How Bitcoin might enable one to bypass the international settlement system altogether ?

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 By Othman Darwish

Digital currency like Bitcoin and the technology behind  it "blockchain" would disrupt the traditional financial services. A slow but steady use cases of blockchain technology emerges every day, and the international settlement is one of the potential use cases that could revolutionize  the financial industry, and disrupt  the traditional complex ,risky ,and time consuming international settlement processes.
 The main innovation of blockchain technology lies in the  ability of making peer-to-peer payments in a decentralized network in the absence of trust between parties or in any other third party. Traditional securities trading processes involves different parties to serve the pre-trade (clearing) and post-trade (settlement ) activities of the payment between the seller and buyer, these parties include but are not limited to the seller's broker and custodian, purchaser's broker and custodian, central securities depositories, and the clearing houses . Such a complex structure of intermediaries aims to  build a trusted authority from perspective of buyer and seller to execute their trade. Blockchain technology eliminates the needs for those trusted  parties , instead it acts as a global distributed  and immutable ledger, the proven secure ledger records every transaction ever made, for securities, goods or other assets  including all  clearing steps processed before settlement.
Settlement process is defined as the legal transition during the time span between trade processing  and settlement date, so that only after settlement, trades become proprietary, terminating counterparty risk. A risk exits if  a party fails to deliver the terms of a contract to the other party at the time of settlement, that risk is associated with default at settlement with the existence of  any timing differences in settlement between parities. For example, U.S. settlement of  equities, bonds, mutual funds securities  require three business days after the transaction date (T +3) , meanwhile, the European standard is (T +2) . In contrary, Blockchain technology is executed in near real time eliminating by that any settlement risk. This immediate behavior changes the meaning of the traditional trading activates, in other words, do we still need settlement ?
 The peer-to-peer  approach of using blockchain technology means that the complex hierarchy of custodians, CSDs and registers could collapse, they are just invented to register and do the book-keeping securities activities.  Blockchain ability of documenting, transmitting and securing entire contractual relationships using "smart contract" - which is a computer program code - enables it to facilitate, execute, and enforce the negotiation or performance of an agreement .  As  legal contracts, the terms of the smart contract are recorded in a computer language as a set of instructions and in blockchain. Thus, the entire securities trading process will be  fully automated  and relay only on the buyer and seller dropping any needs for the intermediates or custodians  to execute their trades .

Securitas trading and settlement is subjective to a  revolutionary improvements in the era of digital currency and blockchain technology , this technology able to be executed in peer-to-peer network between seller and buyer without any need for trusted authorities . Trades could be executed in near real time eliminating any  "settlement"  risk, smart contract  capabilities  will eliminates the need for custodians or central repositories , a fully automated trading process could be executed in risk-free , secure, low cost  and high speed manner.

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