Secure, transparent and efficient, blockchain is the breakthrough that is transforming equity, capital and investment management.
In 2008, a financial crisis unprecedented since the Great Depression caused banks around the world to collapse and threatened to wipe out the global financial system. While many governments approved huge taxpayer-funded bailouts to stabilise the failing markets, economic growth remains muted 10 years later.
The contagion started in the US, but the crisis quickly spread overseas and, by the end of the year, all the world’s major economies were in a recession, including the US, China, Japan and most of Europe.
In the Middle East, Dubai was the first, and hardest hit, casualty. Primarily built on the success of its real estate market, suddenly the world’s investors could no longer afford the emirate’s growing stock of world-class, luxury homes. Elsewhere, sovereign wealth shielded Saudi Arabia from the worst effects, despite a drop in oil prices. However, GCC countries lost an average of 50% on their stock market indices in 2008 and Lebanon, Iran and Jordan lost approximately 40%.
Weathered by the lasting effects, the world needed a new way to manage its financial industries, which would be safer, more efficient and more transparent than its predecessor.
Attributed to the alias Satoshi Nakamoto, blockchain was developed to do exactly this. In itself, it is a distributed database, comprised of a growing list of ordered records, each timestamped and linked to the previous record.
Known as blocks, the records form a transparent, autonomous, accountable and entirely decentralized chain, through which it is possible to store any type of information, from financial transactions to medical records, accessible only with a “key” held by the sending and receiving party, or a third party authorized by them.
While initially conceptualised for finance, the distributed timestamp server and peer-to-peer network mean it is secure by design and suitable to record any type of event in trade and transaction processing.
An invaluable tool for equity and investment professionals, blockchain can help CFOs forecast and manage cash flow, as payments are quicker and easier; it can facilitate information exchange to reconcile inter-company accounts during disputes; and it can replace the SWIFT network for international payments, cutting transfer fees and time.
Research and Markets estimate the global blockchain market will grow at CAGR of 61.5%, from 2016 to 2021, to reach values of $2.3 billion.
With dozens of sandboxes and incubators across major cities, blockchain has enabled the development of fintech, health-tech and even property-tech in the Middle East, creating long-term, mutually beneficial efficiencies for providers and end users of many services.
In Dubai, this extends to the government, which will be “powered by blockchain” by 2020, when every single visa application, bill payment, and license renewal – accounting for more than 100 million documents each year – will be transacted digitally using blockchain. Elsewhere, Bahrain is integrating digital currencies into its mainstream financial system and blockchain in other processes; and Saudi Arabia has named blockchain as a key tool in its Vision 2030 diversifications.