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Blockchain is a Direct Threat to Financial Middlemen

February 14, 2018

Financial advisors need to get up to speed on blockchain because the technology will disrupt the financial services sector and threatens to replace middlemen of all stripes, experts tell CNBC.

"Anyone who stands between the buyer and seller is gone, so stockbrokers are gone, mortgage brokers are gone, ticket sellers are gone," Ric Edelman, founder and executive chairman of Edelman Financial Services, said at the recent Technology Tools for Today Advisor Conference in Fort Lauderdale, Fla., according to the news service. "Anybody who serves as that middleman is obsolete due to the blockchain."

The distributed ledger system that acts as an unchangeable registry of transactions has been growing in popularity for its ability to handle transactions without oversight from a central bank or third party, Magdalena Ramada, senior economist at Willis Towers Watson said at the conference, according to CNBC.

Because blockchain presents a secure way to handle the transfer of assets while cutting down on expenses, it’s poised to overhaul the financial services industry, the news service writes. And it’s already being used by such financial behemoths as Vanguard, which has moved $2 trillion in assets onto a blockchain system, Edelman said, according to CNBC.

North Capital, a fintech firm and broker-dealer, has been using blockchain for several months now to handle transactions, custody and clearing in private securities, the news service writes. Blockchain is perfectly suited for handling securities that lack automated transactions, James Dowd, North Capital’s managing director, tells CNBC.

But implementing blockchain at the firm hasn’t been without unpleasant surprises, such as reconciling software developer language with that of the finance world, Dowd tells the news service. And blockchain is currently facing a serious challenge that could prevent it from taking over from middlemen in the short term: While its volume of transactions is just 0.6% of Visa’s credit card network, clearing times on blockchain transactions have reached seven minutes, Aaron Klein, CEO of Riskalyze, tells CNBC. But Klein is confident a solution will eventually come about, according to the news service.

By Alex Padalka
  • To read the CNBC article cited in this story, click here.