Blockchain and its Applications in the Finance Industry | Nida Khan the head of research | Conexcap | MILE WEBINARS
The revolution against the banking industry is taking place at a breathtaking speed with the movement spearheaded by a new breed of technology entrepreneurs. The finance industry has long been marked by complex regulations, high barriers to entry and economies of scale and this is all set for disruption by the present fintech revolution. One of the most controversial and debated topics in the finance industry is blockchain. It is the buzzword in the finance world nowadays. The rise in Google searches for the term has risen to 1900% since 2013.
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Blockchain and its Applications in the Finance Industry
1. Blockchain and it’s Applications
in the Finance Industry
Presenter:
Nida KHAN
SEDAN Research Group, SnT
University of Luxembourg
nida.khan@uni.lu
2. 2
ConexCap
• Group of companies active in developing solutions to meet ethical consumers needs in the wealth
management area (from cradle to grave: savings for life projects, buy a first house, finance kids studies,
finance the real economy, contribute to society through donations, etc…) & financial education
towards a healthy financial life
• The story started in Paris and Luxembourg and has now spread to GCC (Dubai and Madinah), North
Africa (Tangier and Marrakech), and South East Asia (Malaysia) we aim to address the needs on a
global basis
• Leads research to harness the power of new technologies (such as Blockchain, AI, ML…) and put them
at the service of its customers to make our products accessible, fairly priced and transparent
• Research + Do + Learn + Do again with a focus on building strategic partnerships is how it develops its
activities we leverage the power of co-creation
• Re Blockchain, ConexCap has partnered with SnT – Security and Trust department of the University of
Luxembourg to develop real life solutions (a 4-year program) at the junction of Technology & Islamic
principles We are certain blockchain has the potential to improve the way wealth is managed, and
SnT/ConexCap is the right mix of business acumen and research capabilities to develop solutions.
• Partnered with MILE to spread education on financial management & entrepreneurship in Europe and
North Africa
11. 11
Ethereum in Use
Own, save and transact gold
in tokenized form
Secure identity
management system
Freelancing
platform
Social media platform
1004 Dapps
12. 12
Ethereum in the News
The UN is using Ethereum’s technology to
fund food for thousands of Syrian refugees
in Jordan – Reuters, June 21, 2017
Dubai Airport to go Passport-Free with
Blockchain Tech – CCN, June 12, 2017
emCash is Dubai’s First Official State
Cryptocurrency – Altcoin News, October 3,
2017
Swiss City Announces Plan to Verify IDs
Using Ethereum – Coindesk, July 7, 2017
15. 15
Bitcoin
BTC = $8,060.66 USD ( Sunday 4th February, 2018 )
Bitcoin is the first decentralized digital currency.
Satoshi Nakamoto proposed bitcoin in 2008.
Bitcoin uses C++ programming language.
Bitcoin uses Proof of Work and achieves around 7
transactions per second.
A transaction in the bitcoin network will show up in less
than an hour in the public ledger.
16. 16
Distinguishing Features of Bitcoin
Immutability: Bitcoin transactions cannot be reversed, unlike electronic fiat transactions.
Divisibility: The smallest unit of a bitcoin is called a satoshi, which is about one hundredth of a
cent. This would enable micro transactions that traditional electronic money cannot.
No central “validator,” users do not need to identify themselves when sending bitcoin to another
user.
Limited Supply: New bitcoins will be produced till a maximum of 21 million is reached.
Decentralized: Nobody owns the bitcoin network.
18. 18
Bitcoin in Use
Bitcoin Lending Platform
Peer-to-peer Bitcoin Banking
Smartphone App for lending
American non-profit organization for bitcoin donations
23. 23
Smart Contract
“A smart contract is a computer protocol intended
to facilitate, verify, or enforce the negotiation or
performance of a contract.”
25. 25
Advantages of Smart Contracts
Faster
Cheaper
Removes the need for middlemen
More secure than traditional contract law
Enables exchange of money, property, shares or anything of value
26. 26
Disadvantages of Smart Contracts
Small developer community
Absence of legal recognition
Difficulty in comprehending program code
Blind reliance on the programmer’s interpretation
Different legal laws in different jurisdictions
28. 28
Use Case & Motivation
Zakaah is 2.5% of their wealth that Muslims have
to give annually for charitable causes if it exceeds
a certain minimum prescribed threshold.
£100.3 million donated by Zakaah helped 8.3
million people in 2015. The amount £100.3 million
represents 0.063% of the lower threshold of the
total Zakaah collected annually.
Zakaah from 2043 billionaires in the world today
can help 1.77 times the worlds’ population.
29. 29
Problem
Technical Challenges
Reliance on third parties for payment.
Absence of an easy way to give money.
Inefficient distribution depriving the one’s in need.
Compelling need for transparency.
Targeted donation to realize goals as per Shariah guidelines.
Research Challenges
Design a solution for an innovative use case on a blockchain platform.
No similar work in academic literature to aid in the decision process.
Throughput evaluation of the developed solution.
Strategic throughput enhancement to gauge mass usage viability.
33. 33
Case Study Source: Research Endeavor
Results presented in American University in the Emirates Fintech Conference, Dubai. Paper accepted for
publication in Springer: http://orbilu.uni.lu/handle/10993/33002
35. 35
Smart Contract
Paper on this presented in CIFEMA 2017, Morocco: http://orbilu.uni.lu/handle/10993/33529
36. 36
Supply Chain
Supply chain management comprises of tracking the origin and movement of
items which can suffer from counterfeiting and theft. The financially critical items
like bills of lading or letters of credit can be tracked by a blockchain taking away
the possibility of a group of users from corrupting the documents
Digitization of Trade Finance
SPV- Inventory Management &
Trading Services
Connects all carriers, banks,
forwarders, traders and other parties
of the international trading supply
chain
37. 37
Digital Assets
The finance sector is using blockchain to create digital assets like
stocks, bonds and land titles. The IF industry can also venture in these
areas by creating Sukuk or Islamic bonds on top of the blockchain
Equities
Fixed Income
Repurchase Agreements
Issue and transfer financial assets
Enterprise software for blockchain
38. 38
Payment Systems
A very apt use of cryptocurrency akin to bitcoin in the IF industry along with
other predictable usages would be in Hawala. Blockchain based hawala
banking would make the process more trustworthy, more legally appealing
and transparent while providing an alternative to traditional hawala
1% settlement charge
Borderless payment network
Privacy of personal information
Bitcoin-based digital currency wallet
Supports other cryptocurrencies
39. 39
Digital Identity
The blockchain ID can be used to sign digital documents or sign in to websites. Banks can
be set up as authenticators for such blockchain ID’s or they can partner with blockchain
companies working on the same for facilitating instantaneous cross-border transactions
Keybase
Pretty Good Privacy (PGP) key
usage and identity verification.
40. 40
Data Driven Decision Making (DDDM)
DDDM is an approach to business governance that can be backed by verifiable data. It is a way to
gain competitive advantage and a study conducted by MIT found that organizations using this
approach had 4% higher productivity and 6% higher profits. The finance sector can utilize the
DDDM approach to back all major decisions including innovation and incorporation of new
technologies separate from the blockchain to gain competitive advantage
Share, audit and exchange
sensitive documents
POEX.IO
Publicly prove the existence of
certain information without
revealing the data
42. 42
What Blockchain Promises to Deliver
Blockchain is GREAT:
• Contracts digitally recorded in an IMMUTABLE, TRANSPARENT, SHARED, INDESTRUCTIBLE
database
• Mechanisms agreed in contracts are automated
• People, companies, machines and algorithms freely transact with each other in a
frictionless environment
• Far lesser need of lawyers, brokers, bankers to initiate/validate transactions
• Better use of available data
• Fundamental technology (parallel with TCP/IP) that will lead to new applications, new
business models
HOWEVER:
• A wide and generalized adoption will take time, more than what the hype may let think
• Governments & other similar institutions (central banks) will want to regulate
• Security of blockchains is and will remain a challenge and of great concern
43. 43
What the Future Holds
1. VERY LIKELY - Easy ways (not much innovation, not much coordination):
a) use of bitcoin to transact with counterparties
b) firms using blockchain internally as an alternative to classical database
2. LIKELY - Less easy but feasible (more coordination needed)
c) private blockchain to make more efficient transactions between partners
d) cross-border transactions (eg supply chain)
3. SOMEWHAT LIKELY - More challenging (not much innovation, but a lot of coordination)
e) creation and wide adoption/use of cryptocurrencies
f) eg retribution of social media influencers, artists, loyal clients, etc...
4. ONE DAY, MAYBE - Very challenging (for they are highly innovative and require adoption by much larger
groups of entities/individuals (eg governments and large businesses)
g) identification, anti-money laundering
h) wide adoption/use of smart-contracts in lieu of existing written and intermediated ways of
formalizing a transaction between two or more parties