Everyone is talking about blockchain, the new technology that is energizing the financial services industry globally. Many startups are building businesses around the blockchain technology, and consequently, VC firms like KPCB are showing interest in investing in these startups. While startups like Coinometrics gather data and research on qualitative and quantitative behaviors on blockchains, there are others like BTCJam who provide bitcoin-based loans. The below table shows blockchain related venture capital activity is steadily on the rise.
What is Blockchain?
For the uninitiated, Blockchain is a disruptive technology platform that uses cryptography and a distributed messaging protocol to create shared ledgers between counterparties. Essentially, a blockchain is a network of computers or devices, open to anyone, all of which must approve a transaction has taken place before it is recorded, in a “chain” of computer code.
How Blockchain Works
In the context of capital markets, blockchain-distributed ledgers enable operations that are open-source, decentralized, replicated, shared and cryptographically-secure, are validated by mass collaboration and can be applied to many financial instruments.
For the financial services sector, blockchain offers the chance to revamp existing banking infrastructure, clear settlements faster and streamline stock exchanges. Practically speaking, this means blockchain-enabled networks have the potential to increase trading efficiency, improve regulatory control and remove unnecessary intermediaries.
Figure 2 shows you the structure of capital markets today:
In contrast, this is what capital markets are poised to look like in 2025 with the adoption of blockchain technology:
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