Blockchain is a technology that draws its name from the fact that the data is stored together in blocks, which are then connected in a digital chain. The goal is to make the sharing of information more transparent. As it applies to financial services, blockchain serves to record transactions and automatically execute agreements through the use of smart contracts.
The highest hopes for blockchain in the financial services industry are that its transparency — everyone involved in a network has access to the smart contracts — can enhance trust, while also making the entire transactional process run faster.
Banks and other lending institutions that have adopted blockchain technology may be aiming to speed up the entire process for verifying the information on a loan application, confirming creditworthiness, and then distributing the money.
Blockchain technology can be used to support international trade supply chains. Digitizing the process could reduce a timetable that can run as long as four months, while still having security vulnerabilities, and make it both more efficient and secure. The transparency benefits may increase trust among all involved parties. The digitization of assets can allow for faster settlement times. Ultimately, a more efficient financing structure can make the global economy run smoother.
The insurance industry is known for the long, bureaucratic delays that are associated with claims payments. Part of that is the industry’s concern over fraud. Blockchain, with its streamlined data verification procedures, aims to address both of those concerns.
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The advantages blockchain offers start with transparency. All participants on a network stand on equal footing, with access to the contractual agreements and rules contained within the blockchain. Trust, the first cousin of transparency, can naturally follow. Furthermore, the technology manages to combine the seemingly contradictory goals of privacy, along with transparency, through the sharing of data within the protective confines of a business network.
Blockchain, when properly executed, can also be more secure and efficient. Human intermediaries are reduced, if not eliminated. Secure application code can protect against the possibility of hacking. This leads to better speed in operations and the kind of scalability that can expand an organization’s global reach.
Regulatory compliance is already of existential importance in the financial services industry. The removal of human intermediaries (the core attraction of blockchain technology) has its own set of risks when it comes to consumer protection. Financial services are already an industry where money launderers seek to operate. Institutions that work with blockchain must know how anti-money laundering laws will apply in the day-to-day life of their blockchain.
The still largely gray area of cryptocurrency regulation makes legal counsel even more important. Firms have to understand the how and why of previous regulatory decisions, and they have to be on top of how those rules develop. Government agencies are both trying to understand the entire crypto process, along with jousting amongst each other for power, all of which can lead to uncertainty for financial services firms. An attorney can’t eliminate the uncertainty, but a lawyer who knows where we’ve been can have a better understanding of where we might be going.
Much of the world might just be waking up to the possibilities offered by blockchain technology, but Good Attorneys at Law has familiarity with these legal waters. We’ve worked in cryptocurrency law and regulation for over 20 years. We know where the industry has been — we’ll help you understand where it’s going and how to travel the road safely.
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