The bitcoin block chain could potentially upend the existing post-trade infrastructure and make financial companies redundant, according to an analyst at BNP Paribas Security Services, an international bank. Johann Palychata, a research analyst at the company, makes this observation in the current issue of bank’s publication, Quintessence. This article marks the first time a major bank has acknowledged bitcoin’s disruptive potential of the existing post-trade infrastructure, according to financial observers.
Palychata’s article constitutes a “huge admission for one of the world’s biggest banks” regarding bitcoin’s potential to make existing companies redundant, according to Oscar Williams-Grut in today’s Business Insider.
Palychata’s article, titled “Bitcoin: What you didn’t know but always wanted to ask,” describes bitcoin as a new technology for the banking world: “The internet of money.”
“Bitcoin has solved a technical challenge and the currency it hosts has been successful so far,” Palychata writes.
After giving a history of bitcoin and an explanation of how it works, Palychata explores what would happen if the ownership of securities were recorded in a block chain.
The first scenario he explores is the creation of “a total disruption. In its purest form, a distributed blockchain system allows all market participants direct access to the DSD (Decentralised Securities Depositary), to the exchange and to the post trade infrastructure (clearing & settlement).”
“If this setup develops then existing industry players might be redundant,” he writes. Given the challenge of keeping the private key of the account safe, it is possible investors will entrust an authority to safe keep the private keys. It is also possible that custodians will manage the application layer over the block chain or that they will launch their own network.
The second scenario Palychata explores is what he calls an integration within the post-trade ecosystem. The distributed ledger might only be the next generation of IT infrastructure. In this scenario, the ledger will only be accessible to authorized market participants.
Existing actors will remain in charge in this scenario however their level of service could change and they may deploy new services that they could not in the past because the investments required were a huge barrier to entry.
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