Emergence of Blockchain in Finance Requires Secure, Streamlined Data Management

Published On March 18, 2019

Blockchain in finance is advancing as financial services providers and regulators look into the different ways cryptocurrencies will impact payments, value exchange and other elements of the financial landscape.

Blockchain employs a closed loop tracking system to protect against tampering or modification, using a “block,” which is a sequence of unique letters and numbers protected by public key encryption, with each party receiving a “golden copy” of the document containing the embedded block. New blocks — forming a chain — are added any time the document changes, with all parties receiving updated golden copies. Together, all blocks in a chain contain the complete transaction history. A blockchain ledger tracks all changes, and is distributed to all computers in the chain. All documents are required to have the same blockchain signature, as a protection against fraud.

Blockchain is the underlying technology used by Bitcoin and other cryptocurrencies, which today are being used to provide more seamless transfer of funds between parties in different countries, to exchange funds anonymously and to pay ransom to hackers who encrypt computers and won’t decrypt them until they’re paid. Hackers like cryptocurrencies because they can’t be traced in the same way as other forms of payment, though regulators are seeking methods to change this.

Some financial institutions see value in adding crypotocurrencies to their existing line of products and services. Firms may also see cryptocurrencies as helping financial services firms extend their businesses to the unbanked and underbanked, according to Banking Exchange.

Regulators in the U.S. and overseas are looking to develop oversight rules for blockchain in finance in order to protect consumers from fraud and ensure the stability of the payment mechanism. As they develop rules, regulators are looking at issues such as how blockchain funds should be reported, according to Mobile Payments Today. The reporting and data management of cryptocurrencies is at least as complex as data management for other types of financial transactions, if not more so.

Expect that any newly developed regulations for blockchain in finance to require the kinds of record keeping and data maintenance required for other types of financial transactions. Financial services providers will likely need to be able to provide accurate, comprehensive and secure records of cryptocurrency transactions upon request. That means working with a data management partner who not only has a deep understanding of blockchain and all of its implications, but also has secure and proven data management and record keeping capabilities.