The cryptocurrency craze (i.e. Bitcoin) has plummeted over the past year due to a lack of public trust in the technology and massive sell-offs from an early investor looking to cash out on potential gains. Cryptocurrency is a digital asset designed to act as a medium of exchange that uses the art of writing or solving codes to secure financial transactions, control the creation of additional units, and verify the transfer of assets.  The most popular and valuable cryptocurrency amongst the public is Bitcoin.  Bitcoin is a cryptocurrency or form of electronic cash.  It is a decentralized digital currency without a central bank or single administrator that can be transferred from user-to-user on the peer-to-peer Bitcoin network with the need for a middle man (i.e. bank intermediaries). The attention has moved from cryptocurrency to the blockchain.  In fact, more companies are looking to implement the blockchain technology, especially firms within the asset management space.

What is Blockchain?

The blockchain is a digital record of transactions.  In other words, quite similar to a general ledger in accounting, a blockchain contains individual records called blocks that are linked together in a single list called a chain. They are used for recording / storing transactions for cryptocurrencies, such as Bitcoin. When a transaction is added to a blockchain, first it is cleared by multiple computers on the internet.  These computers work as one to ensure that each transaction is valid before it is added to the blockchain.  The decentralized network of computers ensures that a single system cannot add invalid blocks of data to the chain. The blockchain can have a huge impact on the transfer of assets between businesses and networks.  The movement of assets between both parties is 100% transparent. In addition, all transactions are validated and verified on the chain.

Asset Management Interest in Blockchain 

For asset management firms, the blockchain technology can resolve data discrepancy and reduced the time it takes to solve those issues within a firm.  Since transaction on a blockchain is unchallengeable, the transaction cannot be edited without the network’s permission.  In other words, all asset transactions are reviewed and validated which ensures that the correct record is stored on the blockchain for the asset manager.  These records are used to: analyze fund performance, risks, and improve strategic decisions for the firm.  In fact, the transfer of data between the investor and fund managers is more secure and fluid.

Smart Contracts

Automating specific task for asset management firms can eliminate the need for costly services.  One way is to use smart contracts.  Smart contracts can help an organization / firm exchange money, property, shares or anything of value in a transparent, conflict-free way while avoiding the services of a middleman (i.e. lawyers).  One task that can be automated is the sale/purchase of an investment or asset based on the guidelines provided by the investor. 

Future State

The blockchain technology can provide asset management companies with instantaneous asset tracking performance, which gives asset managers swift results on data movement or changes that affect their client’s portfolios. The transparency on the blockchain ensures that all data stored on the chain is secure and trusted.  In the near future, asset management firms will benefit greatly from implementing the blockchain technology within their operational infrastructure.  Below are a few of the top blockchain solution providers:

• AlphaPoint
• BLOQ
• Civic Technologies Inc.
• Global Debt Registry
• HHS Tech Group
• Kaleido
• Leaf Global FinTech
• Ripple
• TradeIX

To learn more about FinServ Consulting’s services, please contact us at info@www.finservconsulting.com or (646) 603-3799.