Blockchain tech-- creating security in markets

The Government has been showing interest in database management through the use of blockchain technology. It wants to use this technology for sectors like healthcare, agriculture, finance, voting and e-governance. In an exclusive conversation with Money9, Satish Mohan, Founder & CTO, Dhiway, talks about the blockchain technology can be used for financial market transction and how it can lead to greater transparency.

How does Blockchain technology provide increased transparency and security for investors in financial markets?

Recently, the adoption of distributed ledgers such as blockchain has been driven by the need to have enhanced data governance through immutable transaction event records and the opportunity to have digital identifiers anchored on the blockchain, which can then be used for workflows such as KYC. Regulatory requirements like AML workflows can also be managed well through blockchains. When the business models need it, the blockchain can also provide a publicly available ledger of transactions and events, thus enabling higher transparency. This transparency reduces the risk of fraud and manipulation, enhancing investor confidence. In India, blockchain is increasingly being explored for applications in securities trading, supply chain finance, and digital identity verification, contributing to greater trust and security in financial markets.

How do smart contracts streamline investment processes and reduce the need for intermediaries in investment transactions?

The concept of smart contracts or event-driven action triggers has received much attention and press – good and bad. As blockchains are being adopted at enterprises, constructs such as smart contracts provide a way for agreements to be codified into executable bits for the blockchain. The advantage they provide is around the speed of response to a condition or event, which enables faster and more efficient business transactions. However, smart contracts are also incredibly complex to write, maintain, and audit, making them a highly specialized field with few practitioners. Smart contracts are also native to a specific implementation of a blockchain and, hence, not necessarily portable. So, today we see smart contract adoption in well-scoped and often heavily regulated domains where the auditability of data and the transaction events are essential. This automation eliminates the need for intermediaries, reducing transaction costs, minimizing counterparty risk, and accelerating settlement times. In the Indian context, smart contracts have the potential to revolutionize investment processes by enabling peer-to-peer lending, crowdfunding, and automated compliance securely and transparently, ultimately democratizing access to investment opportunities.

What advantage does Blockchain offer in terms of enabling fractional ownership of assets, and how might this benefit investors?

Tokenisation, and especially asset tokenization, is an emerging field that has brought about several innovations in the ownership, exchange, and pricing of diverse assets.

Blockchain enables fractional ownership of assets by tokenizing assets, meaning they are represented digitally on the blockchain as tokens that can be divided into smaller units. This fractionalization opens up investment opportunities to a broader range of investors who may not have the capital to purchase entire assets outright. For example, in real estate, investors can buy and trade fractions of properties, enabling them to diversify their portfolios with smaller investments. This benefits investors by increasing liquidity, lowering barriers to entry, and providing access to previously inaccessible asset classes. In the Indian context, blockchain-based fractional ownership platforms have the potential to democratise access to assets such as real estate, artwork, and collectibles, empowering retail investors and driving financial inclusion.

How can Blockchain-based tokenization of assets unlock liquidity and accessibility for investors in traditionally illiquid markets?

Blockchain-based tokenisation of assets can unlock liquidity and accessibility for investors in traditionally illiquid markets by digitizing assets and representing them as tokens on a blockchain. This process allows fractional ownership, meaning investors can buy and trade smaller portions of assets, thereby increasing liquidity. Additionally, blockchain’s transparency and immutability provide investors with a secure and efficient way to verify ownership and transfer assets without intermediaries. In the Indian context, this technology can potentially revolutionize markets like real estate and private equity, where assets are typically illiquid and difficult to access. By tokenizing these assets, blockchain opens up new avenues for investment, enhances market efficiency, and democratizes access to previously restricted markets.

In what ways might Blockchain technology disrupt traditional investment models and reshape the relationship between investors and financial markets?

Blockchain technology can potentially disrupt traditional investment models by introducing transparency, efficiency, and accessibility to financial markets. Firstly, blockchain enables peer-to-peer transactions without intermediaries, reducing transaction costs and increasing the speed of settlement. This disintermediation can democratize access to investment opportunities, allowing individuals to participate directly in markets previously reserved for institutional investors.

Additionally, blockchain’s ability to tokenize assets facilitates fractional ownership, enabling investors to diversify their portfolios with smaller investments. Moreover, smart contracts automate the execution of investment agreements, streamlining processes and reducing the risk of fraud or error. Blockchain can reshape the relationship between investors and financial markets by fostering greater trust, inclusivity, and innovation.