What's going on?
It emerged recently that Goldman Sachs has filed a patent for its own version of Bitcoin. This is the latest example how Bitcoin’s underlying technology, called blockchain, could revolutionize the infrastructure of finance.
What does this mean?
When a stock is traded there is an immediate agreement made: Party A buys stock in exchange for sending money to Party B. But the actual exchange doesn’t take place until a few days later when the trade “settles.” Blockchain technology could enable immediate settlement which would totally change how trades are settled – and in doing so decrease a lot of the risk of making financial transactions (risk that exists due to the time gap between the trade and settlement). It could save banks and other financial companies a huge amount in infrastructure costs.
Why should I care?
The bigger picture:The effect on brokerages could be big. By providing the means to settle trades immediately, blockchain technology could make so-called “counterparty risk” obsolete (at least for many financial products). Right now, investors have to trade through a broker. But a big part of the broker’s role is to ensure that their clients have sufficient funds to pay for their transaction (“counterparty risk”). If technology can do this, the role of the brokerage house could change considerably.
For markets: Don’t expect a change any time soon. The applicability of this technology is only just being developed. And the police of the global financial system (the regulators) will take plenty of time to approve it. But, banks are gearing up for it by investing heavily in blockchain startups like Circle and R3 CEV.