Business Data Communication

Q: Can Blockchain technology create value for Deutsche Bank?

Ans: There are several different ways the blockchain technology could be introduced in various organization
and industries to create value. It is stated that this technology has the potential to become the system of
records for all transactions. In the banking industry, for example, blockchain technology can create a lot of
value in different parts within the bank. Deutsche Bank developed the business case of blockchain for post-
trade and securities settlement, payments, and other forms of trade finance transactions.

 Blockchain can keep track of payments, transactions and trades involving bonds, equities, or loans—
transactions that traditionally required the involvement of banks, traders, exchanges, clearing houses and
other intermediaries. Where these transactions often took days to clear, blockchain’s Distributed Ledger
Technology (DLT) offered the potential of shortening the time to minutes and doing so without the use of
physical intermediaries.

 Secondly, blockchain technology enables us to create "smart contracts". Smart contracts are scripts that
perform some determinate, event-driven computation based on some inputs. These scripts are modular,
repeatable, autonomous, and can be deployed to the Blockchain. For instance, in Deutsche Bank, Deutsche
Lab modelled a corporate bond as a smart contract, encoding executable lifecycle event triggers—for
example, coupon payment, change of ownership, principal payment, interest payment and maturity. They
also defined and agreed upon appropriate smart contract technology. Subsequently, they verified the smart
contract over a blockchain, simulating multi-party consensus and asset transfer.

Challenges:

Blockchain technology looked set to transform essential parts of the financial system as it played its role in
the unstoppable onward march of digitalization. But there are some challenges that needs to be addressed –

 Significant legal, political, and market obstacles would need to be addressed to commercialize the
technology. One such challenge could be that once a smart contract is created, then who verifies that it will
execute as intended ?

 The business, legal and technical teams need to be educated on the practical and technical challenges of
leveraging blockchain if the whole organization adopts blockchain. Commitment and adoption is hardest
part of any innovation process and the same is true for blockchain technology as well.

 While smart contracts enable parties in a trade to exchange a contract without an intermediary and thereby
reduce their clearing and operational risk, but there is a significant upfront effort required to structure and
capture all the elements of a complex, multi-party financial transaction in a legally sound manner.

Submitted By: Eshaan Kulshreshtha PGP ID:PGP37235 Section: B Subject: BDC