Regulators aren’t the only ones who might benefit by moving global financial transactions to a shared, unchangeable ledger, according to one Deutsche Bank analyst.
Investors, too, could be made more secure.
Case in point: last month, Dutch financial regulator AFM briefly, accidentally published private records of short trades going back four years. Among the valuable data about how leading investors were betting against companies, were a number of decisions by legendary investor George Soros.
Had the trading data been stored on a blockchain, however, the leak likely would have never happened, according to the analyst, Jamal Simpson.
Simpson told CoinDesk:
“That was a case where … distributed ledger technology or blockchain technology could have actually stopped that event from happening in the first place.”
As a result of the mistake (which briefly published hundreds of short sells that are required to be reported, but are visible only to the regulator), that information was made public, leading to potentially valuable insight into the investing decisions of a number of investors, including Soros.
While the regulator was quick to remove the data, the potential damage was already done. Among the shorts revealed were bets against multiple Dutch banks and the positions of Renaissance Technologies’ exclusive Medallion fund.
To give an idea of the potential value of Soros’ investing decisions, Forbes estimates the US investor currently has a net worth of $25.2bn.
“I’m pretty sure, if anyone’s gotten wind of that now,” said Simpson, sharing his personal views. “They’re able to build a better picture of who owns what, who owns which share, and may be able to trade or move very strategically against positions like that.”
The potential of moving financial transactions to a shared distributed ledger has been frequently discussed by members of the industry who advocate for the creation of so-called ‘regulatory nodes‘ that could give government agencies real-time access to data.
But Simpson’s comments reveal the potential benefits of the tech to investors, too. Effectively, putting the information on a blockchain could have minimized the chance of a leak by protecting the data in transit.
Concerns over the safety of moving financial transactions to a shared ledger are common among institutions exploring the technology. But Simpson says the Soros leaks reveal the risk inherent in the current system.
Increased control
Simpson was also quick to point out that such public disclosures as are required by law could also be automated. For example, last June, Soros himself also shorted Deutsche Bank in the fallout surrounding the UK’s exit from the European Union.
In that instance, Soros’ investment was over the minimum amount required to demand public disclosure, another example of how both investor protections and disclosure requirements could be encoded into self-executing contracts on a blockchain.
To skeptics of the potential of blockchain tech in financial transactions, Simpson said:
“There is more than one way to secure information, even if you’re not using blockchain technology. But what I would say is if you’re going to be using blockchain technology then it’s definitely possible. It’s technically possible to make it more secure.”
George Soros image via Shutterstock