Opinion published at 07/03/2016

BLOCKCHAIN TECHNOLOGY – WHAT IMPACT WILL IT HAVE ON CORPORATE FINANCE?

by Katharina Dalka

The impact of blockchain technology on the finance sector cannot yet be fully measured – let’s just say the best is yet to come. Experts are currently still trying to evaluate its potential, and most of us consultants agree that it will be huge.

With Bitcoin or other crypto currencies as one of its major fields of application, blockchain seems to be increasingly visible in investment banking. Blockchain tech enables secure transactions and facilitates settlement, while at the same time reducing transaction costs.

But what about corporate finance? That’s where the money is! But blockchain technology is currently still in its infancy in corporate finance.

Even so, research is ongoing: Blockchain allows to keep track of records and is inalterable once the information has been fed into the chain. And some companies wish to employ these features in corporate finance. NASDAQ, for example, is currently working on its Linq service. It will allow the creation of a private corporate blockchain to secure and enhance distribution and record keeping for securities issued by private companies.

Blockchain start-up Digital Asset Holding aims to promote solutions based on private or permissioned blockchain ledgers to manage syndicated loans, US Treasury repo, foreign exchange, securities settlement, and derivatives.

However, before massively using blockchain as a solution for the highly globalized financial world, governments and regulators need to solve taxation, regulation and legal issues. Who owns the machines that process the blockchain verification, for example? And when should a smart contract be modified?

Theoretically, though, blockchain and smart contracts can be applied to facilitate nearly every financial transaction. With smart contracts, payments of dividends and coupons could be automated. Blockchain would allow safeguarding all these transactions in one single ledger rather than in numerous databases across organizations, as is the case right now.

Consequently, rather than disintermediation, blockchain tech will enable banks to save money while streamlining and securing their work processes. And these aspects are among their main business objectives.