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Thursday, September 15, 2016

Blockchain: Exploring the Numerous eCommerce Apps

The emergence of Bitcoin, an alternative cryptocurrency, has been a catalyst of change for the financial services sector. A significant amount of these currencies has been traded across the globe on the dedicated exchanges, while some forward-thinking merchants already support Bitcoin as a payment option.

However, with a relatively small base of current users, attention is turning away from Bitcoin towards the wider potential of the Blockchain technology that underpins them. Several traditional banks are now testing the core blockchain technology as a means of reducing settlement costs, while a host of other use cases -- i.e. smart contracts and ID verification -- are also seeing their first deployments.

Blockchain Application Market Development

Meanwhile, blockchain technology will likely have a key role to play in the future of transaction settlements. Many of the legacy 'clearing houses' currently process many millions of commodities derivatives and securities transactions per year. Today, those organizations involved in these transactions have independent processing systems.

According to findings from the latest worldwide market study by Juniper Research, the introduction of a common blockchain-based system would substantially reduce the risk of transaction error -- and the time taken for ongoing error checking.

Cross-border remittance, in particular, is seen as an area where blockchain technology could have a very positive impact on the old business process. The total value of 'official' cross-border remittance in 2015 was $582 billion, of which $436 billion was sent to recipients in emerging or developing nations.

That said, a substantial amount is sent through unofficial channels that offer no security -- typically in the form of cash that's mailed to the recipient. According to the Juniper assessment, the perceived high cost of remitting through the most popular 'official' channels creates demand for better service offerings.

Case in point: the average cost of sending $200 via Money Transfer Operators was a 6.6 percent fee in October 2015 -- when the same amount is processes via traditional banks, this fee rose to 11 percent.

Several leading remittance firms charge rates significantly higher than the average -- sometimes up to 25 percent of the amount being transferred. With blockchain expected to reduce the processing costs to the remitting organizations, these benefits could be passed-on to consumers and enable fees of ~3 percent.

The hope is that more unofficial remittance will move to improved official channels, and also a net increase in remittance flows, helping to boost local economies which are somewhat dependent upon these incoming funds from the nation's migrant worker population.

Upside Opportunity for Smart Legal Contracts

Yet another potential use case for blockchain technology is commercial contracts. Smart contracts can self-execute by, for example, triggering the release of payment when certain conditions are fulfilled.

These contracts run on networks beyond the control of the contract’s participants, thereby providing a record of the terms of the contract and ensuring its eventual fulfillment.

Besides, smart contracts can offer additional benefits to participants -- i.e. less human intervention in the procedure would result in a lower resource cost. Plus, another benefit is real-time updates -- as the contract exists on the blockchain, transaction processing tasks are automated and can occur instantaneously.

Juniper analysts believe that smart contracts could be particularly useful for national and local governments, in that they inherently automate the prior manual processes which are proven to be time-consuming and relatively expensive.