BankThink: What really hinders the use of block chains in the financial services industry?


nnnToday, the financial industry has carried out a number of block chain test, colleagues are also being converted into practical applications, but still can not promote the technology in the financial industry, large-scale use, because most applications are single Point solutions that replace some of the components of the existing supply chain with block-chain technology and do not address the disruptive change vision of centralized supply chain intermediaries. So what is the limiting factor in the chain chain that can not help the financial industry quickly realize its transition vision? The author of this article to lead us to open a trip to the technology, analysis of the chain chain in the financial industry in the application of the long road.n
nnTranslation: Clovern
nIt is never easy to open a trip to technology. However, the history tells us that once you open such a trip, the road will become increasingly clear, the solution will follow.n
nThe phone was once considered a stupid adventure attempt. Because it requires too many manual telephone operators to connect all the calls. 75 years ago, who would have thought that the combination of telex telegraph and telephone and then the phone and television will make this very close to the film “supreme detective” actor Dick Tracy brought the watch is now a reality – Communicate portable devices with voice, video or text in any time, anywhere.n
nToday, many block-chain tests conducted in the financial sector are being translated into real-world applications that provide important solutions to existing problems such as Nasdaq’s private equity exchange, depository and clearing firm’s trading warehouses and credit Breach of contract platform, and IBM’s small and medium-sized enterprise international trade bank alliance. At the same time, the technology is still looking for new use cases, such as cloud storage, digital identity and non-central bank digital currency.n
nHowever, most applications are single-point solutions that replace some of the components of existing supply chains with block-chain technology and do not achieve a disruptive change vision for centralized supply chain intermediaries.n
nReal Transformational Vision – Replacing the financial system with a single distributed classbook The infrastructure of multiple classified books needs to be rethought from a regulatory perspective and requires additional technical upgrades. And most importantly, this requires the removal of influential central authorities to control infrastructure to support the movement of financial institutions themselves.n
nRegulators have been very clearly adapted to this technology, to speed up the transaction confirmation only need time, the centralization of institutions but also need to provide services in their name to promote the agency, which is mainly the largest 100 financial institutions, and Most of which are recognized by the regulatory body as having a systemic importance in the world or in their countries.n
nIn 1993, I tried to use just the commercial ARPA (ARPANET), and at that time it would reshape the Internet. We built one of the first commercial financial applications – INVESTORS Advantage’s investment website. Every day I walked into the office and asked, “how slow is it?”, And in the year it was a key issue.n
nFor us how to use the Internet that incredible communication capabilities and its dazzling presentation technology, then there is no lack of expectations. But back to the time, the network speed is not fast enough, especially for the financial sector (clearing, payment, settlement, trading and warehouse record preservation) in the main large value transfer B2B applications. But the speed problem has long been the past.n
nThe same speed problem (speed is still fast enough), and more specifically, the two breakthrough components of the block chain: distributed classification books (DLT) and transaction encryption verification.n
nLike the Internet, block-chain technology requires patience to achieve this speed. “To lead the Phoenix, the first planted plane trees” This sentence is used in the block chain industry is “planted a plane trees, own Phoenix.”n
nConsidering the bottlenecks and deadlocks that have recently emerged for the expansion of the underlying block chain, the digital currency bitcoin, the delay in the network is understandable. The amount of work proved to be difficult to find in the security zone chain must be difficult to find but easy to verify the mathematical problems, the workload proved to require a strong computer computing support. However, Moore’s Law is twice as efficient as every 18 months, proportional to the density of transistors per square inch, and that large financial institutions can support the computer and bandwidth requirements required by the workload verification system. They can also use their licensed status as a portal to enter the financial system, and by the regulators and auditors of each financial institution to expand the nodes on the distributed classified books.n
nSo what is the limiting factor in the chain chain that can not help the financial industry quickly realize its transition vision? That is the repositioning of the financial market infrastructure (FMI) and the financial market utility (FMU), which is one of the two most likely threats to DLT.n
nDLT is a distributed database that can record each transaction and spread the information to all computer nodes connected to the Internet. This is a single immutable book that is shared by all. This technology is expected to eliminate thousands of databases of financial intermediaries and financial market utilities used to store the same version of the same data. For each financial institution (and hundreds of centrally FMUs in the global financial supply chain) each identified, aggregated and saved different non-standardized transactions and categorized book data to coordinate is one of the largest costs incurred by the industry as a whole But also one of the main reasons for the financial system vulnerable to network attacks.n
nAnother kind of vision attribute of the chain chain is to use encryption technology to replace the transaction matching and reconciliation, and then to determine the validity of a transaction. However, in the case of unregulated underlying identifiers and transaction reference data elements, it is not possible to use this secure and less vulnerable technology in mainstream financial services.n
nAnother similar block-chain concept, the Smart Contract (which automatically interprets its data as a financial impact of the real world, such as the payment or custody of an asset), if the sales and delivery are different from the expected , It can not play a role.n
nToday, the global financial system uses different coded data identifiers and non-standard data elements that must be mapped together to connect the system. The difference is that the system must be manually coordinated. Correspondingly, individual companies and their business customers are also connected through numerous networks that also need to coordinate financial market participants’ identity and transaction data elements at each data point, and at their endpoints, through vulnerable Traditional system.n
nBecause of this growing unplanned design, the high value B2B financial system is one of the most expensive and most vulnerable ecosystems. Not only because it conveys high-value transactions, but also because of the aging of thousands of interconnected systems that rely on multiple identifiers and non-standard data elements, and to adjust the differences manually if they do not match.n
nNow the infrastructure of the global financial system looks more like a flashy and wonderful device, these increasingly complex structure is only to achieve a simple goal, rather than to get closer to the kind of more efficient structure.n
nSome of the regulatory measures taken to address the system weaknesses found during the financial crisis are to create multiple additional financial data mediations and multiple additional identifiers. However, these new levels of complexity add to the high-cost, high-risk data mapping that is repeated throughout the financial supply chain. This includes thousands of traditional identifiers within financial institutions; proprietary identifiers for hundreds of data providers; and more new identifiers (and codecs) for regulatory enforcement requirements: legal entity identifiers (LEI), Unique Transaction Identifier (UTI); Unique Product Identifier (UPI); and Derivative Financial Securities Identifier (ISIN).n
nNew intermediaries, and even more acronyms, are also created by regulators: the 30 local operating units (LOUs) of the Global LEI Foundation, 25 trading warehouses for storing swap transactions, 36 swap execution facilities (SEF), the European Union’s reference data utility for storing transaction reference data, and the Global Derivatives Service for creating derivatives ISIN.n
nThere is a very serious time lag (measured in days) between the process of manual reconciliation, where the transaction is entered into the system, the transaction is verified, and the value is transferred. This time lag makes the entire system, whether in a single company’s different business units, or in multiple businesses, vulnerable to cyber attacks.n
nThe front of the global financial system is running in real time. While the value of the transfer of the middle of the back of the syrup flow rate of operation. The speed of the block chain is now calculated in minutes, far faster than the current transaction settlement, payment and value transfer for a few days.n
nRegulators have slowly adapted to the speed of the chain chain. To look at Australia, Hong Kong, South Korea, Malaysia, Singapore, Thailand and the United Kingdom set up a regulatory sandbox; and the Financial Institutions Committee, the European Securities Market Association, the International Organization of Securities Regulatory Commission, the European Central Bank, the Monetary Authority and the Federal Reserve Financial technology and regulatory advice, you can learn.n
nSpeed ​​is no longer a problem, even in the short term there is no exponential growth, the speed will stabilize down. The problem, however, is that these central authorities cling to their role as a data coordinator.n
nThese central institutions (mainly FMU and FMIs) are not owned by large financial institutions and are funded by them. These institutions themselves must abandon the spiritual qualities of the centrified institutions that have served well in the past for that era. They must reconcile their interests with global standards, cryptographic certification, and the removal of centrally organized, organized entities to support this new technology that can really change everything.n

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