(Money Marketing) - Let’s get this article off to a clear start: blockchain technology is not the same as cryptocurrency.
If you imagine a Venn diagram, blockchain is the large circle and cryptocurrency the much smaller one within it, merely using the technology as its foundation to function.
A blockchain is a decentralised, distributed ledger that allows multiple parties to securely record and verify transactions without the need for a central authority or third party.
But what’s interesting about it for me as a platform and software provider, and, in time, for financial advisers as well, is its potential to tidy up wealth processes and transform the digital world of assets and securities.
The technology is older than internet search engines – it’s the name that’s new
The technology was first outlined in 1991 by two researchers who had the aim of creating a system in which it would be impossible to change or edit document timestamps. So blockchains, and their fundamental purpose of data security, have been around far longer than people think. The technology is older than internet search engines – it’s the name that’s new.
Using the principles of secure timestamps and accessibility, blockchains can make portfolio management safer and less cumbersome. This is different to cryptocurrency, which is a particular application of the technology. Many have a view on cryptocurrencies, which tend not to be too flattering, particularly in our line of work.
One of the most immediate impacts blockchain technology can bring about in our world of personal finance is to make platform transfers simpler. Advisers know all too well how painful and irritating even the simplest in-specie transfers can be, as do I as somebody running an investment platform.
Blockchains have the potential to nullify traditional wealth management processes, such as the tiresome in-specie movement of assets, which are often complex and time-consuming. Asset reregistration will happen instantly on a blockchain, banishing forever the drawn-out process it is today with platforms, fund managers and advisers wrestling with fund administrators and their archaic data management methods.
Advisers, of course, have reasons to be suspicious of all this
Not only will it make processes faster and more efficient, but the tokenisation of funds means it will also improve the security of investment portfolios. This is because blockchains provide a more secure and resilient infrastructure for recording and verifying transactions, so they are less vulnerable to attacks and other forms of disruption.
Advisers, of course, have reasons to be suspicious of all this. Protection of client money is paramount; it’s the ultimate foundation of financial planning.
So, when the tarred soundbite of ‘blockchain technology’ is thrown around it can create concern and perhaps even fear.
But the more forward-thinking fund administrators, platform providers and fund managers are exploring ways it can make managing wealth more efficient. Advisers will see the end results and reap the benefits when it’s safe, tested and ready to make a significant impact on our industry.
If you’re still sceptical, finance is not the only industry exploring how blockchains can make processes more efficient and data safer.
Take democratic voting in political elections, for example. Many are discussing whether blockchain technology can be the means to secure electronic voting systems to avoid any interference or tampering, so people can vote via smartphones or other easily accessible mediums.
Cryptocurrencies haven’t done blockchains any favours in the field of public relations
Then there’s healthcare records. Millions of people use medical devices that store data and contain important personal information – blockchains can connect devices securely and allow only certain individuals to access sensitive data.
Just look to the global data beast that is IBM and all the work it’s doing with blockchains. It’s clear to see the impact this technology will have throughout many industries.
It may be that cryptocurrencies haven’t done blockchains any favours in the field of public relations, but the rest of the world, even outside of finance, is catching onto how it can improve processes and security.
In our modest corner of a global industry, it’s sure to trigger a vast improvement in platform switching and has the potential to create true competition for adviser platforms.
By Alex Cowan-Sanluis
Alex Cowan-Sanluis is chief executive of Platform One
