Innovation – Finance – Technology


Blockchain – hype or reality?


Around this time last year, blockchain was the hottest subject in finance and tech. It was close to impossible to attend an industry event or read a subject-specific news source without hearing about blockchain.  As the attention to blockchain has cooled down some might ask whether it was all just a hype.

While some of the early use-cases for blockchain turned out to be too good to be true. The DAO, an organization built on smart contracts, had been robbed of more than $60 million through a code exploit in the underlying smart contracts, and around $70 millions were stolen from Bitfinex due to a flaw in the storage of private keys. In the financial sector banks are struggling to reap the benefits of the technology without modifying it to a point where it starts to resemble traditional systems. While ringleaders like Goldman Sachs, Santander and Morgan Stanley left the prestigious R3 consortium, the technology has proven to have potential far beyond the financial sector.

In a world where the majority of middle school students can’t tell the difference between real news and fake news, and the president of the Unites States claims fake news every time he receives criticism from the press, the validity of data is more important than ever.

But who watches the watchmen when those institutions that where once trusted to provide the public with transparent data takes a different turn? It did not take long before the Trump administration deleted every trace of information regarding climate change from the White House website, but this is merely a portion of the information that has been deleted by the current administration. Early February, the US government deleted several datasets that were part of the open government act, which the Obama administration created to promote government transparency.

The US government are far from the only ones tampering with data to promote their cause or benefit financially. Anyone remember the Volkswagen emission scandal? A public blockchain could be utilized to ensure the validity of information through public consensus in an age where data is a fundamental raw material of the digital economy.

Blockchain also shows great promise in the music industry as a method to provide a more fair royalty distribution. Cutting out the middleman is only one area where blockchain could benefit musicians. Royalties are often divided amongst several artists, where the performing artist(s) get one fraction, another to composer, another to the producer as well as fractions to the publisher, the record company, A&R depending on your contract. In addition to providing an immutable proof of ownership for each recorded song, a blockchain-based solution might even sort out the payments of those royalties in real-time opposed to today’s streaming world where it takes forever for an artist to receive any payment from music published on digital distribution platforms.

License and rights administration is another area where complexity in today’s system creates room for intermediaries like performing rights societies to track and collect royalties whenever music is played public. Lastly, blockchain could enable new business models when it comes to funding. A blockchain-based crowdfunding solution would enable fans to invest in the next release of artists they love, and smart contracts would entitle the same fan a small fraction of future royalties. This would also incentivize fans to promote artists the support, creating a stronger bond between artists and fans, as well as give independent artists supporters that have a mutual financial incentive to promote the music.

Blockchain has also shown potential for the public sector, and Sweden’s land registry authority is leading the way with trialing the technology for land title registration. Last year we also saw the first blockchain-managed energy transaction. the owner of a roof solar panel sold a few kilowatt-hours of excess energy to a neighbor utilizing a smart contract, proving the promise of blockchain for distributed energy production, distribution and consumption.

One of my personal favorite use cases is the promise of blockchain for digital identity. Blockchain could act as an enabler for a decentralized global identity database, where the people owned their own identity and no single government or corporation could assert sovereignty. Norwegian challenger-bank, Taqanu has created a bank for refugees based on blockchain for identity management and identification.

While the underlying technology has stolen the spotlight from digital currencies, bitcoin prices are continuing to soar and is viewed as an asset class and Japan has even recognized bitcoin as a legal method of payment.

The defining moment for bitcoin as a potential asset class came from the report Bitcoin: Ringing the bell for a new asset class released earlier this year by Coinbase and ARK Invest, arguing that bitcoin should be considered the first in a new kind of asset class.  The report examines how bitcoin’s unique characteristics are breaking ground for an entirely new asset class: cryptocurrencies.

No asset has scaled from a theoretical concept to a market cap of more than 12 billion USD as fast as bitcoin. Bitcoin also displays a unique politico-economic profile. Its basis of value, governance, and use cases are clearly differentiated from other asset classes. This gives bitcoin as an asset class a unique price behavior with near zero correlation to other asset classes over the past five years.

Even though the hype has cooled down, blockchain and cryptocurrencies are here to stay. The fact that C-level representatives like me stop talking about it and leave it to those who actually know what they are doing to get hands-on with the technology should be considered a good sign.

4 thoughts on “Blockchain – hype or reality?

  • Great eye opener , love cross using technology, will review asap the possible use of block chain in my organisations.

    A true fountain of wealth.

  • There is a $270 Billion price tag for Compliance (global) and $99 Billion of these are “day to day operation” while the rest is fines and “unexpected cost”. Global spending on AML alone in 2014 was $10 Billion. (Source: McKinsey)

    This is a sickness eating up the industry and the easy and simple answer is using Blockchain to harmonize common solution instead of leaving the responsibility to the banks.

  • https://www.quora.com/Could-blockchain-technology-be-used-to-fight-fake-news
    If you couple it with a machine learning classifying algorithm.

    This could work similarly to Bayesian filtering of spam. Give the algorithm a learning set where you already declared some news as fake and other as not fake. Then let the algorithm go classifying news. Perhaps with a confidence interval between 0 and 1 where 0 means 100% fake, for example.

    Then record this classification in a blockchain.

    You see, a blockchain in itself doesn’t assess or benchmark anything. It is just a ledger. A blockchain only guarantees that someone wrote exactly this data at exactly this point int time. But whether the data is «true» or not is beyond the scope of a ledger, let alone of a blockchain.

    It’s an interesting idea. Decisions of a classifying algorithm recorded in a blockchain are useful in guaranteeing that nobody rigged the results after having registered them.

  • First an answer to your question: Blockchain is a reality. But your question really needs a follow-up question: What kind of blockchain are you talking about?

    You are right that the buzz about “blockchain” has calmed quite a bit since the height in 2015/2016. I think an important reason is that many actors in the finance sector slowly are realizing that “blockchain” in itself probably won’t solve a lot of challenges, and that the bigger question is whether the future belongs to a permissioned or a persmissionless blockchain system.

    So far the sector has concentrated on the first one. However, I think more and more people see that interoperability issues, innovation ++ call for a broader view on this technology. They also slowly realize that just open-sourcing blockchain solution will not create a lot of innovation. There are numerous open source systems dying without anyone noticing.
    Open-sourcing is necessary, but not sufficient..


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