By Nathan Gore.
Blockchain in 2018; the fun and games are done, bring on funding and growth. With the Wild West that was 2017 quickly disappearing over the horizon, 2018 has already proven to be the beginning of Blockchain’s true realisation; legitimate use-cases, proper corporate structure, actual governance. Bye bye blocks**t, it’s going to be a good year!
Back in April, The Blockchain, AI, and IoT Expo took place at the London Olympia. It brought together the brightest and best minds in fintech, as well as some of the most interesting startups in this space.
The event felt like we were seeing the maturing of Blockchain technology as a whole. No longer the preserve of university coders and tech specialists, many individuals from established industries are now getting involved with the scene. People with over 10, 15, 20 years of experience in sectors like financial services, marketing, and banking, have left the traditional side of the industries behind and are now pursuing development in these fields, either as founders or co-founders of startups, or taking up key positions in already established startups. As Maciej Kranz from Cisco put it: “Soon all of these industries will essentially be ‘tech’ industries, it is only a matter of time.”
With regards to the wealth of experience that is being brought to the wider fintech industry, it is very encouraging to see, whether through partnerships and involvement in AI and IoT technologies, or as the leaders or advisers of these tech companies. Speaking to Oleg Seydak, Founder and CEO of Blackmoon, a fintech based blockchain company, about this recent development, he gave us his opinion: “More and more people from traditional industries will see the potential of the Blockchain use-cases in their home industries. So yes, of course I do believe that more and more financial professionals, like more traditional IT guys, people from logistics, from manufacturing etc, will see how they can implement advantages of blockchain for their day-to-day needs.”
The key thing here is seeing the use cases – new ways in which the industry can benefit from these technologies. In Oleg’s case, he had a background as a hedge fund VC, leading 2 investment firms from 2010 until 2018, before moving into a more entrepreneurial style of business. He saw that the principles underlying cryptocurrency could be applied to real-world, tangible assets, allowing them to be tokenised and traded, whilst running a Blockchain platform with all the benefits of a decentralised ledger system, but avoiding the volatility and myriad of other issues that cryptocurrencies such as Bitcoin face on a regular basis. This is how Blackmoon was formed. This is a nice example of taking a traditional industry and a fledgling one, and bridging the gap between them, thus bringing benefits to all involved. And there are many other such examples, often with people with many years experience in the financial services industry being best positioned to tap into this market.
Speaking of that, the abundance of financial services industry professionals within this space is a testament to its current potential, and also its future legitimacy. Unlike many others previously, who are experiencing the financial services industry for the first time via blockchain tech (such as university grads, developers, and first-time business entrepreneurs) and who tend to be a bit more ‘anarchist’ in nature, these new entrants into the Blockchain market are a lot more accepting of the need to respect the current systems and infrastructure. We got a chance to sit down with Mance Harmon, Co-Founder and CEO of Hashgraph, a company that is bringing a new blockchain solution that aims to be free of the limitations of the current main players. He was one such person that agreed that success will come through accepting current structures and markets: “It is not the case that the mainstream infrastructure is going to die and go away. That’s not the way technology markets work ever. You may have the very best technology in the market, but if there is no path to market adoption, then it doesn’t matter. So you have to find a path to adoption, and that’s what we are doing. We do have the best technology, but we recognise that’s not sufficient. In addition to performance and security we have to address the stability and the governance and regulatory parts of governance. You have to address all of them, so that’s what we have done.”
Cryptocurrencies, using blockchain technology, are often pitched as being a decentralised alternative to current systems, such as the banking infrastructure. Just because these technologies and tokenised solutions are exciting and fast-moving, it doesn’t necessarily mean that they are going to replace the current solutions, or that these ones should be ignored.
It isn’t just a respect for the workings of the current system which is why established industry players are shaking things up within the fintech sphere. It’s the fact that they often have a vision of the use cases that can transform their current industry by applying fintech technologies, such as Blockchain. Blockchain BaaS platform Stratis agreed that the experience of who you are working with in this industry can play a major part: “Another problem is you get these guys that just have an idea and they can roll of and get 20 million funding. When you actually strip things back they have no experience in the industry they want to move in. Now if you look at someone coming to the industry from financial services for 25 years, that’s a person that I would like to head up a blockchain startup, someone that clearly knows what he’s doing. Let’s say you were using blockchain tech (ours or someone elses) to work on proving authenticity of Art. But the person who is implementing it for you, they have no connections with art-house, no connections with artists, they have no connections with art galleries. They are going to have to find it. That’s why we only work with companies that are established industry players, that have paved out a market from themselves and seen some success. We know they can take the funding from the Blockchain and scale up to their business or release some of their product. People always ask me – what should I look for when looking for an ICO and what I always say is look for experience, make sure they know what they are talking about”. If this type of mentality persists, then it is likely to point to the future of the fintech scene, with experienced financial services people taking existing problems within their industry/sector and applying Blockchain solutions to them.
And it’s more than that too, a good idea means nothing if you haven’t got the means to pull it off and to see it through to fruition. There are many factors involved in whether or not a company will be able to ‘see it through’, but one of those will be about the team, and the people invo ved in the project. Experience in having raised large amounts of investment and involvement in having managed rapid growth of a company – these are all things that would make a team more likely to succeed, and actually have a measurable, real-world impact with their technology and their solution.
Mance Harmon from Hashgraph concurred: “From the very beginning, I have always believed that if you build the very best product in the world, everything else is going to fall into place. The best companies in the world have the very best product, and that’s where we focused. We knew from the beginning that we just did not want to publish a white paper based on a billion dollars, and then go to build something. We wanted to solve problems first, making enterprise great first, and then publish the details of the project, which of course we had.”
London is a fintech hub – but for how much longer?
Most of these companies, being on a bit of a world tour, were understandably quite excited to be in London, one of the main tech/fintech hubs of the entire world. But, regulation in the UK has not exactly been swift in dealing with the new blockchain-based world, in terms of regulating ICOs, cryptocurrency, and the like. The relevant regulatory bodies may, to some, be seen as having dragged their feet so far over the matter. We are still at the stage where it is unlikely for a startup based in London to also conduct their ICO in London. Not that it stops everyone, however, as we found out in our chat with Stratis “We were recommended to be the most tax efficient – to set up out of Malta, out of Japan… in all those very tax-efficient places. We decided to incorporate in London purely because of who we are going to approach with our solution and how we are going to operate. In the long run basing ourselves in London will just make things easier.”
Still, this is a less than ideal situation. Any environment in which a company cannot feel comfortable registering in their own country in order to conduct various or all aspects of their business, is clearly something that needs to be remedied. Tokeny is a company which is running a platform aimed at ‘de-risking’ ICOs, fully auditing and preparing any company that is their client before they launch an ICO. We spoke to Luc from Tokeny about the current problems that the UK as a jurisdiction is facing, and how that may be holding London back: “I think the UK, like other big countries, has difficulties when it is trying to move fast. They (the UK) are at the centre of the financial world. Smaller countries, Luxembourg and Monaco for example, can move a lot faster when adapting, like with what Singapore did last year. I have no doubt that the UK will eventually move in the right direction, but of course it takes more time than smaller jurisdictions. So I am not really worried about it, I have confidence in what they are going to do, they have to do the right thing at the right moment, and to take the right steps. They are likely looking to the rest of the world to see what they are doing first and to learn from them. Step by step, they are going to be building the next generation of financial products and framework to support this.”
The nature of the Blockchain world is that it is a global industry, with applications anywhere and everywhere. For the majority of those in attendance at this event, this was merely another stop on the ‘world tour’ that has probably already taken them around Europe, with another leg in Asia being next up. The global nature of this industry leads to a lot of jurisdictional ‘window shopping’ by companies, in terms of where they decide to base their company or ICO. Luc added: “Choosing the right jurisdiction is very important, of course, when it comes to the ICO. But now you can be compliant in some jurisdictions very easily, like, if you go to Gibraltar or Singapore, the lawyers and the law firms know what to do. Not many laws, so that is why it is easier and it has less risk. In other countries, like the UK, it is a bit harder obviously, but it is still possible. We are, on our side, jurisdiction-agnostic in what we do, we just make sure that they are compliant in the jurisdiction that they want to launch their ICO in. It is becoming more clear how to work in each jurisdiction. Each country is now going through the process of defining what a crypto asset is, and how you handle it with taxes and everything. I hope that a company from the UK can run their ICO in the UK, and the same for anywhere else – unfortunately that is not currently the case, but I hope this will happen soon.”
Blockchain steals the spotlight– but don’t forget about AI and IoT
The close links that have emerged between all three industries are becoming a common sight, with so much collaboration happening, often powered by big events. AI and IoT are, as of now, much more established technologies, and are already deeply linked within the various industries in which they apply. Blockchain, being a relatively nascent technology, still has some way to grow to be on par with the rest of them. We caught up with Maciej Kranz, Vice President of Strategic Innovation at Cisco who described the relationship between IoT and AI as being “like the body and the brain, with IoT absorbing the data and then AI processing the data”. Blockchain can then provide a decentralised platform upon which a business solution can be hosted, and then may utilise IoT and AI to add value to their company or startup. Maciej continued, with regards as to how Blockchain fits into this: “Any industries where you have people doing a lot of different transactions with each other, that is where Blockchain tech can really come into its own, providing a trusted platform. From my perspective, and something that we saw a lot of on the show floor, is that this is going to be a year where these three technologies, combined with cloud architecture, will start being deployed in production and it is very exciting to have reached this milestone. We want them to be generating the data, take this data and analyse it (often using AI technology systems to do this), and then create decisions and outcomes, and in some cases IoT can end up being used to implement these things.” Whilst Blockchain is the newer of these three technologies, the success of companies utilising the Blockchain may actually rely on their ability to fully utilise the technological solutions of the other two.
One thing’s for sure – the fintech scene is thriving. This space is rapidly maturing, and the future looks exciting, as the initial cash-grab ICOs and Blockchain solutions are fading away. Combining Blockchain technology with established industry know-how is likely to result in a successful outcome for any new company in this space.