Blockchain and New Solutions for Promissory Notes

The process of lending, loan and issuing commercial documents is complex and has a long life cycle and many stages. In order for this cycle and process to finish successfully, all parts and the procedures should proceed based on transparency and trust. In the real world, promissory note, actual paper documents with the support of cash and real currency are used to create financial commitment and validity for short-term investments, loans for automobile, home or other assets. In this process, at first, a person requests a loan and the loan price is supplied from the bank and investors.

Blockchain and New Solutions for Promissory Notes
Blockchain and New Solutions for Promissory Notes

The process of lending, loan and issuing commercial documents is complex and has a long life cycle and many stages. In order for this cycle and process to finish successfully, all parts and the procedures should proceed based on transparency and trust. In the real world, promissory note, actual paper documents with the support of cash and real currency are used to create financial commitment and validity for short-term investments, loans for automobile, home or other assets. In this process, at first, a person requests a loan and the loan price is supplied from the bank and investors. All related documents to lending are likely to be destroyed at the banks; that is, the documents which show offering and giving loans to a person might be destroyed. It is just about the process of the loan allocation. It is true about issuing commercial and financial documents and also minor and major investments in different industries. Many reasons including theft, disasters and the systems being hacked can cause this loss. However, in a Blockchain-based world, such a loss will not occur. Why and how? It is not just about the loan, investment or financial commitment. However, every other financial operation which is along with replacing and exchanging payment documents and guarantee can be transferred to Blockchain infrastructure. 

Blockchain and Developing Applications in Financial Affairs


Blockchain and the services which can be implemented are numerous and diverse. One of these services is the possibility of lending and forming electronic contracts in the Blockchain platform. In a digital world, a digital version of related documents is offered, and you have your loan in the network, it is not possible to lose them. The documents and information which are registered in the Blockchain system are sent to an extensive set of nodes and computers which are connected to the network; therefore, they cannot be deleted from the network.
It is worth mentioning that using Blockchain as a lending platform and applying it by the financial institution and banks need legal infrastructures and should be supported and backed on the part of the states and countries. If using Blockchain to do various financial contracts such as lending gets popular, the banks, besides loan recipients and investors can see the route of transferring assets between each other and track it. In fact, with a network that all the users have the possibility to watch it, loaning will be simpler too, and all beneficiaries in such a process will be informed of any measure taken in different stages. 

Blockchain, New Wave of Lending in Financial Industries


Blockchain has a high capacity to be applied in different financial affairs. It is not true to limit its application and benefits to transacting with Bitcoin. This infrastructure has actually been created to make different communications and interactions without any censorship and surveillance, and the possibility of taking financial and communicative measures is provided. Through finding a true understanding of Blockchain, many banks have been able to employ it in different projects in the area of financial transfers and payments. However, can the complexities of recording documents and processes such as lending and offering financial documents which are the support of such trades be managed easily through Blockchain?
As Bitcoin and its peers were able to introduce a new concept of cryptocurrencies to the world, Blockchain infrastructure can cause increasing security and facilitating the function of paying the loan. One of the most basic features which makes it possible is the feature of “immutability” in Blockchain network. Immutability means that after registering a transaction in Blockchain ledger which is assumed as the general ledger or the report of financial transactions, it will not be possible to remove or alter any data. Hence, this system is considered a network which enables different assets transfer (loan, rent, lease, etc.) comfortably and securely.

Measures Taken in the Field of Financial Services Commitments in Blockchain


The communication possibility of Blockchain has so far been used for financial transfers and lending small companies. A new generation of startups which are working in the field of fintech has lent newfound and modern companies with the help of Blockchain network. 
Different startups have attempted to employ Blockchain infrastructure to exchange promissory notes and the documents of financial trades. For example, a Chinese startup with the collaboration of Bank of Tokyo-Mitsubishi UFJ (MUFG) is seeking to launch a project wherein exchanging promissory notes as well as financial and commercial documents is possible through a Blockchain platform. These two companies are attempting to digitalize exchanging commercial documents such as promissory notes through Blockchain. These methods can cause transparency in different trades and transactions between two parties besides facilitating and increasing operation security.
Two Chinese and Japanese companies are analyzing the Blockchain infrastructure and doing pilot projects to be able provide necessary infrastructures for using Blockchain platforms in financial affairs. For example, Blockchain can be employed in financial transfers and foreign bills and forming person-to-person contracts.
Moreover, one of the best measures in case of issuing promissory notes and financial documents in Blockchain technology might be Daimler AG and Landesbank Baden- Württemberg (LBBW) to issue the first financial trade through Blockchain technology. Now, big companies in banking management such as German company Targens are extensively using Blockchain technology to increase the efficiency of issuing financial documents, promissory notes, and banking processes.

Banking Evolutions and Management of Financial Affairs and Blockchain


There have been other projects in the other locations of the world like Spanish banks in the field of using Blockchain in banking systems too. These attempts imply the growth and high capacity of this platform to be used in financial and banking affairs, but there is another fact which cannot be ignored; currently, we face a complicated banking industry wherein red tape, email and the technologies of the previous generation are present and high charges are imposed on the mentioned industry. Changing performance from transferring infrastructures to the new world of technologies will be very costly. This cost that a part of which is allocated to launching its technical mechanisms and applying new technologies; and the other should be spent on public education for familiarity and appropriate exploitation of new financial services by the people and organizations. It seems that although Blockchain has the required capacity to be used in different financial affairs such as financial transfers and registering and transferring documents in the contracts and trades, in order to have full exploitation and increase productivity ratio, provisioning infrastructures is necessary which is costly per se.

 

written by:

Dr Pooyan Ghamari
 

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