Italian financial giant UniCredit has released a detailed technical report on the applications of blockchains in the financial industry.
The report, Blockchain Technology and Applications from a Financial Perspective, was authored by Matteo Biella, Analyst and Risk Manager at UniCredit, and UniCredit IT Business Analyst Vittorio Zinetti.
The authors explain that blockchain tech can be integrated into the existing legacy financial systems, and that financial institutions can create their own private distributed ledgers, where the institutions themselves act as miners.
The report states:
“Financial institutions can create permissioned blockchain platforms. In this context, banks will be both participants and validators in the network. Banks can either use these platforms to interact in a decentralized way, or they can offer their customers access as a service.”
The main benefit of distributed ledger systems is the lack of a central clearing party, which Biella and Zinetti cite as a material benefit in blockchain-based interbank payment systems. The report states that not only are the fees eliminated in such a system, but execution is done in real-time and regulators would be able to monitor every transaction.
Another area of application the report focused on was trade finance. Banks take on considerable risk when issuing lines of credit for international and domestic merchants. The UniCredit report points out that these risks can be eliminated with the use of blockchain smart contracts.
“When a seller gives goods to a carrier, the carrier will send a conﬁrmation message to the smart contract. This process would be real time and will eliminate the need for the seller to take the bill of lading and present it to the bank.”
The report concludes by stating that blockchain tech can “bring great beneﬁts in terms of efficiency increase and cost reduction” to the financial sector. Additionally, Biella and Zinetti recommended in their report that the banking system should collaborate with the decentralization movement currently sweeping across the financial sector:
“Furthermore a relationship with ﬁntech environment based not only on competition but also on collaboration will bring great advantages to both ﬁnancial institutions and ﬁntech startups.”
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