9.4 Financial Use Cases of Blockchain - Video Tutorials & Practice Problems

So let's focus now on what banks are doing against this threat that's coming from cryptocurrency and see a different approaches that banks are taking to protect their business. So, when we focus on what banks are doing I wanna focus specifically on five use cases just to give you some ideas and examples of some of the things that the financial industry is doing. Four of them we're gonna go through them specifically and I'm gonna give you details about each one. And these are actual use cases currently running. And these are running businesses right now of blockchain being applied in the financial industry. For starters, let's begin with the JPM Coin, which is a US-Dollar pegged cryptocurrency which JP Morgan issued. Now, key things that we need to understand this, is that this is a digital currency representing a fiat currency. So, in this case, this is a digital coin or a digital token that represents a fiat currency. By Fiat currency we're talking a traditional currency like a dollar, a yen or a Euro. So in this case, this is what's known as a stable coin which is, a coin that is backed by, in this case, a US dollar. So it's a stable coin that preserves the value of one us dollar. So one JPM coin is equivalent to one us dollar and this is backed by U.S. dollar reserves that JP Morgan has. Now the factor behind this is that one JPM coin always has a value equivalent to one us dollar. This is different for instance, for instance from a Bitcoin, which a Bitcoin has a volatile value which is what people are willing to pay for a Bitcoin. That's why the price of Bitcoin goes up. Price of Bitcoin goes down. 'Cause the market determines what the value of a Bitcoin is. But in the case of a stable coin, in this case a JPM coin, it always has the value of one us dollar. Now, the thing about these JPM coins is that they are transferred instantly and they are redeemed to equivalent U.S. dollars. So if you're gonna be doing a money transfer instead of sending U.S. dollars, You can just send JPM coins and they're transferred instantly. So think about the improvement in efficiencies instead of having to wait 24 hours to five days for transferring with a JPM coin, you can actually transfer it instantly and you can redeem it for equivalent U.S. dollars. So this in itself is an improvement and what's enabling you to do that is blockchain technology. Now, additionally, these JPM coins are fully auditable. And what that means is that if anybody want to actually see if there are reserves to back these JPM coins they're fully auditable and JPM, JP Morgan stands behind the stable coin. One key thing I wanna focus on is that what this drives is that it reduces the settlement time. And we talked about a settlement time becomes a big problem when you're actually saying and transferring money internationally. If you have to wait for a payment to clear and you have to wait 24, 48 hours, five days, there's a lot of time wasted, but by using blockchain technology and using the stable coin, it reduces settlement time because the JPM coins are transferred instantly. This JPM coin is actually currently being piloted with a limited number of institutional clients. But JP Morgan has stated, that they're considering expanding it to a much broader audience. The next use case focuses on Circle Pay, and the focus is to send money via text messages across borders and currencies for free. So let's get into specifics of Circle Pay. The goal is to send money across borders and currencies for free. Circle Pay is available in 29 countries, and U.S. dollars, British pounds and euros. So what this really means is that you can send money across borders across the U S dollars, British pounds and euros, even across currencies, for free, in 29 countries. Now, the goal behind this, is that money should be like the internet, accessible, empowering and instant. And when you go with that vision and you think about money being transferred across borders for free this is a very, very powerful technology. Circle Pay is regulated and audited regularly. What that means is that when you're actually doing transactions on Circle Pay, you have regulations on top of it. And you know that as you're doing your transfers these are being audited. And you know that your money as it's making its way through is being regulated. Furthermore, all your transactions are encrypted on two levels of AES 128 bits symmetric encryption. This is very advanced cryptography to ensure that your information is protected as you're conducting these transactions. Finally, all your US balances are FDIC insured. This protects you from any type of breaches or any types of hacks that could potentially make you lose your funds. Well, your USD balances are FDIC insured with Circle Pay. The next use case involves HSBC, and their focus is to improve efficiencies and reduce time in trade finance. So as we get into this use case, we're gonna talk about specifically about HSBC Singapore and their first transaction using blockchain was soybeans traded from South America to Asia. The results of this blockchain trade was that exchanges of letters of credits were reduced from five to 10 days to only 24 hours. When you think about the impact of this, what that means is if you're doing a multi-million dollar transaction and you have to wait five to 10 days for it to happen, but you can reduce that to only 24 hours. It's a dramatic improvement in the efficiencies of that transaction. For the next use case, I wanna talk about Santander OnePay Fx and the vision and goal on this is to do same day international money transfers. We've talked about how important being able to do a money transfer and do it in a quick fashion is. Well Santander OnePay FX gets same day international money transfers. When you look at the specifics of this, this was launched in and it uses Ripple. So Ripple Xcurrent is a blockchain technology produced by Ripple and Santander OnePay FX uses Ripple. I keep repeating and saying Ripple because Ripple is a very well-known cryptocurrency. And if you look at the cryptocurrencies that we listed on coin market cap earlier in this course, Ripple was one of the ones that was listed. So Santander OnePay FX actually uses Ripple. And this Ripple XCurrent blockchain technology is what backs Santander OnePay FX. Now, when you really look at traditional cross border payments that entire process may take up to a week to happen. This is a very inefficient process. Furthermore , these transactions can have fees that occasionally exceed 10% of a payments value. In other words, it's a slow process that has very high fees. There's a lot of inefficiencies in these international money transfers. Now, when it comes to Santander OnePay FX, you can process payments in the same day or occasionally the next day but most of them are actually focused on doing same day international money transfers. And furthermore, there's no transaction fees for using OnePay FX. This means that not only is it highly more efficient but costs are dramatically reduced. It's just a bank basically disrupting itself by instituting a process that is much faster and furthermore with far lower fees or in this case, no fees. The final use case I wanna focus on is tZero. And the goal of tZero is to do securities trading on blockchain. Now, when we focus on tZero, this is a blockchain based alternative to existing stock markets stock markets, such as the NASDAQ. So you're having shares that are being traded and you have these stock markets that are already in place. Now, this is a blockchain based alternative to this. And by doing so, you increase the auditability, the transparency and the efficiency of the stock markets, because one of the key challenges many times when you're doing these stock transfers, you're basically dealing sometimes with paper forms. And sometimes it's very hard to keep track of which are real shares, which are not real shares. How many shares are outstanding, who owns what? There's a lot of blurry area with a lot of these share processes, but by using blockchain you increase the auditability, transparency and the efficiency of these processes. Now these securities are traded by using digital tokens instead of traditional certificates. As we specified earlier in the course, these digital tokens can take many shapes and often can be a replacement for a security. So what you're doing is you're taking these traditional certificates and you're converting them into digital tokens, which you can trade using blockchain technology. Now tZero offers services and a platform for issuing new security token offerings. So you're tying in all these concepts you're taking the concept of these security token offerings. And right now you're building an entire infrastructure which tZero provides. So you've just created a whole new business that focuses on digital trading of these traditional certificates, but as digital tokens and furthermore, you're adding a whole platform for issuing new security token offerings. These are brand new business models that are being created which the financial industry is creating. Thanks to blockchain technology.