establishing trust is no longer the right and privilege of the financial
intermediary. Moreover, in the context of financial services,
the trust protocol
takes on a double meaning. The blockchain can also establish trust when trust
is needed by verifying the identity and capacity of any counterparty through a
combination of past transaction history (on the blockchain), reputation scores
based on aggregate reviews, and other social and economic indicators.
Cost: On the blockchain, the network both clears
and settles peer-to-peer
value transfers, and it does so continually so that its ledger is always up to
date. For starters, if banks harnessed that capability, they could eliminate an
estimated $20 billion
in back-office expenses without changing their
underlying business model, according to the Spanish bank Santander, though
the actual number is surely much greater.
12
With radically lower costs, banks
could offer individuals and businesses greater
access to financial services,
markets, and capital in underserved communities. This can be a boon not only
to incumbents but also to scrappy upstarts and entrepreneurs everywhere.
Anyone, anywhere, with a smart phone and an Internet connection could tap
into the vast arteries of global finance.
Speed: Today, remittances take three to seven days to settle. Stock trades take
two to three days, whereas bank loan trades
take on average a staggering
twenty-three days to settle.
13
The SWIFT network handles fifteen million
payment orders a day between ten thousand financial institutions globally but
takes days to clear and settle them.
14
The same is true of the Automated
Clearing House (ACH) system, which handles trillions of dollars of U.S.
payments annually. The bitcoin network takes an average of ten minutes to
clear and settle all transactions conducted during that period. Other
blockchain networks are even faster,
and new innovations, such as the Bitcoin
Lightning Network, aim to dramatically scale the capacity of the bitcoin
blockchain while dropping settlement and clearing times to a fraction of a
second.
15
“In the corresponding banking world, where you have a sender in
one network
and a receiver in another, you have to go through multiple
ledgers, multiple intermediaries, multiple hops. Things can literally fail in the
middle. There’s all kinds of capital requirements for that,” said Ripple Labs
CEO Chris Larsen.
16
Indeed, the shift to instant and
frictionless value transfer
would free up capital otherwise trapped in transit, bad news for anyone
profiting from the float.