BNP Paribas, one of the largest banks in the world, has released a new report in which the bank details two scenarios for the integration of blockchain technology in our financial system, while arguing that bitcoin, "the first successful attempt for a secure and decentralized register," should be considered as a major disruptive invention "like the steam or combustion engine."
In a report published in Quintessence Magazine, an information portal in which the bank shares market analysis and commentary from industry experts and BNP Paribas specialists, Johann Palychata, research analyst at BNP Paribas Securities Services, discusses the paradigm shift introduced by bitcoin.
Scenario 1: Total Disruption
"What would happen if the ownership of securities were recorded in a blockchain?" he asks.
According to Palychata, there are two scenarios for the integration of blockchain tech in the post trade world; and the first scenario would create a "total disruption."
"In its purest form, a distributed blockchain system allows all market participants direct access to the DSD (Decentralised Securities Depositary), to the exchange and to the post trade infrastructure (clearing & settlement)."
"If this setup develops then existing industry players might be redundant," he says. However, given the challenge of keeping private keys safe, investors will likely "entrust an authority to safe keep [them]."
Scenario 2: Integration
The second scenario consists in an integration of blockchain technology within the post trade ecosystem. This would imply that custodians and settlement infrastructures would use the blockchain to record the ownership and trades between themselves.
In this scenario, end investors would still need to use a custodian to access the market and "the ledger will only be accessible to authorized market participants."
"Existing actors will remain in charge in this scenario, however, their level of service could change and they may deploy new services that they could not in the past because the investments required were a huge barrier to entry."
Finally, Palychata believes that Bitcoin, which "allows a removal of the central third party in financial transactions," has "solved a technical challenge and the currency it hosts has been successful so far."
According to him, the technology "offers a new range of possibilities well beyond finance," and "should be considered as an invention like the stream or combustion engine."