THE APPLICATION OF BLOCKCHAIN TECHNOLOGY IN BANKING AND

FINANCIAL INDUSTRY

DIGITAL BUSINESS AND BUSINESS INTELLIGENCE

By:
Venia Rezkieta Dewi 1606824490
Hayyin Nur Adisa 1606832851
Kania Mareti Dwibagja 1606833513
Renaldi Makhfudin Fakhran. 1606883524

FACULTY OF ECONOMIC AND BUSINESS

DEPOK
MAY 2019
 Statement of Authorship
I/We.........................the undersigned declare to the best of my/our ability that the
paper/assignment herewith is an authentic writing carried out by myself./ourselves. No other
authors or work of other authors have been used without any reference to its sources.
This paper/assignment has never been presented or used as paper assignment for other
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I/We fully understand that this assignment can be reproduced and/or communicated for the
purpose of detecting plagiarism.

Name : 1. Venia Rizkieta Dewi (1606824490)

2. Hayyin Nur Adisa (1606832851)
3. Kania Mareti Dwibagja (1606833513)
4. Renaldi Makhfudin Fakhran (1606883524)

Signature : 1. 2. 3. 4.

Course : Digital Business and Business Intelligence

Paper Title : The Application of Blockchain Technology In Banking and Financial
Industry
Date : May 28, 2019
Lecturer : Feri Priatna S.E., M.Sc.

( signed by all and every single student if its a group assignment)

 CHAPTER I
INTRODUCTION

The world has turned so impenetrable. It impacts the increased complexity of

transactions occurring both domestically and internationally. This condition led to the
development of digital technology developing rapidly. Nowadays, Indonesia is also growing
with a wide range of issues about digital technology especially in blockchain technology.
Blockchain is one form of distributive ledger that distributed across and managed by
peer-to-peer networks. The structure of blockchains are so unique because data on
blockchains is grouped together and organized in blocks. Then, the blocks are linked to one
another and secured using cryptography.
In Indonesia, the roles of financial service especially banking sector have significant
influence in the national economy growth. It caused by the faster online payments and
exploring new dimensions of exchanging money nationally. However, there are several
current barriers in banking and financial system. Some of the challenges are frauds, slow and
expensive cross-border transactions, and data vulnerability. Those challenges have potential
negative impact to the national banking and financial system.
The use of blockchain technology is poised to bring significant changes in the
banking and finance industry. The characteristic of blockchain, that could be distributed and
immutable, makes blockchain has the capabilities to disrupt the current banking process. The
lure of blockchain is a method of verifying and tracking transaction by using consensus
among a peer-to-peer network of computer based on complex algorithms. Blockchain also
provide an open system for transaction processing across the financial system, banks are
looking inward, experimenting with the distributed ledger approach to create efficiencies and
a single version of digital truth. Nevertheless, the use of this blockchain will also have a
significant impact on the role of the professional accountant in addressing the same problems
in the banking system, especially in the process of verifying and recording transactions. This
gives a new challenge to the accountant profession in the face of technological sophistication.
Therefore, in this paper we will discuss more on how the application of blockchain
technology to the banking and financial sectors and the impact of its technology in relation to
the work of accountants.
 CHAPTER II
LITERATURE
2.1 Financial Service Industry
Indonesia’s financial services industry is an essential industry in the national economy
which contribute 14% to the national income (DJP, 2017). Moreover, this industry also plays
a vital intermediary role both in the national and world economy. The industry as a whole is
vast and includes companies engaged in activities such as investing, lending, insuring,
securities trading and issuance, asset management, advising, accounting, foreign exchange,
and more. Commonly, it called as financial institutions. According to Undang-undang Nomor
14 Tahun 1967, financial institution is all institution through activities in the field of finance
that retrieve money from society and distribute it back to society. Indonesia’s regulations also
have explained that financial institution consists of two institution such as bank and non-bank
institution.
2.2 Banking Sector
According to Undang-Undang Number 7 Tahun 2010 article 1 states that bank is a
business entities that raise funds from the community in the form of deposits and distribute it
to the community through credit and other forms in order to improve their quality of life.
Indonesia’s banking performs business activities based on economic democracy and
implement the precautionary principle. The main function of bank is an intermediaries to
collect and distribute fund from and to society. Indonesia’s banking aims to support the
implementation of the national development framework which improve equalization,
economic growth, and national stability toward the improvement of many people's welfare.
Based on article 5 UU Perbankan, type of bank consists of public banks and credit
banks (Bank Perkreditan Rakyat). Public bank is an institution that purposed to carry out
certain activities or give greater attention to certain activities. Public bank usually do several
activities such as collect society fund in form of savings, deposits, certificate of deposits and
more, give credits, issue bonds, etc (article 6). Nevertheless, public bank prohibited to give an
insurance, do an investment, and do other activity in another sector. Meanwhile, credit bank
is an institution that deserve to give credit, provide financing and placement of funds based
on sharia principles accordance with the provisions stipulated by Bank Indonesia, and
manage society funds. Credit bank also prohibited to do an investment, give an insurance,
and do activity in foreign currency.
Nowadays, Indonesia’s banking have already faced several problems in doing their
activities such as lack of transparency, fraud, higher transaction costs, error in record
transaction, untraceability (Akeo, 2018). Therefore, banking sector needs to implement a
technology to solve those problems.
2.3 Blockchain Technology
A blockchain is essentially a distributed database of records or public ledger of all
transactions or digital events that have been executed and shared among participating parties.
Each transaction in the public ledger is verified by consensus of a majority of the participants
in the system. And, once entered, information can never be erased. The blockchain contains a
certain and verifiable record of every single transaction ever made (Crosby,2015) .
Nevertheless, Yaga (2018) states that blockchains are distributed digital ledgers of
cryptographically signed transactions that are 278 grouped into blocks. Each block is
cryptographically linked to the previous one after 279 validation and undergoing a consensus
decision. As new blocks are added, older blocks 280 become more difficult to modify. New
blocks are replicated across all copies of the ledger 281 within the network, and any conflicts
are resolved automatically using established rules.

Picture 1. Blockchain Works

Source: World Economic Forum, 2016
 In blockchain systems, encryption through cryptographic keys becomes an important
things because this component purposed to create a secure digital identity reference. Term of
“identity” in Blockchain means a distributed network. The benefit and need for a distributed
network can be understood by the ‘if a tree falls in the forest’ thought experiment - “If a tree
falls in a forest, with cameras to record its fall, we can be pretty certain that the tree fell”. We
have visual evidence, even if the particulars (why or how) may be unclear (coindesk, 2015).
Therefore, the advantages of using blockchain technology are enhance transparency,
integrity, immutability, security, reduce transaction costs, customer centricity, and increase
innovation within institutions (Wachal, 2019).
 CHAPTER II
ANALYSIS
3.1 Role of Accountant in Financial and Banking Industries
3.1.1 External Reporting
Publication of data in the form of annual reports to external party, such as investors,
creditors and lenders aiming to fulfill their needs for information to evaluate the financial
condition of the reporting entity. At the most formal level, external reporting involves the
issuance of a complete set of audited financial statements, which includes the income
statement, balance sheet, and cash flow statement. The details in external reporting have the
main purpose for the sake of transparency of data relating to the main activities of the
reporting entity.
3.1.1.1 Laws and Regulations
A high level of regulation is necessary for banks to avoid failures and to protect the
rights of diverse stakeholders, including shareholders, debtholders, customers and the
government. Many laws and regulations imposed by the main government institutions
through other organizations such as Bank Indonesia (BI) and the Ikatan Akuntan Indonesia,
generally apply to banks engaged in the public and private sectors. Regulations imposed by
BI, for example, are specifically designed to protect the interests of savers because there is no
government guarantee for bank deposits in Indonesia.
Based on Peraturan Bank Indonesia (PBI) No 8-12-PBI-2006 dated 10 July 2006,
every bank located in Indonesia, both commercial banks, foreign bank branch offices and
Islamic banks, are required to make a Laporan Berkala Bank Umum (LBBU), namely reports
compiled and submitted by all Banks in Indonesia periodically to the Central Bank. LBBU
reported by commercial banks in the form of bank data and information that is accurate,
complete, and timely. This was done so that central bank monitoring of financial system
stability and bank conditions became more effective in determining monetary policy by Bank
Indonesia. The determination of monetary policy by bank Indonesia aims to support Bank
Indonesia in achieving and maintaining the stability of the rupiah.
The regulation of financial reporting by banks, previously contained in PSAK 31, is
an accounting standard that regulates the recording of financial statements for the banking
industry. However, this regulation was revoked in 2010 and replaced by PSAK 55 which
regulates the recognition and measurement of financial instruments. Based on the Indonesian
Banking Accounting Guidelines issued by the Financial Services Authority, the financial
statements of Conventional Commercial Banks must be prepared based on the Statement of
Financial Accounting Standards (PSAK) relevant to the Bank. PAPI is an implementation
guide that contains further elaboration of several PSAKs that are relevant to the banking
industry, including adjustments related to the issuance of PSAK No. 50 (Revised 2006)
concerning Financial Instruments: Presentation and Disclosures, and PSAK No. 55 (Revised
2006) concerning Financial Instruments: Recognition and Measurement, which took effect on
January 1, 2010. However, at present several banks have implemented PSAK 71 which will
be effective in Indonesia on January 1, 2020.
3.1.1.2 Labour market
The high competition prevailing in the banking industry in a country requires
accounting to play an important role in the labor market. For example, the CEO and key
management personnel of a bank may need to perform efficiently to maintain their position
and to advance their careers. The information provided in external reporting, for example, can
indicate the level of performance of managers in the bank.
Alhadeff (1951) states that the banking market has several characteristics, among
others, first, the presence of more than one credit provider, in this case banks, in one region;
second, the relationship between bankers and borrowers (debtors) is built on experiences
related to the distribution of credit in the past; thirdly, large volumes of credit borrowers will
get more credit offers while small numbers of borrowers face very limited supply; fourth,
there are obstacles to the entry of new players that show a tendency to maintain monopoly or
oligopoly conditions in order to obtain positive benefits in the long run; and fifth, bankers'
actions or decisions generally correlate with each other, often referred to as agreement,
mutual assistance, reduction of unhealthy competition, coordination, and so on. The reason
for this collusion is that losses that occur when competing with each other can be replaced
with profits obtained after the agreement is reached.
Competition between banks can occur due to the struggle for productive resources, for
example in deposits, savings, and lending which are sources of income. Non-price interbank
competition can take the form of prizes and promotions to attract as many customers as
possible. Competition can also take the form of new products and types of services supported
by technological developments that can reduce the costs of production and distribution. Some
studies conclude that the banking market is more concentrated and has a low level of
competition, has a buffer in dealing with vulnerability; this makes banking more stable. On
the other hand, these conditions also provide incentives for excessive risk taking.
3.1.2 External Auditing
The external auditor can provide the supervisor with valuable insight into various
aspects of a bank’s operations and management’s attitude to the application of key
accounting policies, judgments and models adopted. Conversely, the external auditor may
obtain helpful insights from information originating from the supervisor where the supervisor
provides an independent assessment in areas significant to the external audit and may focus
attention on specific areas of supervisory concerns. In certain jurisdictions, the supervisor
may also request the external auditor to perform specific assignments that go beyond the
statutory audit work of the auditor.
Supervisors and external auditors should have an open and constructive relationship,
with confidence in each other that information exchanged will be treated appropriately and
confidentially. For an effective relationship to exist, the engagement between the supervisor
and the external auditor should involve individuals who are knowledgeable, informed and
empowered by their respective organisations to exchange information.
The supervisor may benefit from the results of the external auditor’s work because in
many respects the two parties have complementary concerns regarding the same matters
although the focus of their concerns is different. Similarly, the external auditor may benefit
from insights that the supervisor can communicate. However, in order to discharge their
respective statutory responsibilities, each party should not use the work of the other as a
substitute for its own work and the supervised entity should remain the main source of
information for their respective work.
The external auditor’s work gives rise to the auditor’s report on the
annual/consolidated financial statements which is often used for prudential supervisory
purposes. When performing a financial statement audit in accordance with internationally
accepted auditing standards, the external auditor communicates with management and/or
those charged with governance about significant matters relating to financial reporting or
supplementary matters, and these communications may be accessed by the supervisor. In the
same manner, in certain jurisdictions, the external auditor may also have access to the
supervisor’s communications to the bank.
3.1.3. Management Accounting
Management accounting is concerned with providing both financial and non-financial
information that will help decision-makers to make good decisions. An understanding of
accounting therefore requires an understanding of the decision-making process and an
awareness of the users of accounting information [Drury, 2008, p. 5]. The information
provided by management accounting is helpful in making policies and strategies, budgeting,
as well as forecasting future plans, making comparisons and evaluating performance of the
management of banking industries.
The management accounting provides wider scope of relevant information than cost
accounting, because cost accounting is more focused on quantitative data based on financial
accounting. Nowadays, cost accounting is often perceived as part of management accounting.
From historical perspective, management accounting emerged from cost accounting. Waweru
[2010] identifies four stages of management accounting evolution. In the first stage,
management accounting is seen as a technical activity necessary for the pursuit of the
organizational objectives, while in the second stage it is seen as a management activity
performing a staff role to support line management through the provision of information for
planning and control. In the third and fourth stages management accounting is seen as an
integral part of the management process. With improved technology, information is available
in real time to all levels of management. The focus, therefore, shift from the provision of
information to the use of the available resources to create value for all the stakeholders
[Waweru, 2010].
3.1.4 Internal Auditing
The internal audit function plays a crucial role in the ongoing maintenance and
assessment of a bank’s internal control, risk management and governance systems and
processes – areas in which supervisory authorities have a keen interest. Furthermore, both
internal auditors and supervisors use risk based approaches to determine their respective work
plans and actions. While internal auditors and supervisors each have a different mandate and
are responsible for their own judgments and assessments, they may identify the same or
similar/related risks.
The internal audit function should develop an independent and informed view of the
risks faced by the bank based on their access to all bank records and data, their enquiries, and
their professional competence. The internal audit function should be able to discuss their
views, findings and conclusions directly with the audit committee and the board of directors,
thereby helping the board to oversee senior management. Internal audit should have the
appropriate capability regarding matters of regulatory interest and undertake regular reviews
of such areas based on the results of its robust risk assessment. These include policies,
processes and governance measures established in response to various regulatory principles,
rules and guidance established by the relevant authorities. In particular, the internal audit
function of a bank should have the capacity to review key risk management functions,
regulatory capital adequacy and liquidity control functions, regulatory and internal reporting
functions, the regulatory compliance function and the finance function.
The supervisory authority will benefit from effective communication about topics of
mutual interest with the internal audit function of a bank. When establishing a relationship
with the internal audit function of a bank, the supervisory authority should obtain an
understanding of the organisation and operation of the internal audit function, including its
position and remit within the bank. Supervisors and internal auditors should each ensure that
enhanced communication does not undermine their respective perceived and actual
independence and status, as the supervisory authority and the internal audit function each
have different roles and responsibilities. Regardless of the supervisor’s assessment of the
internal audit function, the supervisor should be able to challenge the work of the internal
auditors through their continuous supervision process, including through on-site supervision.

3.2 Technology Used in The Sector

3.2.1 Blockchain Disrupt Financial and Banking Industries
Blockchain, as a radically decentralized technology, has great disruptive potential,
hampered in the short term by technical limitations and lack of understanding. The core
concept of blockchain technology is the distributed ledger. A ledger is an authoritative record
of transactions or other events. It’s called “distributed” because the data is replicated across
thousands of participants — or “nodes” — in a peer-to-peer network. Achieving this goal of
recording and replicating data in a secure manner requires a complex mechanism with
significant computational load (called “mining”).
Twenty years ago, banking business involved a trip to the brick-and-mortar office to
speak with a real person working at the bank. Now, customers can monitor accounts, transfer
funds and deposit checks without leaving the couch. Digital technologies have become
mainstream in the financial world, whether it’s mobile banking or roboadvisors. The newest
innovation, blockchain, offers a potential new era in financial services. With its global-scale,
technology-driven business transformation, some experts believe it will eventually have an
impact equivalent to that of the World Wide Web, or of the internet itself. Hence, blockchain
is sometimes referred to as “the Internet of Money” — or in more general terms, “the Internet
of Programmable Value.” Now, more than 300 million transactions later, assets worth more
than $270 billion are being managed by this distributed ledger technology.
Enabling a business ecosystem of thousands of participants who don’t know each
other, don’t trust each other and perhaps don’t even know of each other, to create and
exchange value across a global network is what gives blockchain technology the potential to
be disruptive. This setup effectively removes the need for traditional intermediaries —
lawyers, brokers, bankers — who can consume a portion of the revenue stream and add
friction to business interactions. Removing intermediaries also enables new business models
to emerge.
While its decentralized design has tremendous transformative potential, blockchain
technology is unlikely to have significant disruptive effects on the mainstream financial
industry in the short to midterm. As it stands today, the current generation of blockchain
technology does not have sufficient scalability, functional scope, performance, efficiency,
flexibility, interoperability and operational manageability. Most large established companies
are successful because they have invested time and money over the years in building a robust,
reliable centralized system of record. Blockchain technology is at the other extreme of
decentralization. Further, most companies are successful because they have cultivated over
the years a stable set of known, trusted business partners. Blockchain technology enables an
entirely different kind of ecosystem that traditional organizations find difficult to grasp.
These two aspects of blockchain make it difficult to exploit this technology, but do
leave an opening for a new generation of small, innovative risk-taking ventures to disrupt and
transform existing industry — once the technology limitations are removed.

3.2.2 The Way Blockchain Transforming Bank Industries

The Financial Services industry is fundamentally about facilitating the trusted
exchange of value between multiple, untrusting parties. Brokering that trust is an enormous
responsibility and carries significant risk, which is why the industry has become increasingly
reliant on costly intermediaries, manual processes, and error-prone reconciliations. Today,
more and more Financial Services institutions are looking to blockchain to enable more
efficient cross-organizational collaboration, eliminate intermediaries, and create disruptive
business models. Let’s take a look at five functions of Financial Services that are already
being transformed by blockchain technology.
1) Payments
The world is striving towards faster online payments and are exploring new
dimensions of exchanging money. There are, however, certain barriers that the finance
industry is yet to solve. Some of the core challenges that the banking and finance industry is
facing are frauds, slow & expensive cross-border transactions, and data vulnerability.
Blockchain technology has the potential to eliminate the major hurdles faced by banking and
finance industry regarding payments. Despite doubts about Bitcoin, a number of observers
continue to believe the potential for blockchain in payments is high, and companies like
Ripple have garnered a lot of attention in the payments space. ​The decentralized technology
can assist the current system in numerous ways through its capabilities of highspeed
payments, immutable ledger technology, and high transparency. Such implementation could
also lead to operational efficiencies and tremendous cost savings for banks. Taipei Fubon
Commercial Bank in Taiwan is the first bank to implement blockchain technology in the
payment system for restaurants and merchants.
2) Reduction of Fraud
Banks and financial institutions use a centralized database that is more prone to hacks
and cyberattacks. Blockchain, on the other hand, is a completely decentralized platform that
could solve the problem by offering complete transparency in payments and reducing frauds
in the banking and finance industry. Guardtime is a blockchain backed company that has
provided numerous solutions in financial industry such as detecting data poisoning and
reducing fraudulence.
3) Trading Platforms
Online trading platforms are a great place for investors to trade and monitor stocks
and commodities. However, the platforms are always under the radar because of issues such
as the risk of frauds, double spending and lack of transparency. Additionally, the industry has
not been able to come up with a permanent solution until now. Blockchain offers a potential
medium to exchange assets eliminating the need for intermediaries. This way it could easily
enhance the traceability and authenticity of the assets by storing their value on the permanent
ledger.
Everledger is a global startup that uses blockchain in view of reducing frauds. The
organization has adopted Bitcoin as a mark of authenticity for diamonds to maintain a digital
and permanent record of the diamond trade. ChainTrade is a blockchain based platform for
physical trading of commodities. The platform is going to move commodities and raw
materials trade to permissioned blockchains to promote fairness of transactions and
simplified trade process.
4) Commercial Insurance
Specialty insurance deals with high-value assets and typically requires collaboration
between many parties: insurers, consumers, brokers, aggregators, platforms, reinsurers,
banks, and more. This means that guaranteeing visibility and efficiency between each party
is critical. Pain points include:
● Siloed information and lack of standardization of documents and policies results in
time and money wasted on manually resolving different data sets
● Lack of real-time visibility into asset location and condition
● Difficulty of accurate underwriting and pricing, due to lack of clarify
● Inefficient, paper-based tracking mechanisms, resulting in time-intensive audits
● High incidence of fraud and financial crime
Blockchain’s ability to provide a single source of truth provides massive operational
simplification and data transparency between many parties. Furthermore, blockchain can
facilitate the creation of trade consortiums that many organizations can easily join, such as
the platform created by EY, Microsoft, and Guardtime.
The benefits include reduced frictional costs and administrative burden, faster
payment reconciliation, indisputable audit trails, and lower risk of fraud. Also, improved
data quality through real-time visibility into the location, condition, and safety of high-value
assets moving around the world. After that accurate, dynamic, and fair underwriting and
pricing based on better risk assessments. The last, Better customer service by improving
timeliness of claims’ processing and payments.
 5) Claim Processing

Processing insurance disbursements to beneficiaries while protecting against fraud.

Today, the insurance industry is particularly vulnerable to having multiple disparate copies
of the same data –and the process of mediating between different versions of the truth is
time-consuming and expensive. Pain points include:
● time-consuming and expensive process of gathering information for assessments,
● differing opinions about the correct value of a claim between a claimant, insurer,
broker, adjuster, and more,
● customer frustration due to opaque processes and delays in claims processing
● threat of insurance fraud

The future blockchain can make automatic claims built on blockchain smart contracts
enable a single version of the truth for claim data, increase trust between parties, and create
a more efficient claims process. Benefits include: more accurate assessments through
historical claims data, integrated data source for all parties, reducing conflicts about claim
value, automatic disbursement when criteria are met, reducing hassle for beneficiary, and
reduced risk of fraudulent claims.

3.3 How technology affect accounting profession in the sector

3.3.1 Blockchain: Impact for Accounting Profession in Financial Services
Blockchain technology is transforming the financial services industry and creating
opportunities for both new and established players. Blockchain's ability to provide a new
form of distributed database or ledger could be applied across a broad range of applications in
financial services. Hence, the concept of blockchain has energised the financial services
industry globally and has already brought a disruption.
Blockchain is being addressed as ​"the new internet" and is driving transformation for
businesses across multiple sectors, particularly for financial services. It has the potential to
facilitate faster, cheaper, safer and more transparent financial transactions. Below are some
points of how blockchain could transform the financial services landscape.
Efficient payments

For all financial services firms and users, blockchain could significantly improve
payment transparency, efficiency, trust and security as well as reduce costs. Payments can be
processed in minutes or seconds, while currently, payments from one bank to the other can
take up a week. With blockchain, payments becoming user-optimised, will save a significant
amount of time and money, for both parties involved. Blockchain will remove the need for
middle office and back office staff, as payments settle instantly.

Improved compliance processes

Blockchain services such as KYC-chain are helping financial firms streamline KYC –
a labour-intensive and error prone process – across their organisations, reducing the
duplication of workload and increasing trust. KYC utilities (shared repositories) are
investigating whether blockchain can improve their offerings, potentially providing KYC
updates to banks in real-time. ​Financial institutions across the world are responsible for
complying and reporting on a number of requirements from their local regulator. KYC is a
key requirement here, but the process can be incredibly time consuming and lack the
automated customer identification technology and integration needed by teams to efficiently
carry out their work.
Blockchain technology could provide a digital single source of ID and other
information allowing for the seamless exchange of documents between banks and external
agencies. This could potentially result in automated account opening, reduced resource and
cost, whilst maintaining the privacy of data that is legally required.

Smarter reconciliation

By providing complete remittance information to all parties in a transaction,

distributed ledger technology should significantly reduce the time and manual effort involved
in payment reconciliation. It will also reduce errors. Ultimately, straight-through
reconciliation will benefit financial institutions such as banks, insurance companies, traders
and many others.
Reduced counterparty risks

When transactions are settled at that moment in time, it will remove a significant risk,
that of the counterparty not being in a position to meet its obligations, which could be a
substantial expense for financial institutions.

Improve capital optimisation

One of the main features of blockchain is that it removes the need for a trusted
intermediary and makes peer-to-peer transactions possible. When blockchain is applied in the
financial services industry, it could render redundant the fee-charging intermediaries such as
custodian banks (those that transfer money between different banks) or clearers (those
vouching for counterparties credit positions). As such, blockchain offers better capital
optimisation, due to a, significant, reduction in operational costs for financial institutions.

Improving supply chain inefficiencies

As it stands, any business reliant on a supply chain understands that their

inefficiencies are many. They are usually complex, slow, distributed and involve many
parties across the world. Each part of the supply chain is usually sceptical of the other which
results in third-parties acting as gatekeepers. Using smart contracts (computer protocols that
verify or enforce contracts) on the blockchain to transfer legal documents removes the need
for documents such as Letters of Credit. As a result, the costs typically incurred by eliciting
the middle men, are considerably reduced. Reducing the number of components in the supply
chain is expected to increase trust which will be further supported by the blockchain's
fundamentals of contract transparency.

Giving power back to the consumer using smart contracts

Smart contracts are expected to be the biggest contributor to the appeal and success of
blockchain. This new way of contracting goods and services will be managed by
self-operating computer programmes that mimic the 'real-life' legal and financial contracts we
use today
3.3.2 Blockchain: Advantages for Accounting Profession in Financial Sector

The blockchain technology promises a lot of advantages for the accounting firms whether big
or small. Here are few of the benefits:

● Reducing Errors : One of the biggest advantage of blockchain in accounting is its

ability to make almost negligible errors. Once data is in the chain, smart contracts will
make many accounting functions automatic, reducing human error.
● Increasing Efficiency : Blockchain is fast and powerful database. Using blockchain,
getting data into and out of the system can be done more efficiently than interacting
with legacy accounting software applications.
● Reduces Cost : Blockchain will lead to increased efficiency and reduction in errors
which will eventually lead towards cost reduction. Following initial adoption cost,
accounting firms can expect to see rapid cost savings over conventional accounting
systems.
● Reduces Fraud : The immutable nature of blockchain makes it extremely difficult to
perpetrate and difficult to manipulate. In order to modify a record, the same change
would have to be made on all copies of the distributed ledger at the same time, which
is highly infeasible.
● Reduces Time : One key feature of blockchain that accountants should be excited
about is its ability to reduce audit time. With the use of smart contracts, many auditing
functions can be automated which will reduce the time, an auditor needs to look after
the records. The inherent traceability built into blockchain makes auditing fast and
easy.

3.3.3 The Ways Blockchain Transforming in Banking Industry

Blockchain technology provides a way for untrusted parties to come to agreement on
the state of a database, without using a middleman. By providing a ledger that nobody
administers, a blockchain could provide specific financial services — like payments, or
securitization — without using a middleman, like a bank.

Further, blockchain allows for the use of tools like “smart contracts,” which could
potentially automate manual processes, from compliance and claims processing, to
distributing the contents of a will.For use cases that don’t need a high degree of
decentralization — but could benefit from better coordination — blockchain’s cousin,
“distributed ledger technology (DLT),” could help corporates establish better governance and
standards around data sharing and collaboration.

With global banking currently a $134T industry, blockchain technology and DLT
could disintermediate key services that banks provide, including:

● Payments: ​By establishing a decentralized ledger for payments (e.g. Bitcoin),

blockchain technology could facilitate faster payments at lower fees than banks.
● Clearance and Settlement Systems​: Distributed ledgers can reduce operational costs
and bring us closer to real-time transactions between financial institutions.
● Fundraising: Initial Coin Offerings (ICOs) are experimenting with a new model of
financing that unbundles access to capital from traditional capital-raising services and
firms.
● Securities: ​By tokenizing traditional securities such as stocks, bonds, and alternative
assets — and placing them on public blockchains — blockchain technology could
create more efficient, interoperable capital markets.
● Loans and Credit: ​By removing the need for gatekeepers in the loan and credit
industry, blockchain technology can make it more secure to borrow money and
provide lower interest rates.
● Trade Finance​: By replacing the cumbersome, paper-heavy bills of lading process in
the trade finance industry, blockchain technology can create more transparency,
security, and trust among trade parties globally.

3.3.4 Blockchain: Challenge in Financial Services

Blockchain technology continuously registers business transactions. It enhances the
secrecy of transactions and creates a proper recording of all transactions. Implementing a
Blockchain system, however, comes with some disadvantages. The challenges have limited
its popularity and few firms can use it for transaction recording and management.
Cost of Initiation, Implementation, and Maintenance
The initial c​ost of ​implementing a blockchain system is very ​high. It requires large input
regarding the software and hardware necessary for its initial launching. Small investment and
banking companies may not meet such costs considering their financial status. Therefore,
making and recording transactions using this system becomes a burden for such companies
from the beginning. Maintenance cost is also high. Finance companies that consider such a
system as liability may not take into consideration its high maintenance cost, as it decreases
the overall returns for the business.

Modifications of Data

It also poses a problem with the modification of data. The banking and finance sector make
regular modifications to the data they store, especially data involving a transaction. The
Blockchain system, posing difficulties in such modifications, becomes more of a liability than
an asset for the business. Therefore, most of these finance companies result in declining its
use for transaction recording. The procedure of data entry is also long. Considering that the
transactions in the finance sector may be numerous every day, such a long procedure may
delay the recording of any such transaction, thus, rendering the system inefficient.

Literacy Requirements

The ​blockchain system requires a high level of literacy, more so, computer literacy. As such,
illiterate employees cannot make a proper recording in the system. It, therefore, forces the
company that employs it to hire literate employees. Hiring such employees is an expensive
task for the business. Therefore, many firms choose top retail to their current labor force
rather than adopt the system and later must change major sections of their labor force. The
alternative is to educate the current employees. This is also an expensive undertaking, and
therefore some companies may prefer not to adopt it.

Duration of Blockchain

There is no certainty that the transactions recorded in the system will last for a long time. The
operations of the system are cryptic, therefore, there is no certainty of how long the
transactions may last in the system. Most financial transactions require information about the
past transactions and their future impact. If the duration of such records is uncertain, it makes
the system ineffective in the financial sector. The computing language of this system is
complicated and difficult for ordinary people. The computing language, too, poses as a major
blockchain problem today.

Blockchain Regulations

There are many blockchain regulations. Such regulations are challenges to any business.
Most businesses prefer to operate and use systems that have few regulations to save time
during the setup period. Therefore, the long procedures and regulations during the
implementation of the blockchain system is a major discouragement to these businesses.

Dependability on Computers and Power

Blockchain implementation requires the use of computers. As such, problems affecting the
computers such as processing power and viruses highly affect the system. Computers also
require power. The dependence on power makes the systems unreliable in case of power cuts
or power shortages. Most businesses require systems that can handle such power cuts. Using
the blockchain system would require the business to have a manual backup system.
 CHAPTER IV
CONCLUSION
If blockchain technology is attracting unprecedented attention from senior management,
it is because the potential impact on current business models raises a host of questions.
Blockchains will help to manage increasing global complexity by combining security,
decentralisation and transparency. They will give power back to the customer and will help
bring new players into the market.
The technical limitations of blockchains must be considered. However, the fact remains
that the use cases for which blockchains are paving the way will be deployed regardless,
whether with blockchain technology or with an alternative. For the insurance industry, the
number of potential use cases goes well beyond those discussed in this report, with varying
impacts on the value chain. Certain uses seem easier to implement and appear to offer
significant benefits, while others may be riskier, particularly in light of the expected rewards.
Roles of accounting in the banking industry is the most important part because it
involves stakeholders and requires compliance with the rules and regulations in a country.
With the blockchain, the role of accounting in the banking industry will be greatly helped
because all matters relating to the banking industry will become integrated. The Blockchain
will make it easier for accountants in terms of adjusting to state regulations that will have an
impact on the auditor's work in carrying out the audit process, both external and internal to
the bank.
The scope of possibilities brought about by the blockchain is huge in the insurance
industry but will require a period of adaptation and adjustment. The key challenge for all
players, irrespective of their industry, will be to identify the use case that will be of most
benefit to them and to explore others if their first choice proves unsuccessful. 
 
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