Main Street and Wall Street Looking To Save with Blockchain

One of the critical parts of the cryptocurrency Bitcoin is the concept of decentralized control. This is partly achieved through a public transaction ledger, which allows users to verify and, hence, trust transactions. This ledger is implemented through a “blockchain.”

A blockchain is a database of transactions that is distributed among all users. Each record, or record group, is a block that links back to the previous block. Decentralization, via a peer-to-peer network, makes it difficult to modify data. Further, there is no need for a central intermediary to verify transactions; rather, this is performed by individual users.

Recent advances in this disruptive technology have allowed companies to begin adding custom software solutions. As such, blockchain has uses beyond cryptocurrency, such as smart contracts that automatically generate payments when conditions are met, digital escrow, and contract and transaction confirmations. Walmart is even testing blockchain technology to track food safety. By eliminating the need for certain middlemen and centralized transaction verifiers, this could lead to both reduced costs and increased transparency.

Blockchain’s potential uses in fraud and cost controls have not gone unnoticed by Wall Street and other financial centers. The Depository Trust & Clearing Corporation (“DTCC”) recently announced plans to implement a blockchain to track credit-derivative payouts between banks. The DTCC acts as a middleman, providing clearing and settlement services for a variety of financial products.

Clearing and settling a credit-derivative transaction can be a costly and time-consuming process. DTCC tracks approximately 1 million derivative contracts with a face value of $11 trillion. DTCC is looking to move its transaction workflow to the blockchain over the next year. Initially, the blockchain will run in parallel with DTCC’s legacy systems. This will allow the company to test the speed and cost of transactions compared to existing solutions. Eventually, this technology could be used for DTCC’s other financial products.