Blockchain Fintech – Transforming Asset Management
With each passing day, we get to discover a lot about blockchain due to its ability to bring immutability, auditability and transparency in almost every business around the world.
Though various sectors have started to adopt blockchain, blockchain fintech is still the highly-influenced use-case of the blockchain’s innovation.
Among the multiple use-cases of blockchain fintech, asset management is also one of the areas where blockchain can reduce approval wait times by automating the complicated processes using smart contracts.
Moreover, it has been found that the asset managers could save around $2.7 billion a year by eliminating the manual practices from the exchange of assets with blockchain.
We will discuss how asset management firms are seeking out the opportunities to adopt blockchain for harnessing its benefits.
Before going in-depth into the blockchain implementation of the asset management, let’s have its preview first.
What is Asset Management?
Asset Management is a process of managing the transfer of an asset from one entity to another. From stocks to bonds, commodities, real estate properties, and private equities, assets can be of various types.
Whether the assets are tangible or intangible, an asset management platform maintains things of value to an entity or group of entities.
The existing asset management process involves a lot of intermediaries like asset managers, custodians, brokers, auditors, and end-investors, adding high costs to the system.
But the current system has certain loopholes due to the lack of transparency and long-tail processes.
An example of the traditional selling and buying of real estate properties
The traditional trade processes within the asset management can be cumbersome and manual due to the involvement of too many mediators.
Each party in the network keeps the copy of the record in their own system. It leads to inefficiencies and delays in settlement of trades.
Let’s consider an example of the existing process of buying and selling of real estate properties.
1. A property seller looks out for the real-estate agency to find the trustful investors.
2. The agency assigns a broker to the seller for managing the real-estate transactions.
3. A broker acts as an intermediary and helps the seller in finding out the right investor.
4. A broker is also responsible for performing due diligence check of both a seller as well as a buyer to ensure if they are investing with the right people or not.
5. Before a buyer buys the property, it has to pass through the clearing-house which facilitates the exchange of payments, transactions or securities.
6. After the clearing-house performs its function, the property is handed over to the buyer.
Similarly, a buyer can approach the seller via the real-estate agents and brokers. The manual process is not only a time-taking process but is it expensive too.
Here are some of the challenges in the traditional asset management process
- Transfer information split among different systems
Currently, everyone uses different systems to store the information related to the transfer of assets in multiple databases. It can result in conflicting data repository schemas, data synchronization problems, and reliability issues. From sellers to real-estate agents, brokers, clearing houses and buyers, everyone maintains their own database.
- No traceability
As of now, it is impossible for anyone to have a clear view of all transactional updates. Every update has to go through different stakeholders for approval in the system.Also, a user may have to go through the old paper-based files or data stored on the cloud to know the history of transactions which is quite time-consuming.If any transaction issue confronts at the time of selling or buying of real estate properties, there’s no way to figure out when and where did the problem occur.
- The complicated and long-tail onboarding process
A user has to undergo a long-tail verification process before buying or selling assets. It might take several weeks and in some cases, even months to approve if a person is liable to the exchange of assets or not.Verifying the background of sellers or buyers manually may take a lot of time as there is no trust factor which can enable trust on the individual.
Blockchain could overcome the above challenges and transform the end-to-end asset management process by distributing immutable records of information across multiple nodes.
Blockchain Fintech – Innovating Asset Management
We shall first discuss the users who could be involved in the blockchain implementation of the asset management platform and what could be their possible roles.
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User-personas involved in the asset management platform built on the blockchain
- An admin who controls the onboarding of users to the platform
- A Seller who wants to sell their assets on the blockchain
- A Buyer who wants to invest in the assets by buying them
- An Auditor who can track every activity but cannot update any information
Once the possible stakeholders of the platform are identified, we will discuss what could be the technical components of asset management platform backed by the blockchain.
1. Front-end technology
- Web Portal/Mobile App for Sellers and Buyers.
- Web CMS for Admin.
- Web Portal for Auditors.
2. Back-end technology
- Permissioned Blockchain Component.
- Microservices programmed using node.js.
Technologies which can be used in the development of the blockchain based asset management
- Mobile Apps: iOS/ Android SDK
- Web application: Web3.js, Angular.js, or Node.js
- Blockchain: Hyperledger Fabric/Sawtooth
- Microservices: User, Notifications, Reporting, Logging, Data updates based on blockchain events
- Smart Contracts: C,C++, Java, Node.js, Solidity using Remix IDE, Mist, or Web3
Here’s how blockchain enabled asset management could work
Step 1: User Creates a Profile (KYC)
To transfer any assets, a user (buyer/seller) first needs to sign up to the platform with the following information and documents:
- Proof of identification
- Marital status
- Source of income
- Business interests
- Political Ties
Blockchain comes with the possibility of restructuring the user onboarding process by storing information on a distributed ledger.
The existing APIs for sign-up and verification could be integrated with the blockchain to bring transparency, trust, and efficiency in the current process.
A user needs to store the above information with supporting and government-approved documents on the blockchain. Using document reading or analysis software based on Artificial Intelligence or Machine Learning could fasten the verification process.
Since the information will be saved on the blockchain, there will be no chances of data alteration or identity thefts.
Document analysis can evaluate the trust factor for every user who signs up to the platform on the basis of uploaded identification documents.
The trust factor would indicate the creditworthiness of the users and hence, reduce the money laundering frauds.
Once the user is onboard to the platform, they could look forward to creating assets on the blockchain network.
Step 2: Admin approves the user’s profile
An admin verifies the information and documents submitted by the user using tools discussed in the above section.
Based on the trust factor generated through smart contracts, admin can either discard or accept a user’s profile and send them a notification.
After the detailed verification of individuals, they are onboard to the platform for buying, selling, or managing the assets.
Step 3: Buying or Selling Assets on the blockchain platform
After a successful profile creation, the next step is to add the assets you are willing to sell on the blockchain platform.
Assets can be goods which can be exchanged seamlessly on the marketplace with blockchain.
Here are some of the assets which could be sold using blockchain technology
- Fiat Currency
It is a currency which a government has announced to be a legal tender, but not backed by a physical commodity. For example, legal paper money or coins.
A digital currency which uses encryption techniques to regulate the money transfers and verify the fund transfers without the involvement of a central bank. For example, Bitcoins or Ethers.
- Real Estate
A property which consists of land and the buildings or apartments on it.
- Barrels of Oils
Units of the volume of crude oil and petroleum products.
- Precious metals
These metals are rare, the metallic chemical element of high economic value. For example, gold, diamond, and silver.
- Physical objects
From furniture items to kitchen appliances, vehicles, glass items, or anything which can change the states of matter, everything falls under the category of physical objects.
Whether it is a tangible or intangible asset, anything can be hosted on the blockchain by creating a bond for it through smart contracts.
Auditors will be involved in every step of the process to track all activities to ensure that the user is not involved in money laundering activities.
Step 4: Sellers create offers and buyers bid for the price
Once a seller hosts an asset, they could create a proposal/offer with the selling price which could be visible to all members of the asset management ecosystem.
Because the offers are created on the blockchain, no one can manipulate them, reducing the chances of frauds.
After the offer is created, anyone within the blockchain network can request for the quotes.
Interested buyers can bid for any asset they are willing to buy.
A seller could trust the buyer with the help of a trust factor generated at the time of KYC/profile creation using smart contracts.
Once the seller approves the bid, the smart contracts enable auto-payment and an acknowledgment receipt is sent to the buyer.
Smart contracts ensure the implementation of business rules and therefore, bring trust to the system by defining the way the buying and selling of assets should be done.
An exciting example of Blockchain Implementation in Asset Management
Blockchain based asset management platform could enable users to sell both tangible and intangible assets seamlessly.
If someone needs to sell the real estate property, they don’t need to wait for a buyer to come and purchase it. They neither require a major auction house, which cut down 20% from the actual cost nor they need a real estate agent who takes 2-3% of the commission fees.
Putting assets on the blockchain could reduce additional costs and eliminate the involvement of too many intermediaries.
Here’s how you can sell a real estate property on the blockchain – Learn More
1. Sellers put the property on the blockchain with supporting documents such as the letter of allotment, sanctioned plan, society documents, photographs, and sale agreement.
2. After uploading the required documents, a seller creates the offer to sell the property.
3. The auditor reviews the documents submitted by a seller.
4. Once the auditor verifies the created offer, it can be made visible to all members of the network.
5. Interested buyers can request for bidding. After the bid gets matched, they can buy the property without undergoing a complicated process.
6. A seller can issue the quotes to the buyer by looking at the trust factor of an individual from the blockchain.
Companies such as BrickBlock, Meridio, and LAToken are also implementing the blockchain to enable people to invest in the real-world assets seamlessly.
Blockchain Fintech could offer the following benefits in Asset Management Process
- Quick process
Since smart contracts enable automation by removing the central authority or intermediaries, buying or selling of assets could be done quickly and effectively.
The blockchain based asset management platform can reduce the overall turnaround time of the entire process, giving everyone quick insights into the information saved on the blockchain.
- Ownership of Control
Currently, people do not have ownership of their data, and they have to visit different organizations to get their portfolios verified. As the data is replicated across multiple nodes, there is no single node which acts as a gatekeeper to control the data. Only users who store information on the blockchain have access to it through encryption keys.
Therefore, users involved in the blockchain based asset management platform could control their data by restricting the access and ensure no one can manipulate it.
Since blockchain maintains time-stamped records of transactions or information, it is possible to trace them back any time.
With traceability, the chances of money laundering frauds or data manipulation could be reduced. Every member of the network can track or access old transactions whenever required. Audits can be done quickly without time-consuming efforts.
- Regulatory Compliance
Blockchain technology can reconstruct the way compliance and regulations are performed currently. It creates an environment where both regulators and market players get access to the trusted, immutable, and auditable data.
So, firms are relieved of compliance risks and duties using blockchain.
Every data block in the chain provides not only information but also adds a timestamp, unalterable data, and a digital signature to it. Smart contracts ensure enforcement of regulatory compliances in a blockchain based network.
- Smart Contracts- Eliminating intermediaries
Unlike the applications based on centralization, a decentralized platform reduces the need for a lot of mediators controlling the data access.
Reducing the headcount involved in asset management could also cut down on the high costs.
Each record saved on the blockchain is connected to the previous and next record after it, resulting to a traceable history of transactions.
An existing record can neither be deleted nor be altered. Therefore, the platform does not need a controller or intermediator to control the sale of an asset on the blockchain.
Revolutionizing the asset management process is just one of the use-cases of Blockchain Fintech. So, transferring or managing of assets would no more be a hassle or long-tail procedure as blockchain can bring trust, transparency, and efficiency in the system.
Having a team of experienced and versatile Fintech software developers, LeewayHertz has the potential to build a blockchain based asset management platform. Contact us and discuss your requirements.
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