Blockchain, if applied on a broad basis, could lower costs substantially for both financial institutions and consumers, while also preventing fraud. This could upend the financial markets as we know it, in a good way.
With blockchain, virtually any type of asset can be stored digitally and securely, meaning that money, equities, bonds, contracts, deeds, etc.. can be moved from peer to peer with little to zero fear of fraud, and no vulnerable (or costly) intermediary like a bank or a government.
So now, for the first time in history, two or more parties can make transactions, forge agreements, and exchange value without the need for an intermediary to verify identities, handle the record keeping, clear the transaction, or settle any funds. Blockchain makes this process secure and instantaneous. In that sense, Blockchain could upend a number of complex intermediate functions in the financial industry: “identity and reputation, moving value (payments and remittances), storing value (savings), lending and borrowing (credit), trading value (marketplaces like stock exchanges), insurance and risk management, and audit and tax functions.”
It follows that many firms in the financial industry — banks, insurance companies, auditors, etc.. — are investing in blockchain solutions. The endgame for these financial institutions is fairly obvious: cut costs and ensure you are not left behind if blockchain gains mass appeal. As it stands today given the amount that banks spend on security and infrastructure for financial transactions, they could save tens of billions of dollars.
Another example of how blockchain technology could change finance as we know it is in the fundraising world. With today’s systems and processes, new businesses generally lean on angel investors, venture capitalists, and platforms like Kickstarter to raise capital. The holy grail of capital raising, of course, being the initial public offering (IPO). This system involves several bankers, operators, lawyers, and so on to facilitate the capital raise, meaning that the start-up usually has mountains of fees and conditions for obtaining the capital.
Blockchain could fundamentally change this, since it enables companies of any size to raise money in a peer-to-peer way, through global distributed share offerings. It’s already showing signs of working - in 2016, blockchain companies raised $400 million from traditional venture investors and nearly $200 million through what are known as initial coin offerings (ICO). ICOs have the potential to raise money more efficiently and cost-effectively, while also lowering the cost of capital for entrepreneurs and investors.