In a recently published research report, Goldman Sachs goes a step further in blockchain research, shifts its focus from theory practice, examines seven real-world applications of blockchain and identifies, itemizes, and quantifies the players, dollars and risks for blockchain to reach its full potential.

The report is the fourth in the Profiles in Innovation series that analyzes how emerging technologies are creating profit pools and disrupting old ones.

It says when the blockchain applications in real-world scenarios are taken into account, the “dollar benefits” become more clear. For the research, case studies of seven concrete business problems were conducted that would benefit from the full value proposition of blockchain: building “trust” between parties in the Sharing Economy (peer-to-peer (P2P) lodging); better managing supply, demand, and security on the US electrical grid; verifying a property title; clearing and settling securities trades; and complying with anti-money laundering (AML) and “know your customer” (KYC) regulations.

Sharing Economy

The report sees potential in blockchain technology to help accelerate the adoption of the Sharing Economy by enabling identity and “reputation management” systems, allowing users to ”credentialize” themselves by validating their identity and past behavior.

“With a secure, tamper-proof system based on blockchain, users can more easily credentialize themselves, which could increase ease of use and security for guests and hosts alike, driving accelerated adoption”, it said.

US electricity industry

According to the report, in the forthcoming years the electrical grid will likely transform from a centralized utility-based model to one with an increasing number of decentralized resources, real-time pricing signals, and the ability to more closely match power supply and demand. Goldman Sachs believes that blockchain will play a crucial role in facilitating communications, transactions, and security between millions of transacting parties.

“In our view, blockchain will enable a decentralized energy marketplace that could significantly shift the balance of spending toward investments in distributed energy resources, while also creating a potential redistribution of $2.5-$7bn of electricity revenue to new market participants (i.e., not utilities)”, it said.

Real estate title insurance

The report says that blockchain could reshape the title insurance industry, by streamlining the manually intensive practice of examining public records when validating titles in real estate transactions. It added that the technology has the potential to lower transactional risk associated with the existing property registration system in the US, and introduce substantial cost efficiencies that would benefit the end consumer.

“We estimate blockchain could drive $2 - $4 bn in US industry cost savings due to reductions in headcount and actuarial risk”, it added.

US cash equities

By streamlining the post-trade settlement and clearing processes, blockchain could drive greater efficiencies in the US cash equities market, the report noted. It estimates that by reducing the duplicative, often manual affirmation and reconciliation of trades across different entities the technology could result in approximately $2 billion in annual cost savings in the US (both explicit and economic costs), while globally it is likely to exceed $6bn in annual savings assuming costs are proportionate to market cap.

Capital Markets – Repo

The technology could help facilitate the repo clearing process by streamlining the multiple movements of cash and collateral over the life of a repo contract. It could make the process more efficient, resulting in more economic savings. The report estimates that a clearing solution for the $2.8 trillion US repo market could yield approximately $5 billion in economic savings per year for the industry.

“The opportunity for blockchain would be to streamline the repo process and create greater efficiencies locating collateral, minimizing settlement and trade failure risk, and reducing the overall capital commitments for banks. Ultimately, this higher level of efficiency would increase liquidity in the market, decrease counterparty risk, and optimize capital utilization”, it said.

Capital markets – Leveraged loan trading

Blockchain technology could transform the trading of leveraged loans, by streamlining and reducing the settlement period to 6-8 days from over 20 days currently.

“We estimate that blockchain could drive ~$110mn in industry economic cost savings due to a reduction in balance sheet collateral requirements, ~$130mn in annual OpEx savings as blockchain-driven process optimization leads to industry headcount reductions, and ~$50-$60mn in industry funding costs as the trade timeline is reduced. All in, savings could total ~$300mn for the industry under our blockchain scenario”, the report noted.

AML and KYC Compliance

Lastly, the report said that the technology could also reshape AML/KYC compliance procedures. Financial institutions could substantially reduce the false positive rate in transaction surveillance by using a distributed database of payment transactions to better validate counterparty information. It could also help streamline the KYC process that is involved in client onboarding.

“Together, we believe blockchain could drive between $3bn and $5bn in industry cost savings through reduction in personnel and in AML regulatory penalties”, it added.

Within the next two years, the report said that it expects to see early-stage technical prototypes, with limited market adoption in 2-5 years and broader acceptance in 5-10 years.