Blockchain education

Blockchain technology and the future of financial products

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In my previous blog post, I discussed my work influencing the direction of blockchain technology adoption in finance, noting how far we’ve come in just three years. Now, I’m moving into a new role at IBM Research, and I will focus on what is commonly referred to as “top of stack” product development. That is, after you’ve considered the role of blockchain technology in making the basic, most fundamental financial infrastructure more automated, fair and open, it’s time to start looking at the higher order use cases that blockchain infrastructure can support.

First, let’s see what’s included in the product development stack. The following diagram is a high-level representation of the development of financial applications on top of blockchain (distributed ledger) technology. For the past three years, a lot of my focus has been on what I consider Tier-1 and Tier-2 use cases and usage scenarios: the fundamental processes of financial institutions.

Examples of fundamental operations are cash management, financial transfers of value, identity, record custodianship, intermediaries for delivery versus payment transactions, and foreign exchange services. These functions form the foundation of banking today, and nearly all commercial use cases rely on these core functions to facilitate financial transactions in any modern economy.

One example is a project originated at the R3 consortium that I had the honor of observing and contributing to in 2016 and 2017: Project Jasper. This is a private project protected by R3 intellectual property agreements, so I cannot talk much about it other than what has already been announced in multiple news sources. Essentially, the goal of the project was to see how a central-bank digital currency, the CADcoin (Canadian Dollar Crypto Currency) can work and function on-chain with regulatory control over its usage as a mechanism for central-bank value transfers.

Bring transparency, simplicity and efficiency to every financial transaction

Several other central banks are in similar phases of development. Some are working with the R3 consortium, some with Chain, some on their own and some with IBM or other firms who are working across the industry. I will continue to work closely with central bank partners to continue this very important work while at IBM Research.

In fact, I’m going to continue to work on use cases that affect an institution’s ability to transfer value around the world instantly. Why put so much focus on what is essentially a foundational use case that, at first glance, seems very efficient already? For one, “efficient” is relative when it comes to the topic of finance. You only have to look at the realities of correspondent banking and then compare it to credit card transaction processing to see what I’m getting at.

More important, however, is understanding that a lot of banking use cases directly tie back to the foundational activities I mentioned before. Cross-border value transfers between banks is a function of asset management (cash) and foreign exchange. Securities issuance and purchasing are a function of asset management (cash, securities), value transfers and delivery versus payment processes. The further you go “up” the functional stack in the diagram above, the more lower-level services and capabilities must also be developed.

The very top of the development stack — the unknown banking and financial services applications that haven’t been created or dreamed of yet — is where my focus is now. With a distributed reference architecture for finance well on its way to being developed, the time is right to start thinking about how we can re-energize the financial services sector, instill fairness and equity for all participants, and enable news ways for people to manage their financial lives.

We’re only at the beginning. It’s like the internet circa 1995, and I feel blessed to be a part of the revolution the second time around. I’m thrilled to be working with IBM Research to take banking to a whole new level, using all the technologies and platforms available to dramatically improve the financial user experience for us all.

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