Korea Capital Market Institute

This report focuses on artificial intelligence and blockchain among the key technologies leading the fourth industrial revolution. This report explains the concepts of artificial intelligence and blockchain, explores the ongoing attempts to introduce and utilize them in the capital markets, and provides implications for capital market players.

Artificial intelligence emerges as one of the key technologies as machine learning, especially the artificial neural network, shows excellent prediction performance. It is actively used in basic technology fields such as image recognition, natural language processing, and anomaly detection, and in complex high-level services such as an autonomous driving car and a virtual assistant.

Artificial intelligence is highly utilized in the capital markets as well. In particular, efforts are being actively made to apply artificial intelligence in the field of asset management, credit evaluation, chatbot, and anomaly detection. Global financial companies are introducing artificial intelligence to increase the efficiency of financial services and reduce their operating costs. Fin-tech companies use artificial intelligence to create innovative financial services. Global ICT companies with technological advantages are also moving to provide comprehensive financial services by combining their customer data with artificial intelligence technology.

On the other hand, as the initial hype subsided, it became known that blockchain, especially public blockchain, was too slow to deal with massive transactions in capital markets and consumed excessive resources (electricity and computing power), and at the same time, various efforts were made to address these problems.

At this point, it cannot be said that virtual currencies (or cryptocurrencies) have become a means of payment to replace fiat currency. In addition, an initial coin offering (ICO) has suggested a new possible channel of corporate finance, but it faces the task of solving the serious information asymmetry problem. The microstructure of the virtual currency secondary market should also be improved.

Most of the blockchains to be used in the capital markets are expected to be private ones. It will also be difficult to use in retail products, and will be introduced mainly in back-office functions and infrastructure components.

The key technologies of the fourth industrial revolution, including artificial intelligence and blockchain, have the potential to significantly change the structure of financial services in the future. In response to the fourth industrial revolution, market players need to identify which area of their business models and value chains the new technologies are well suited for, and to invest in those areas in advance.