Goldman Sachs this week put out an 88 page report stating 5 practical uses for blockchain. If you are not familiar with blockchain, at a time when companies face new challenges in data management and security, Blockchain is a way to let companies make and verify transactions on a network instantaneously without a central authority. Today, more than 40 top financial institutions and a growing number of firms across industries are experimenting with this technology as a secure and transparent way to digitally track the ownership of assets, a move that could speed up transactions and cut costs while lowering the risk of fraud.
The best known examples of Blockchain are Bitcoin and Ethereum. One bitcoin today is worth $550 and one Ethereum is about $14.00.
Goldman declared last December that blockchain technology can change everything. This technology eliminates the need for costly middle men in financial transactions, but also presents plenty of other opportunities for new ways of record keeping and decentralising markets.
The bank has examined the technology’s application in 5 markets.
Firstly, the sharing economy. For example, Blockchain can build trust on platforms like Airbnb because you can store people’s online identities on the blockchain. That identity is then linked to reviews and scores on the sharing economy and other marketplace sites — a little like with Facebook.
People can easily check to see if you’re a trusted host by checking your ID number. But unlike Facebook, people can’t simply delete accounts and re-register if they get a bad rap as records on the blockchain can’t be tampered with or duplicated. Your identity is your identity.
Sites like Airbnb have already begun to transform the lodging industry by making a public market in private housing. However, adoption may be limited by concerns about safety and security by guests and property damage for hosts. By enabling a secure, tamper-proof system for managing digital credentials and reputation, Goldmans believe blockchain could help accelerate the adoption of P2P lodging. This is possibly a $9 billion industry.
The second market that can benefit from Blockchain technology is the electricity market. With the advent of rooftop solar and high-capacity battery technology, Blockchain can facilitate houses generating and selling their own electricity instead of having a central power provider sending electricity to everyone’s house and workplace. Goldman envisions a totally secure distributed network, built on blockchain’s identifying technology, that lets people generate their own electricity to sell on the network to strangers.
The fact that all transactions are signed off by the network means you can’t get screwed over by a customer who goes back and says they didn’t buy from you — it’s right there in the blockchain records.
This market is worth up to $7 billion.
The third market that can benefit from Blockchain technology is the property market where it can cut administration costs by keeping records so that prospective buyers can quickly, easily, and cheaply verify that the owner of a house really does own the place. At present, this process is done manually. Not only is that costly, there’s also a greater chance of errors, which could add to costs.
Goldman says that homeowners buying or re-financing property are subject to significant transaction costs, including title insurance, where the title search process can be labor-intensive. Along with business process changes, blockchain could reduce title insurance premiums… by reducing errors and manual effort. This could lead to $4 billion in savings.
The securities market can benefit from Blockchain technology by removing errors and reducing costs. Goldman says up to 10% of trades are subject to various errors, leading to manual intervention and extending the time required to settle trades.
By applying blockchain to the clearing and settlement of cash securities – specifically, equities, repo, and leveraged loans – Goldman estimates the industry could save $11 – $12 billion in fees, OpEx, and capital charges globally by moving to a shorter, and potentially customized, settlement window.
Finance is the fifth market that can benefit from Blockchain technology by improving anti-money laundering and “know your customer” checks.
Goldman envisions identity data stored on a blockchain could help finance firms easily and quickly check new customers as part of “know your customer” regulation — a bit like a digital passport.
Storing account and payment information in a blockchain could standardize the data required for an account, thereby improving data quality and reducing the number of falsely identified ‘suspicious’ transactions. The tamper-proof record could also ease the process of getting to know a client and demonstrating compliance with AML regulations. This could result in savings of $5 billion.
Just these five industry examples could result in around $40 billion in cost savings and benefits.