Distributed Ledger Technology (DLT), more commonly known as blockchain, has the potential to revolutionize financial, investment and insurance technology infrastructure and networks. It will form one of the foundations of “next-generation financial services infrastructure,” the World Economic Forum (WEF) says in a new report.
The WEF pulls together political and business leaders to focus on global issues such as technology changes.
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The impartial institution says the future of financial infrastructure will include blockchain and reckons that 80 percent of banks will start DLT projects by 2017. It also claims that over 90 central banks are involved in blockchain discussions now. Central banks are national banks that issue currency and determine national fiscal policy. Twenty-four countries are investing in the tech also, it says.
WEF has based its findings on five global workshops with 200 stakeholders, including industry leaders.
The institute says simplification, efficiencies, risk reduction, faster settlements, transparency of liquidity allowing safer risk taking, and fraud reduction are the value drivers in the new tech.
Blockchain is a non-centralized distributed ledger of timestamped blocks of transactions. The list of records is secured and supposedly tamper-proof. I wrote last month about a cloud blockchain-based banking OS. Some say blockchain would be good for securing the IoT, as well as for fraud reduction in elections.
Indeed voting is one area the WEF has become bullish on. Proxy voting is used in investment management and is where stockholders vote in absence at shareholder meetings. The WEF report (PDF) says DLT use there could improve response rates, provide transparency, and validate votes through smart contracts, among other benefits.
Those computer protocols, called smart contracts, run on networks and can automatically reconcile—investors wouldn’t be able to cast “more votes than the shares they own.” And investment management overall could benefit from DLT through automated compliance.
Faster and more accurate compliance, performed automatically, could be an important use for blockchain. Immutable, or carved-in-stone, data sources means there’s only one set of books or one “version of the truth.”
Insurance is another vertical the WEF says could use DLT. Self-executing smart contracts would be able to automate claims processing—enforcing the performance of agreements. Historical insurance claims, stored on a networked distributed ledger, would provide transparency into bogus claims and underwriting.
That transparency is one of the most seductive elements of DLT. Data anomalies become easy to spot because the real-time data is openly available for users to search for them.
Deposits and Lending is another area the WEF is gung-ho on. It says the implementation of DLT in loan writing could “facilitate the real-time approval of financial documents” and that would “enable faster settlement.”
While the WEF is generally pro DLT, it also caveats it a bit, as one would expect from a global foundation with lots of players:
“DLT is one of many transformative new technologies that will shape future financial services infrastructure and should be seen as part of a toolbox,” the WEF says.
Other tools in that box include biometrics, cloud computing, cognitive computing, machine learning and predictive analytics, quantum computing, and robotics, the report says.
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