What About Blockchain and Custody?

A lot of people are wondering what the killer app will be for blockchain. I see a lot of potential in various areas. One of them is custody. What do I mean by that?

In finance, equity is transferred between people. Someone has to hold the shares and prove that they exist. They have to record when the transaction happened, and the amount of the transaction. The big custody companies are Bank of New York, Fidelity, TDA, and the very large banks/brokerages. However, there is a tier of custody companies that facilitate private transactions.

I think that next tier is ripe for a blockchain solution. Custody companies charge quite a bit to hold, value and facilitate these private transactions. Blockchain could eliminate intermediaries and go point to point. Because it’s transparent, everyone could see that the transaction happened. There would be no chance that shares or other financial instruments could be falsified, so no threat of fraud. There is “proof of work”, meaning that we know one party bought, one sold, and the transfer happened. When the second party wants to do something with the shares/note, all they need to do is point to the blockchain and show that they are the true owner of the shares. Instantaneous trust.

One of the first places a lot of people saw the blockchain having value was with Title companies. In real estate, every buy/sell transaction means a visit to the title company. Blockchain could eliminate that bottleneck. It seems to me, this is just like custody arrangements.

The second tier of custody is dominated by a few firms and a lot of mom and pop businesses. It seems to me that a blockchain app could really bring a lot more efficiency to that market.

  • JLM

    As it relates to public companies, what you are describing is the function of the transfer agent. It is all “book entry” securities. Seems like a good app for blockchain but one has to ask — to what advantage?

    Then you have the issue of street held securities and certificates (which is archaic).


    • The second point is the one that can be remedied with blockchain-and bring discipline to shorting. If you examine any supply chain, (and transfer agents are a part of a supply chain), there are choke points along them where aggregators and curators can charge tolls. Blockchain can take those chokepoints out.