There’s a lot of excitement about blockchain and the opportunities it offers the financial services ecosystem, but a lot of work is still needed on bridging the learning curve around actual applications and implications. The very fabric of blockchain, its decentralization, is what makes it both interesting and at the same time, difficult to fit into current structures.
There is no spoon
Blockchain is technology that lets people ‘sign contracts’ electronically — without the requirement of a trusted third party (such as a government or a lawyer or a bank) to verify the contract as valid and legal. "Signing a contract" could be interpreted pretty broadly. For instance it could mean performing a trade of shares, transferring Bitcoin between accounts, Signing a will, purchasing a coke from a vendor machine, moving a train ticket to your phone and being able to prove you have it or essentially any interaction between people or entities, regardless of industry or action. In the blockchain, every time a transaction occurs, a block of data is added to a digital chain.
For example, if person (A) transfers money or information to person (B) this transaction will be logged in the blockchain with a certain code. The blockchain creates trust because a complete copy of the chain, which shows every transaction, is held by the entire network. If someone attempts to cheat the system or steal, they can be easily identified.
The concept of decentralization presented by blockchain is inherently difficult to grasp. The fact that an online application is decentralized between a network of machines, powers technical redundancy and works in its own right to protect the entire system, i.e. the blockchain. However, fitting this into current mandates around central control and governance in the stakeholder ecosystem is complex to say the least. Policy is created on the basis of governance and special access, if needed, to ensure that policy enforcers (for example regulators) can fulfill their own capacity and function.
However, what makes the blockchain secure is that there is no special access, there is no central control and there is no central authority. As far as the technology goes, it is decentralized and radically transparent. The very aspect that makes it appealing, is also in turn the aspect that makes it difficult to fit into the current mandates and structures.
Comparable to the debate around ‘the cloud’ in the financial services context, blockchain has become a practical conundrum waiting for enough trial and error to not only build out practical uses, but really validate their real life value for the ecosystem.
Radical transparency - who really cares?
The blockchain offers an unencumbered transparency previously impossible, and a comparable ledgering of transactions to that of the exchange traded assets on public markets. It may be appealing to jump to the conclusion that this is valuable to all parties in the ecosystem, but the practical applications and implications may indeed be more complex than those seen on the surface.
The concept of having a universal timeline of sorts, to companies, transactions and even individuals is an interesting thought process, allowing to trace transactions back to their origin and find the entire value chain that led to a certain transaction. There are clear benefits of more information in the marketplace, for many of the stakeholders involved.
Of course it’s not all positive. Private transactions are inherently private. With changing policy and regulations, increasing these are becoming quasi-public with the emergence of transactions on new digital exchanges (crowd funding, p2p etc). However, some transactions for example capitalizations of private companies, are very private outside of mandatory filings with a regulator and making them public domain may hamper a competitive advantage or edge in deals. This would be a trade off for both the broker arranging capitalizations and the actual company in question, where the reward of this transparency may be found on the capital side with increased trust and credibility.
There are clever ways of attempting to harness the positive and mitigate the risks, for example with sophisticated access rights and different layers of information accessible by different stakeholders, yet the ultimate transaction remaining public record.
How do we find value?
Crowd Valley, with its select clients, is engaging in a few global pilots to trial solutions using the blockchain. We will be sharing data from public use cases throughout 2017 and compiling written notes on the softer data as well, that is the sentiment and experiences in use. There are several themes to be explored, from radical transparency, the immutability of the blockchain to smart contracts and all their practical value in use. We believe the theme needs to be explored further in practice to establish the actual value in use and find new competitive avenues in the digital finance market.
About the author - Markus Lampinen
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).
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