency and smart contracts to optimize a wider range of scenarios and processes in the financial field; Blockchain 3.0 goes beyond the financial field and provides decentralized solutions for various industries. Blockchain technology can also be called distributed ledger Technology (DLT).
        At the application level, such an account book has at least the characteristics of safety, reliability, openness, transparency and automation. The time stamp and workload proof mechanism of blockchain digital currency is a safe and reliable implementation method of distributed ledger: in the digital currency network represented by bitcoin, all participants have their own ledger backup, and the ledger is synchronized in real time. The data that has been verified and recorded cannot be tampered with. At the same time, the decentralized and collective participation of the digital currency represented by bitcoin in the transaction verification process is the decisive factor for the openness and transparency of the distributed ledger: the transmission of value in the bitcoin network does not rely on a special third-party organization as an intermediary. Every transaction is verified by all miners and accounted for by an almost random miner.
        The security, reliability, openness and transparency of the distributed ledger are not only reflected in the payment and circulation of digital currency, but also in the issuance of digital currency, that is, the total number of bitcoins will not exceed 21 million, and can only be issued according to the established rules and speed. The following table shows the comparison between bitcoin and qcoin:. For blockchain 1.0 digital currency, the main feature of distributed ledger automation is the automation of settlement. Its proponents believe that clearing and settlement can be effectively combined into one step, so that transactions can be completed in an instant. Citigroup's report describes the payment of blockchain digital currency in three aspects: sending messages, settlement and supervision; Among them, supervision includes license issuance, customer entry management and continuous tracking.
        In the process of payment, the sending of information and settlement occur almost simultaneously. All account book information is updated synchronously at the moment when the transaction is completed, and all settlement is automatically executed. Evry's report believes that, at the application level, the non recognition (public) blockchain digital currency network is an anonymous transaction system that creates anti censorship outside the existing legal framework, while the account book based on the recognition (private) blockchain is mainly applicable to enterprise level systems to match anti money laundering, customer credit and other work required for alloy financial supervision. The report of Goldman Sachs also predicts that most commercial applications of blockchain will adopt some form of recognition system. For the licensed (private) blockchain, since the function of verifying transactions is specified to some nodes in the network, the security and reliability of such account books are not realized through complete decentralization, but depend on third-party institutions to a certain extent.
        In the public blockchain digital currency network, all trading parties do not need to disclose their identities, and the anonymity and privacy of each participant are protected. However, the participants of the private chain or alliance chain digital currency network are screened in advance, so the account books are only open and transparent to a certain extent, and all trading parties are not necessarily anonymous. The function of the side chain is to confirm the data from other blockchains so that different digital assets can be exchanged. For example, bitcoin and ripple coin can be transferred to each other at a certain exchange rate on their blockchains. The side chain allows the transfer of digital assets on different blockchains, and can also be used as a method to enhance privacy protection.
        Based on the convertibility of digital assets, the application scope of blockchain has been further expanded. Not only private chain or alliance chain digital currency can be linked to bitcoin, but also various types of assets such as stocks, bonds and financial derivatives can be linked to bitcoin; Almost all digital currency and smart contract applications can be associated with bitcoin and other public chains through the side chain, and with any digital asset, which makes the blockchain have broader innovation space at the application level. Abra, circle and btcjam are companies that apply bitcoin to provide financial services. They all show three advantages of applying blockchain: 1. Realize global coverage of the service range; 2. Create a more secure, transparent and convenient user experience; 3. Reduce the company's operating costs.
        Abra is a bitcoin wallet application. Due to its friendly interface and convenient operation, users can use it without the basic knowledge of bitcoin; All people with smart phones can access the peer-to-peer bitcoin network through Abra to participate in the global financial system. Abra's payee can withdraw money from the bank or through Abra's cashier, who will charge some fees. As the price of bitcoin, which is Abra's underlying asset, has been in violent fluctuations, Abra has designed a complex hedging mechanism to avoid the risk of bitcoin price fluctuations, so that the user's asset value will not fluctuate due to bitcoin price fluctuations.
        Circle is a global peer-to-peer consumer finance network, providing digital currency storage and national currency exchange services; Users can transfer, receive and pay in the form of sending messages through circle without handling fees, and let global currencies circulate based on bitcoin. Circle does not use bitcoin as a bottom asset, but as a back-end network to avoid the risk of bitcoin price fluctuations. Users generally hold funds in legal currency; When funds need to be transferred, users can buy and hold bitcoin for a short time and trade between US dollars, sterling, euros and bitcoin. Circle also applies machine learning and artificial intelligence technology to make use of accumulated user data, so as to more accurately monitor suspicious transactions, reduce the labor cost required, and strengthen cooperation with regulatory authorities.
        The circle team believes that payment through the Internet should ultimately be the same as sending e-mails, and consumers should not pay for such services. Therefore, the company may obtain income through value-added services in the future, such as lending and wealth management services. Btcjam is a global peer-to-peer bitcoin lending platform, which allows anyone to accept loans through the platform and identify users based on their online credit evaluation system. Users can establish and maintain their own credit image. Btcjam scores the credit according to the user's performance, and the fund demander creates a loan application. The fund lender can choose the object to lend bitcoin, or set the program to automatically provide loans for qualified applications.
        The lender can repay periodically. Btcjam is free of charge to the lenders of funds, and charges some commissions to the lenders, as well as payment delay fees. Atbfinancial, one of the largest banks in Canada, announced on July 14, 2016 that it successfully used the technology of sap and ripple to send $1000 to Germany in 20 seconds, and such payment generally takes 6 working days; Atbfinancial connects SAP's cloud platform and SAP payment engine application to ripple's blockchain network, thus completing the payment process. McKinsey believes that the point-to-point payment method between banks based on the blockchain technology "can not only provide all-weather payment, real-time payment, easy withdrawal and no hidden costs, but also help reduce the cross-border e-commerce capital risk and meet the cross-border e-commerce's demand for timely and convenient payment and settlement services"; At the same time, it is expected that, globally, the application of blockchain to B2B cross-border payment and settlement can reduce the cost of each transaction from about $26 to about $15.
        Ripple provides cross-border payment services for banking financial institutions, hoping to replace the cross-border transfer platform of the global Interbank Financial Telecommunications Association (Swift) and create a global unified network financial transmission protocol; By using ripple's Cross ledger protocol, all participants can see the same ledger, and banks can conduct real-time peer-to-peer cross-border transfer, and support different currencies of different countries. Ripple generates revenue by selling and holding ripple coins (XRP). In the white paper jointly released by ripple and Accenture, ripple's solution not only reduces the total settlement cost, but also realizes new revenue sources by creating opportunities to enter new markets and realize small and micro payment and other new products; The white paper concludes that although distributed ledger technology is still a long way from supporting trillions of dollars of payment business each year, it can already serve as the basis for new cross-border commercial payment networks.
        Traditional supply chain finance or trade finance business processes are highly dependent on labor, including a large number of review and verification of transaction documents and paper documents. Not only is the labor cost high, but also the risk of errors in each link is high. If these processes are managed on the distributed ledger, the labor cost can be reduced, the efficiency and transparency can be improved, and the risk of fraud and manual work errors can be reduced. 1. "Transforming letters of credit to smart contracts with automated payments";.
        2. "Digitizing printed documents such as bills of lading and storing them in the form of metadata";. 3. "Creating a record of ownership in each step". McKinsey estimates that globally, the application of blockchain to supply chain or trade finance can bring a value of US $17-20 billion to financial institutions and buyers and sellers in a year; It mainly includes that financial institutions save 13.5-15 billion US dollars in operating costs and 1.1-1.6 billion US dollars in risk costs; The capital cost of the buyer and the seller's enterprise is saved by US $1.1-1.3 billion a year and the operating cost is saved by US $1.6-2.1 billion.
        Ogydocs is a financial technology company committed to providing safe and efficient tools for international trade. Its first product, wave, uses distributed ledger to manage the ownership of documents and commodities in the transportation process, replacing the traditional function of paper bills of lading that provides cargo information, thus improving the transaction efficiency and security of international trade and eliminating disputes, forgeries and unnecessary risks. Wave has reached a cooperation with Barclays Bank to use distributed ledger technology to manage trade process documents; Digital letters of credit, bills of lading and ownership records are verified by relevant parties, thus eliminating the transfer process of paper bills of lading and eliminating the concerns of all parties about data security.
        At the technical level, the blockchain technology at least has the characteristics of safety, reliability, openness, transparency and automation; It can ensure the validity of the contract terms of smart contracts. The whole process of contract formulation and execution is easy for all parties to supervise and the contract execution process is not interfered. At the application level, the three advantages of blockchain, namely, security, transparency and efficiency, make it particularly helpful to regulate the development of Internet Finance and promote the popularization and innovation of the Internet of things and the sharing economy; In the capital market, the use of distributed databases and smart contracts can also greatly reduce the manual checking work and save costs for financial institutions.
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