The Blockchain will become a necessary and transformative revolution for the Asset Management industry, as the technology’s intrinsic benefits cannot be ignored.
The Blockchain will completely change how data is recorded and utilized in industry and, in the process, offer unprecedented levels of privacy and security. A distributed recording of data at multiple nodes, as the foundational methodology of blockchain, secured by enhanced cryptography, ensures that the chances of data breaches are effectively eliminated. In a blockchain, a record of all transactions is created that is secure and immutable. Under such circumstances to alter a record successfully, a hacker would have to simultaneously change, at the least a majority, if not all of the data blocks, stored at thousands of disparate nodes (computers). This would require having all the public and private keys and then to be able to access and manipulate all of the computer nodes on the blockchain. An exceedingly difficult and remote proposition at best.
The Blockchain - exponentially increases the pace of business-to-business transactions within the Asset Management industry. Intuitively, it would seem that a decentralized database, kept at various computers, remote from each other, would be inefficient, as it would take time to access and act upon the data, as opposed to a situation where the data is at one central location. However, any operational inefficiency that may be engendered is negligible and is far out weighted by the structural efficiency and the security of the Blockchain. In a blockchain the exchange of and changes to data occur instantaneously. All relevant parties are already on the Blockchain, and as such this structure forgoes the need for one party to send the data to another for verification and approval. A latent and time-consuming process. In a blockchain, once the data is updated at one computer, it is automatically validated and replicated at all nodes.
Smart contracts, which are effectively pre-programed rules-based transactions, in a Blockchain Asset Management scenario will automate transactions (such as execution of trades), eliminating the need for intervention and redundant intermediary parties. Furthermore, smart contracts will automate and make the clearing process instantaneous, and thus do away with the current delays, wherein clearing can currently take as much as 2 to 3 days.
Blockchain enabled systems will also ensure improved client service. Asset Management will be enhanced by facilitating in essence real time operations whether it is to track performance of assets, enable instantaneous analytics or provide insights into how changes can affect holdings of clients. The insights can then be shared with clients to facilitate superior and expedited customer service and decision making. Moreover, client portfolios maintained on blockchain technology will benefit from its highly ordered and necessary data structures. Whatever protocols the industry eventually undertakes, blockchain structure will fast-track communications between vested parties, including asset managers, investing clients and relevant third parties and as such, introduce unprecedented operational efficiencies.
The security, assurance and speed provided by the Blockchain will drive its adoption and utilization in the Asset Management industry. It is only a matter of time before regulatory bodies catch-up and provide the appropriate regulatory framework to facilitate its global adoption.
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