Blockchain in financial services

Digital assets, a new paradigm for financial services

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laptop workI always know when interest in digital assets is heating up because everyone from my family, friends and colleagues, to the mailperson start asking me questions on how to get involved.

You’re probably asking yourself; but why now? Bitcoin has been around since 2009. What’s so different this time? Well, the difference is regulators are starting to take notice and weigh in, giving fintechs, enterprises, banks and others the guardrails within which to operate.

Bitcoin, cryptocurrency and tokenization are words that catch the eye and ear of a variety of people. The last six months have looked a lot like 2017, with what seems to be daily news headlines on digital assets, their gargantuan increase in market cap and the rise of new use cases such as non-fungible tokens (NFTs). However, we are not only here to talk about the hype. We are here to address how your enterprise can leverage digital assets and what advances have been made over the last four years that leads us to believe now is the right time.

Bring new transparency, simplicity and efficiency to every financial transaction

We are seeing a steady rise in infrastructure being built around digital assets — the technology is maturing; regulatory tailwinds are increasing, and demand is growing from institutional customers. The shift that is underway will have a profound impact, especially for financial institutions. Here’s what underpins it and why.

What effects are digital currencies having right now?

The development of digital currencies; whether it be cryptocurrencies, stablecoins (cryptocurrencies that peg their market value to some external reference, like the dollar to gain price stability via collateralization), or central bank digital currencies (CBDC) could alter the way we look to exchange value. With benefits including reduced settlement time and risk, as well as increased liquidity for all asset classes.

Digital asset adoption is growing at an exponential rate. Tokenization alone is expected to be worth USD 24 trillion by 2027, a figure that represents 10 percent of global GDP. Cryptocurrencies are also seeing increased adoption by institutions, namely Tesla and Square. These firms have invested USD 1.5 billion and USD 50 million into Bitcoin respectively.

As for the financial services industry, J.P Morgan, Citigroup, Wells Fargo and PNC are amongst the prominent financial services institutions adopting blockchain to enable their infrastructure to support a variety of digital assets. With only 21 percent of banks involved with blockchain technology and digital asset adoption on the rise, this is a prime time for your enterprise to redesign your infrastructure to take advantage of the market.

So why now? Why are digital assets getting so much attention?

In the past, there was a lack of clarity from regulators which previously held back financial institutions from involvement in digital assets. However, over the last year, regulations have become clearer, and the Office of the Comptroller of the Currency (OCC) has put forth three directives that will benefit the adoption of digital assets. These three directives include crypto custody services, stablecoin reserve service, and Invision Technologies, which enables banks to connect to blockchains as validator nodes and allows them to transact with stable coins on their customers behalf. In addition to the OCC, Fed Chair Powell has mentioned the launch of a “digital dollar” as a high priority project and is seeking to engage the public on the initiative sometime this year.

We are seeing a lot of traction here at IBM and look forward to driving success for our clients as they embark on this digital asset journey. Our digital asset risk and regulatory advisory services will help individuals understand the space and begin moving forward with adoption. Tokenization accelerators and technology consulting services are additional capabilities we have to empower clients in their digital asset journey. Lastly, our payments expertise will be paramount when building out B2B and B2C payment solutions.

Embracing digital assets

Through collaboration we will help enable financial institutions to create new forms of financing, democratize the opportunity to participate in debt and equity capital markets, reduce lag time of securities settlements and generate greater liquidity for all asset classes.

As we look to the future, we see a world where digital and fiat currencies coexistence, with a wide array of stablecoins and cryptocurrencies, various rails and solutions supporting varied client and payment needs.

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Americas Blockchain Partner, IBM Consulting

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