Unregulated Use of Blockchain Technologies in the Financial Markets

Articulation of Issue

Contradictions accumulated in the domain of data formation, storage, accounting, transfer and safety have given rise to steady expectations for the participants of economic life relating to their resolution, which is connected primarily with the distributed ledger technology. More precisely, with one aspect of those, viz., the blockchain technology. It should be noted that the distributed ledger technologies are not only blockchain technology, but also databases. In this sense, the most significant question is whether these expectations are met at all. If yes, the problem is whether they can prove their value in practice, and what are the risks of the technology utilization.

Blockchain is a special technology on which platforms are founded for conducting operations between equal participants acting without a third party. The given technology employs decentralized information security for the display of all data within the operation. This is a distribution database and there are many copies of it. The following suppositions lie at the base of the technology’ working algorithm:

• 1)

  All data chains are cached.

• 2)

  This data forms into blocks connected with one another.

• 3)

  Every data chain is founded on the solution to a mathematical problem.

• 4)

  Copies of the list (blocks and chains) are saved on many computer’s hard drives.

Pioneer application of blockchain technology was in the financial sector, where it served as the basis for the creation of Bitcoin cryptocurrency, and has already reached a definite level of maturity. In comparison with other industries, in the financial sector solutions on the base of Blockchain are used: developed not only by significant populations, but also by mature players, for example, international commercial banks.

At the current moment the appearing application are broadening the key function of data technology – decentralized data security in transactions on account of the integration of mechanisms which allow real deals to be transferred by decentralized means.

The data mechanisms acquired the title «smart contracts». They work based on rules set up in individual order (for example, concrete demands in respect to quantity, quality, and value) and permitting the distributed registries, in an automatic regime, to select potential users for providers and vice versa.

Thanks to blockchain technology, the order of conducting operations is changing: a gradual transfer from the use of centralized structures (banks, stock exchanges, trading platforms, and the like) to the intentional use of a decentralized system is occurring. Operations are now conducted directly between equal parties in the network (P2P networks), which leads to a release from transactions with third parties. In the field of financial services, transaction models based on blockchain can provide a serious reduction of waste and increase in effectiveness and expedition of the processes. In result, the whole system becomes more flexible, since many working tasks, previously completed by hand, are now solved on an automatic regime with the use of “smart contracts” (Bank of Russia, 2017c).

Progressive financial institutions are already investing a lot in blockchain. The general financing of venture capital connected with blockchain exceeds one billion dollars, and the general volume of comment investments in the given technology is reaching three billion dollars. The volume of blockchain investment has reaching 2.4 billion dollars, which exceeds the indicator of last year by 340%. It should be noted that 25% of the volume of all investments in blockchain-startup are attracted through venture stock, and 75% through the mechanism of primary coin deals (ICO). Among leading countries in the blockchain industry the greatest volume of investment, come from the United States, followed by the United Kingdom, Ireland, Singapore, and China.

At the current moment, there exist several venture capital funds. The most prosperous in terms of capital raised among bitcoin and blockchain firms, according to news and research site Coindesk, are the followings:

• 1.

  Circle Internet Financial ($136 million) ;

• 2.

  21 Inc. ($121 million) ;

• 3.

  Coinbase ($116 million);

• 4.

  Ripple ($93 million) (MaketWatch, 2016).

Digital Currency Group and Blockchain Capital are the two most active investors in the sector, specializing in digital currency markets.

In accordance with analysts’ data, Blockchain Capital invested in total around 445 million dollars, Digital Currency group – 413.2 million dollars.