“At its core, bitcoin is a smart currency designed by very forward-thinking engineers. It eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transitions… all good things.”
Real world financial instruments have helped parties create, trade, modify and settle monetary contracts. In the year 2017, the Crypto Economy has gained a lot of popularity and many entrepreneurs and investors are looking at cryptocurrencies for the future. Chicago Mercantile Exchange (CME) and even NASDAQ have announced Bitcoin futures. Therefore it is important to look at how these real world instruments integrated with the crypto economy will co-exist and help the financial world.
When looking at financial instruments in the real world it has developed radically. Financial Instruments also help in reducing the poverty gap between the rich and poor. There are ways of people using financial instruments in investing into the agricultural sectors to help the rural economy too. Blockchain is also called a distributed ledger and is a very powerful modern day tool. Combined, Blockchain technology can change the way financial markets operate and can change living standards around the world.
Agriledger is the Blockchain for the greater good. Using distributed crypto ledger it creates a trust for small farmers. There is a loss of 50% in crop value between harvest and point of sale and this can be reduced using Agriledger. This records and transacts truth using the technology so that farmers retain a bigger share of their crop value
Given the above example, when classifying financial instruments, it’s important to note how they function and how blockchain has further developed it. This is explained for a broader understanding of blockchain’s importance in the financial world.
Cash instruments value is determined directly by the market. One such cash instrument is securities, which can readily be transferred. Securities are facilities which help the effect of a person making an investment or managing a financial risk. The New Zealand Regulator has classified all cryptocurrencies as securities under the Financial Markets Conduct Act 2013.
Polymath is an interface that provides a connection between traditional financial securities and blockchain. Polymath is created by Trevor Koverko (CEO). Polychain will help create, issue and even fundiase issuers through their complex technological and legal process. A problem faced by Polychain was that securities which are listed on blockchain, may have limited liquidity because of conventional crypto exchanges refusing to list securities tokens because of the fear of being targeted by regulators. Hence Polychain has a platform which is a one stop shop for securities token projects, taking into consideration collaboration, regulations and liquidity.
Another Cash instrument is loans and deposits, where the borrower and lender agree on a transfer. Cryptocurrency has opened a world which was always controlled by banks, which is lending and deposits. They have enabled peer to peer borrowing and lending.
Bonum platform will provide the opportunity to take out loans in cryptocurrencies, tokens and even fiat money against blockchain assets as well as make deposits which are cryptocurrency and token based. According to research the volume of financial transactions namely loans and deposits against and in blockchain based assets will grow.
There is also SALT which is a lending platform, for blockchain backed loans. All that is needed is purchase of ERC20 Salt tokens which makes you a member and take part in your blockchain backed assets being collaterals. The platform has a network of lenders, and has the added advantage of no pre-payment penalties. Interest rates are variable at 10 and 15 per cent depending on the loan.
The next financial instrument is Derivative instruments. Their value is derived from the value and characteristics of entities such as asset, index or interest rate. Exchange traded derivatives are instruments which are traded via specialized exchanges. Standardized contracts are traded, with the specialized exchanges acting as a guarantee. The Korea Exchange (KOSPI) is the world’s largest derivatives exchange.
ÐPactum is the next generation solution to managing exchange traded financial derivatives by leveraging smart contract and distributed ledger technologies. It has low operating costs, reduced risks and a collateral consumption for the investors and dealers. ÐPactum has solved the problem of derivatives being cleared at central counterparties (CCP), which usually leads to instances of clearing being a difficult.
The other type of derivative instrument is over the country (OTC) derivatives. Over the counter derivatives are contracts which are traded directly between two parties without the need of an exchange. These include products such as swaps and forward rate agreements. This is the largest market for derivatives and is unregulated.
uTrade, an Indian based trading technology company has developed over the counter segments, without the need of existing CCP. This FinTech company provides multi asset full suite trading platforms, with a risk management system. It is already being used by Banks, Stock Exchanges and End Customers alike.
On the whole, investors with the help of blockchain technology have greater transparency, speed and access to financial instruments. This hybrid market infrastructure is the new age, and will keep updating itself in the world of blockchain based solutions. Mindsets are already being changed, and the initial regulations and compliances will slow blockchain in helping those that need it, but just like the internet the market for blockchain financial services will succeed.
Although the British government and media have long portrayed Crypto currency as the currency of criminals, the recent announcement of the British Government that they intend to look into the need to legislate crypto-currency can only be seen as a recognition of its status as a new player with the potential to shape the future economy. Will it finally get the credibility it deserves? That remains to be seen. Read more on BBC News.