Apart from apprehension and anxiety, the cryptocurrency technology has offered a lot more to the traditional banking and financial sectors. Bitcoin is increasingly being perceived as a threat to banking and financial industries. In order to counter the threat, the industry is focusing on the very underlying that powers bitcoin. Also, the introduction of Bitcoin, an open source distributed digital currency led to the creation of various crypto-token that either adopt the same technology as bitcoin or draw inspiration from it.
The underlying bitcoin technology is known as blockchain. Blockchain is a distributed ledger that records all transactions happening over the cryptocurrency network. It acts as a permanent record keeping repository. the use of blockchain is not confined to digital currency transactions and it can be programmed to do much more than that. The same concept is used by Ethereum, another crypto-token to create smart contract based applications among others.
Ethereum is the next best crypto-platform after Bitcoin. Ethereum network is also built on the blockchain similar to that of bitcoin in many ways. The crypto-token on Ethereum is called ether, which unlike bitcoin is used to pay for running and accessing computational services on the Ethereum platform. Ether can be bought, sold or traded on many cryptocurrency trading platforms and exchanges. But it can’t be used as a replacement for fiat currency like bitcoin.
Smart Contracts Powered by Ethereum for Banking and Finance
The Smart Contracts capability of Ethereum is sought after by the banking and financial institutions as part of their attempts to improve their operations and services to counter the threat posed by Bitcoin and bitcoin-based financial services. By using smart contracts, financial institutions can automate their back office processes to a huge extent. These smart contracts on the Ethereum blockchain will be self-executing in nature, triggered by certain conditions.
For example, thousands of people trade on stock exchanges. Whenever somebody invests in stocks or sells them on a regulated platform, the transaction is accompanied by paperwork proving or transferring the ownership of traded assets between parties. All these are currently managed manually, making it a time and cost intensive process. With Smart Contracts based automatic clearing system, all trader, customer and stock data can be stored or connected to a blockchain based application with predefined conditions and Smart Contracts already programmed into it. Any transactions that happen on the trading floor will be done over the platform/blockchain. Each transaction satisfies a condition(s), initiating the execution of corresponding Smart Contract. The Smart Contract automatically settles the trade, satisfies all regulatory requirements and closes it by communicating relevant information with parties involved in the transaction. It all happens in a matter of minutes, to hours without human intervention!
The huge potential of such a system when it comes to increasing efficiency while reducing costs makes Ethereum and blockchain technology a potential gold mine for Wall Street-based financial institutions. Some of the well-known Wall Street powerhouses that are working closely with Ethereum includes Goldman Sachs and JP Morgan. The international payments giant Visa is also looking forward to working with Ethereum to create blockchain projects. Even the banking consortium with over 40 leading international banks working together with R3CEV to develop blockchain technology for the banking sector is also included in the list.
Ethereum is a promising platform that can truly deliver the sought after blockchain solutions that can contribute to the advancement of the whole sector.