A NEW DIGITAL AGE IN FINANCE: BLOCKCHAIN AND SMART CONTRACTS

Abstract

Digitalization in finance is an irreversible process, which manifests itself in many different dimensions. Blockchain is an innovative technology that can significantly increase the operational effectiveness of key processes in the financial services industry by reducing costs, enhancing the security and transparency of transactions, and speeding up the settlement process. The idea of smart contracts’ implementation in blockchain is suitable for financial transactions, where a link between fulfilling contractual terms and performing actual transactions is established. The ‘’blockchain - smart contract’’ combination forces the execution of all transactions in accordance with the contract terms and leaves a door, wide open for the automation of key processes. What makes using a ‘smart contract’ beneficial is its ability to eliminate mediation from third parties, such as agents or trustees. The invasion of digital technology is expected to bring dramatic changes in the nature of financial intermediation. This research paper is focused on assessing the expected degree of blockchain penetration and its impact on selected key segments of the financial industry (e.g. global payments, trade finance, capital market trading, syndicated lending, insurance and compliance). Barriers and challenges to the new application’s wide spreading are also analyzed. Based on this research, conclusions about the expected degree of applicability of blockchain in the financial sphere are drawn, and proposals for the initial steps in this direction are made.