The block chain, the report noted, serves as a big, decentralized ledger that records transaction information and stores it on a global network that can’t be tampered with.
It noted that R3, a fintech company, leads a 20-bank consortium that is developing a framework to apply the block chain to capital markets.
Block chain solutions will track syndicated loans by next year’s second quarter, the report noted, while other financial market sectors could take longer. Applying the block chain to derivatives could take as long as five years while using the block chain for settling share trading is 10 years away.
Block chain technology will provide more transparent and efficient ways of tracking and recording transactions, the report noted. It could also improve the systems banks are currently using.
Shagun Bali, a TABB research analyst, said top use cases have indicated opportunities for efficiency and income generation from greenfield projects. These include private equity, corporate debts, interbank payments and others.
The TABB report supports a Bank of England’s report last year that described the block chain as a “genuine technological innovation” since it can allow transaction systems to function without an intermediary and can securely hold digital records.
Challenges exist, Bali noted, such as the cost of integrating the block chain into pre-existing systems. He said additional due diligence to define industry standards for settlement, counterparty and other transactional risks is critical. As the block chain acquires more mainstream adoption, the need exists for a strong regulatory framework, as well as mass market block chain scalability.
The TABB Group’s 21-page report includes information on block chain technology features, five use cases, announcements from large banks, snap shots of six block chain startups: Symbiont, R3, Chain, Ripple, Digital Asset and Hedgy.
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