Blockchain technology is not something that changes our approach to doing business in the short term. This will happen only in the long term. Bearing this in mind, the main trend in the blockchain sector this year is the expectation of moving from experimental format to real applications, expanding the scope of technology applications and creativity in finding formats. These were the conclusions of an expert group who took part in two major fintech-events in London and Paris, which took place in January: Blockchain Week London and the Paris Fintech Forum-2017.
“Blockchain technology is not going to change our approach to doing business in the short term. This will happen only in the long term”, said Anish Mohammed, blockchain expert and adviser to Ripple Labs during a panel discussion about how blockchain may affect business activities. According to Joshua Daniel, member of the research team of Distributed Systems Architecture – BT, the blockchain world can be divided into those who are already testing the technology and those who are passively interested in it. There are many case studies on the use of blockchain, which concentrate on two key categories – the first being the financial sector and the second being that not associated with it, which includes IoT, the Internet of Things.
Each sector is represented by novice startup companies, as well as traditional players. Simon Taylor, co-founder of 11FS, suggests that this will be the year of maturity in the development of blockchain technology in both categories of companies. “We need both Evolution and Revolution, and we believe that both groups will be learning as they go along. However, if you are a newcomer to the area, it might not be the highest priority for where you will need to invest”, he stated.
Macro factors in the business environment and trends
According to forecasts issued by the 11FS company, which is engaged in research, benchmarking and building of Digital Banking, and has a blockchain fund, we should look closely at macro factors in order to properly analyze blockchain trends for 2017. The appearance of a final product and the profits it brings will be the cornerstone of the issue. In 2017 the first real DLT-products will be on the market, and we can say that the focus will be financial exchange trading (including transactions in gold). The same is said by Chris Skinner, renowned Fintech expert and author of numerous books about the future of Digital Banking, who acted as a moderator on several blockchain panels during the Paris Fintech Forum-2017. The first and foremost example that needs to be quoted is the digital platform for trading in gold from The Royal Mint – Gold (RMG) based on blockchain, created by the Royal Mint of Great Britain, together with the world’s largest derivatives trading platform at the CME Group. It is planned that the CME Group will use digital platforms to make transactions in gold in the vaults of the Royal Mint, to an estimated value of one billion GBP. The digital platforms will allow operations without the physical movement of gold, thus replacing the traditional Buy transactions. In addition, all operations will have cryptographic security. David Janczewski, Director of New Business at the Royal Mint, explains: “The use of blockchain and DLT-technology in the context of transactions with gold has long been considered by us. But we only knew after the implementation of the partnership with the CME Group that this was the right direction to go in”.
The second case in point, as stated by Chris Skinner, is the announcement on blockchain by the Depository Trust and Clearing Corporation (DTCC), which has decided to work with IBM, as well as in partnership with Axoni and R3, to provide a DLT- structure built on blockchain for post-trading for derivatives. The project will be based on the Hyperledger open platform. The agreement states that IBM will lead the project, effect the program management, provide DLT know-how, as well as providing system integration services. Axoni will provide the DLT-infrastructure and applications for smart contracts, while R3 will take the role of solution-adviser. As noted by 11FS, while you are thinking that nothing practical is happening, scalable financial products are hitting the financial markets. And so, while some will only be asking questions about the reality of such products, others will actually be making their debut on the market with such products. This is in line with the second macroeconomic trend, which is witnessing the emergence of new businesses in the system of existing financial markets, and not only related to blockchain technology.
Already, we can talk today about the use of blockchain in:
Music – the Open Music Initiative, developed by Berkeley College, whose purpose is to carry out accounting and transfer of rights for music through blockchain;
Logistics – the TKI Dinalog | Dutch Institute for Advanced Logistics project for the optimization of supply chains through a blockchain-based system;
Real estate – through the Ubitquity LLC (Canada) company; and
Micro-finance – where SunExchange is a p2p micro-finance blockchain platform that allows you to invest minimum capital of $10 in distributed solar energy projects around the world.
The third macro-economic trend is defined by experts by the growth in popularity and applicability of Bitcoin. “Companies such as PwC, Deloitte and others are becoming major players in the context of projects using Bitcoin and Ethereum, and players like Bloq and Blockstream are very reminiscent of companies working on Linux, at the initial stage of their development, working today on developing open software, easy to use for large corporations. In such circumstances, institutional investors can begin to develop Bitcoin infrastructures to focus on those investing in Bitcoin”, as was noted by 11FS. Experiments will continue, that could lead to one or two minor DAO failures in the public blockchain sector. However, in the course of deeper study of these topics and experiments, more and more practical business formats will appear and grow, based on tokens or smart contracts, that are compatible with the existing legislative environment. And also we should expect rapid development of a new paradigm of Crowdfunding by ICOs, which provides a low entry threshold to investment markets ($10 capital is already sufficient for investment), and will feature more creativity than today. We should not forget that ICOs are not just a method of raising capital, but also a way to access the target audience and a promotional instrument.
Another inseparable part of the blockchain environment is financial inclusion and commitment through innovation to ensure the availability of Financial Services for all segments of the population, as well as in emerging markets. In this regard, two revealing examples should be noted involving blockchain projects that won a “Hackathon” during Blockchain Week in London. The first project offers the way to get an access to grant scheme on app. The second offers a cost efficient solution that enables people within developing countries to create a unique identity (see video in English on Youtube). Of course, these projects are still incomplete and need to be improved, but show us the trend to financial inclusion through the use of blockchain technology.
Regulation by means of a ‘bottom-up’ approach
At a time when the hype around blockchain technology is migrating into real business, emerging industry regulation is becoming more and more acute, which applies just as much to the whole Fintech sector. According to experts, the basis of successful supervision is the presence of a responsible Regulatory institution with a clear strategy aimed at establishing transparent rules of the game for business, security for the consumer, the creation of Regulatory practices on the basis of mutual dialogue between the Regulatory Body and business itself (such as in a “sandbox” formats for example, where there is an opportunity to test business processes and to find appropriate Regulatory solutions). In addition, the Regulator needs to take a technologically neutral position, all of which are essential to creating effective regulatory practices.
It also makes sense to create a Regulatory field in a ‘bottom-up’ format, which actually means the establishment of the rules of the game by the businesses themselves, which need to provide representatives from different jurisdictions and the ability to introduce innovative ideas, together with the development of self-regulatory approaches. Great importance lies in the creation of a transnational Regulatory field which will bring together Regulators from different countries. The speakers predicted that in the short term, the growing needs lie in regulation in the areas of the Internet, DLT-organizations working with blockchain technology and the Crypto Securities market.
According to various sources, 80% of banks are today exploring the possibilities of blockchain technology, and 78% believe that blockchain will achieve widespread use within five or six years. According to PwC research, the Global FinTech Survey 2016 Study, the greatest transformations in the next five or six years will be visible in such sectors as retail banking and consumer banking, payments, and investment transactions (payments & fund investments), as well as capital management (wealth management). According to the PwC data there are 219 Fintech-related companies now registered working in blockchain; 30 industries feel the value of financial services based on blockchain, and investments in Fintech, based on blockchain, are higher than $900 million.
Kate Shcheglova, Editor-in Chief of Future,
contributor to the FinTech Times, London