UNIT-IV: USECASE MODEL – PRIVACY BLOCKCHAIN

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Use Case 1: Blockchain in Financial Software and Systems (FSS)

(i) Settlements

Blockchain simplifies and speeds up the settlement process by reducing reliance on intermediaries and automating trade reconciliation.

Traditional Challenges:

  • Delayed settlement (T+2 or more).

  • High transaction costs due to third parties.

  • Risk of fraud or double-spending.

Blockchain Solution:
Instant Settlements: Smart contracts execute transactions in real-time (T+0).
Lower Costs: Eliminates clearinghouses and intermediaries.
Transparency & Security: Immutable ledger ensures transaction traceability.

Example:

  • JPM Coin (JPMorgan): Enables real-time cross-border payments between banks.

  • Finality by DTCC: Blockchain-based clearing and settlement platform.

(ii) Know Your Customer (KYC)

Blockchain enhances KYC by providing a shared, tamper-proof identity verification system, reducing duplication of efforts by financial institutions.

Traditional Challenges:

  • Repetitive, time-consuming onboarding process.

  • High costs for banks and financial institutions.

  • Fraud and identity theft risks.

Blockchain Solution:
Single Digital Identity: Customers maintain a decentralized identity, accessible by multiple banks.
Reduced Verification Costs: Banks only need to verify data once.
Privacy & Security: Customers control access to their data using cryptographic keys.

Example:

  • uPort & Sovrin: Decentralized identity platforms for secure KYC.

  • HSBC: Blockchain-based KYC for streamlining customer verification.

(iii) Capital Markets

Blockchain optimizes capital markets by increasing efficiency in bond issuance, securities trading, and equity management.

Traditional Challenges:

  • Lengthy IPO and bond issuance processes.

  • Centralized clearinghouses increase risk and cost.

  • Lack of transparency in asset ownership.

Blockchain Solution:
Tokenization of Assets: Converts stocks, bonds, and real estate into digital tokens for fractional ownership.
Automated Smart Contracts: Enforces trade agreements and settlements instantly.
Increased Liquidity: Allows 24/7 global trading with minimal fees.

Example:

  • Santander’s Blockchain Bond: Issued a $20M digital bond using Ethereum.

  • tZERO: A blockchain-based capital markets platform for digital securities trading.

(iv) Insurance

Blockchain improves insurance processes, including policy issuance, claims processing, and fraud prevention.

Traditional Challenges:

  • Manual, paper-heavy processes.

  • High fraud rates in claims.

  • Lack of transparency in policy management.

Blockchain Solution:
Smart Contracts for Automatic Claims Processing.
Tamper-Proof Policy Records: Prevents fraudulent claims and multiple claims on the same event.
Decentralized Risk Sharing: Peer-to-peer insurance models become viable.

Example:

  • AXA’s Fizzy: Smart contract-based flight delay insurance.

  • Etherisc: Blockchain-powered decentralized insurance platform.

Use Case 2: Blockchain in Trade & Supply Chain

(i) Provenance of Goods & Visibility

Blockchain enables real-time tracking of goods, ensuring authenticity and transparency in the supply chain.

Traditional Challenges:

  • Counterfeit goods and lack of trust.

  • Limited visibility in multi-party supply chains.

  • Inefficient tracking methods.

Blockchain Solution:
Immutable Product History: Each transaction is recorded permanently.
Real-time Tracking: IoT devices + blockchain provide instant updates on shipments.
Authentication: Consumers can verify product authenticity via blockchain records.

Example:

  • IBM Food Trust: Blockchain-powered traceability for food safety.

  • Everledger: Tracks diamonds and luxury goods to prevent fraud.

(ii) Trade/Supply Chain Finance

Blockchain enhances trade finance by digitizing letters of credit and automating payments.

Traditional Challenges:

  • Delayed cross-border payments.

  • Paper-based documentation (letters of credit).

  • Fraud risks in trade finance.

Blockchain Solution:
Smart Contracts for Automated Payments.
Real-time Verification of Trade Documents.
Lower Costs & Faster Processing.

Example:

  • Marco Polo Network: Blockchain trade finance platform for secure transactions.

  • We.trade: IBM-backed blockchain network for digital trade finance.

(iii) Invoice Management & Discounting

Blockchain optimizes invoice financing by ensuring transparent and tamper-proof invoices.

Traditional Challenges:

  • Duplicate invoice fraud.

  • Delayed invoice payments.

  • Limited financing options for SMEs.

Blockchain Solution:
Tamper-Proof Invoices: Ensures authenticity and prevents double financing.
Instant Invoice Verification: Reduces delays in financing approvals.
Tokenization of Invoices: Enables invoice trading and discounting in secondary markets.

Example:

  • Populous: Blockchain-based invoice financing platform.

  • TradeIX: Distributed ledger technology for invoice financing.

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