Blockchain usage in the financial sector - read in the blog of the company COREDO

Blockchain usage in the financial sector

Updated: 02.07.2020

Companies all over the world consider blockchain to be an extremely useful and multipurpose tool that could be able to upgrade their daily operations substantially. The reason behind this is the fact that engaging in cryptocurrency businesses in the United States and generally worldwide can be a potential for a development impulse for so many industries.

Advances in blockchain technology are closely connected to the amendments in the US legislation which is why investing in the blockchain in the United States of America is so attractive. There it is a completely legal instrument once knowledgeable financiers begin working with it.

When it comes to the areas where cryptocurrency is about to become revolutionary and fundamentally change traditional approaches, they are:

  • Payment
  • Banking
  • Asset management.

While investing in blockchain in North America is becoming truly trendy and lucrative, Facebook too proposed their own cryptocurrency called Libra. Generally, representants from a spectacularly wide range of industries from electricity and global shipping to retail consumer products are starting projects involving blockchain technology.

Nevertheless, financial sector still has the biggest potential to succeed while implementing cryptocurrencies and blockchain technology. Financial services have a distinctive feature that makes them attractive for entrepreneurs planning to start a cryptocurrency business in the US, and that feature is their ability to facilitate CSMs and almost real-time messaging.

All of this is not valid for Bitcoin, even though everything connected to the world of cryptocurrencies has been associated with it. Bitcoin just as many other cryptocurrencies is from a very specific class of assets. DLT and blockchain bring totally new ways of operating to the financial services providers, and this is the point of investing in them.

Originally, DLT was supposed to be a mechanism to make payment decentralized. Though after following Bitcoin’s trend of transforming into a speculative investment, DLT is no longer regarded to be a primary payment instrument.

For all mentioned reasons in recent years the world has seen many stablecoins appear like:

  • JPM in the sectors of banking and commerce
  • Libra in the sector of retail commerce.

Without imagining so earlier, the global financial regulators have come to the phase of establishing their own cryptocurrencies in the US already.

Financial companies that would like to launch a cryptocurrency exchange in the US pair DLT and blockchain with smart contracts which enables them to increase the efficiency of services they provide. Make sure though not to confuse smart contracts with smart legal contracts. The former is a peace of code that is generated by computer and can execute itself, while the latter is an agreement of two parties that concludes facilitating performance of certain parts of the contract by using computer-generated code.

Smart contracts can be viewed as if a third party were assisting at holding all assets related to the agreement in trust before the deal is effectively arranged. Smart contracts as legal agreements of wide scope can execute the functions granted to them for the period of agreement.

It only is effective to register a cryptocurrency company in the US and other countries if the applied computer code is used in a method on which the parties have agreed earlier.

Right now ISDA is preparing a contract that would function on the basis of CDM or digital blueprint of events happening during the life span of derivatives and processes. The organization also plans on simplifying legislation that regulates the obtainment of cryptocurrency license in California. After all even North Korea, seemingly a very unlikely country to consider creating a cryptocurrency, is thinking about launching a digital currency.

Regulatory mechanisms

It is not often that financial regulators issue own lists of regulations in the filed of launching cryptocurrency exchanges. In January 2019 Cryptocurrencies Taskforce from the UK provided their expert advice and with their help FCA published their Consultation Paper.

Cryptoassets are divided into 3 categories according to UK regulators:

  • Tokens to buy products and services
  • Tokens to invest in accordance with regulations
  • Tokens to exchange or invest and that were not issued by financial institution or centralized banking.

This classification helps entrepreneurs determine which regulatory framework regulates which cryptocurrency.

Another interpretation of MLD5 was issued by UK Treasure in their own document. The current focus of the organization is on formulating a thorough statement on the modern status of cryptocurrencies in Britain. It is highly anticipated taht the new statement will present more insights to everyone interested whether digital currencies should be thought of as property and what are the conditions for enforcing smart contracts.

It is crucial for companies seeking to launch a blockchain project in the US to take into consideration that the UK FCA compels to the company’s senior management to be involved in decision making process and to be prepared to invest into this type of assets. Not to forget that legal team of the company must be educated and experienced enough in the subject.

COREDO is here for you if you would like to register a cryptocurrency exchange or to obtain a cryptocurrency license in North America. We are prepared to provide needed legal advice and assist with license application process.

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