The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
Decrypted: SMEs are the lifeblood of Europe’s economy, accounting for 40% of EU exports. Yet, they continue to face challenges, as stats by the World Trade Organization showed that 50% of SMEs globally don’t have access to formal types of credit. Over 80% of trade is financed by credit or credit insurance and these small businesses depend on banks or alternative financing sources to fund their growth. The lack of access to financing jeopardizes their survival.
The consortium of European banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe General and Unicredit), working with IBM, have realized the potential to accelerate growth and make cross-border trades for European SMEs simpler and speedier.
Our take: Payments is a critical element of Trade Finance and complex when it comes to cross border trade. Over time, revenues for cross-border payments have remained healthy, primarily because banks didn’t have a reason to develop systems and offer innovative solutions. PayPal was the first to threaten banks’ payments business. Most SME’s relied on PayPal because they believed they got a good deal, along with the ability to collect funds from their customers. The issue of bank fees for cross-border payments has been raised before. A report published by McKinsey in 2016, showed how blockchain could disrupt cross-border payments. Today the thinking has shifted and three forces are driving this change: increasing customer expectations, regulatory demands and the emergence of innovative digital technology.
The initiative to adopt blockchain by the Digital Trade Chain Consortium is not the only one. In the summer of 2016, KBC and Cegeka in Belgium, were the first to successfully test Digital Trade Chain (DTC), to facilitate secure international trade between SMEs. Also, another initiative in 2016, by seven major financial institutions (BNP Paribas Securities Services, Caisse des Dépôts, Euroclear, Euronext, S2iEM and Société Générale) in collaboration with Paris EUROPLACE, conducted a trial to develop a post-trade blockchain infrastructure for SMEs in Europe.
A recent IMF report in June 2017, suggests that banks should consider more seriously about investing in cryptocurrencies and improvements in cross-border payments are likely. It argues that regulatory authorities need to balance efficiency and stability trade-offs in the face of rapid changes, in order to maintain trust in an evolving financial system.
The Digital Trade Chain Consortium project confirms the confidence in blockchain technologies. Blockchain technology is as transformative as the Internet, allowing for a borderless business environment that is open to new opportunities, while reducing operational costs. With blockchain cross-border payments, authorized participants will have access to a single, shared record of events, that is updated in real time and cannot be edited without the agreement by all parties. Banks will be able to see the terms of contracts, making it easier to lend money to SMEs, as they will know how they will be repaid.
Secure records on a digital distributed ledger will accelerate the order-to-settlement process and decrease administrative paperwork. The platform’s end-to-end transparency will also give SMEs confidence to initiate trade with new partners in their markets or in other European markets.
There is real potential for blockchain technology to transform the cross-border payments market. This is one of the reasons we’re seeing more banks embrace it. Hopefully the recent announcement, will continue to shift the debate to practical implementations that can propel new business models and deliver economic value for the entire ecosystem.
It will be interesting to see the impact of this on SWIFT (the current standard for cross border payments which has a blockchain initiative) and Ripple (which is challenging SWIFT with a cybercurrency approach).
Decrypted: In a report entitled “The Future Is Here“, the Monetary Authority of Singapore (MAS) announced that it completed the first phase of a project, that involves the development of a tokenized version of the Singapore dollar (SGD) on an Ethereum-based blockchain. When Singapore’s project is fully implemented, it would be the first tokenized fiat currency and the first blockchain-based interbank payments system. According to the report, the second goal for the project will be to test the viability of a tokenized blockchain-based solution to domestic and international securities transactions, such as the global stock exchange and cross-border payments.
Our take: In 2009, Bitcoin started as a digital alternative to central bank fiat currencies. Since, Bitcoin has had strong growth, with transactions volume reaching over 300,000 per day and a market capitalization around $41 billion. The rise of Bitcoin introduced the world to distributed consensus ledgers, blockchains and cryptocurrencies.
While digital currencies have been growing, central banks have been monitoring and studying their implications and examining how they might issue their own digital currencies and put money on the blockchain. A World Economic Forum research paper revealed that over 90 central banks around the world, are engaged in talks about issuing a central bank digital currency. In developed markets today, nearly all fiat currency is held and exchanged by digital means and only a small fraction exists in physical form.
It certainly looks like central banks are going to step in and offer their own digital currency, to pre-empt a Bitcoin takeover. But beyond that, there are several other reasons to offer their own digital currency, which include combating tax evasion and illegal economic activity,
The US Federal Reserve, the Bank of England and the People’s Bank of China are among many central banks examining the potential benefits of digital currencies. Central bank digital currency will not completely replace physical notes and coins, but there can be no doubt that its here to stay.
The Bank of Canada, the Canadian Payments Association and the Royal Bank of Canada demonstrated their strong interest by experimenting with a digital fiat currency called CAD-COIN. The Bank of England, is studying what a central bank-issued digital currency could mean and how it affect the economy and financial stability. The Central Bank of Denmark is planning to issue its own digital currency called e-krone as its reserve currency. The German Bundesbank is investigating the technological achievements of blockchain and possible business cases especially in the financial sector. The Central Bank of Russia is testing a number of digital currency pilots toward the development of a national digital currency. The People’s Bank of China (PBOC) has completed a trial that saw transactions settled with its own digital currency.
Central bank cryptocurrency, would be very much like Bitcoin. Individuals and companies would utilize computer-generated public “addresses” to send and receive payments. The currency in this distributed ledger would be existing fiat currencies (e.g., USD, CAD, Euro, GBP, etc.) rather than a new and unfamiliar digital currency like Bitcoin.
Blockchain technology will disrupt the structures to variety of industries, and allow individuals to make transactions without relying on a third party. The future is here and the time has come for money to make the another step in its evolutionary chain from shells, to metal, to paper and now to dynamic code.
Decrypted: Daimler is one of the largest manufacturers of automobiles and commercial vehicles in the world. They are also into fleet management, leasing, insurance and mobility services. It is only natural they would be interested in Blockchain.
Using blockchain for auto finance, is a natural step for carmakers. Weekly, they manage billions of dollars and interact with hundreds of banks. The automotive industry is entering an era of digitalization, which creates major changes to the existing business models. Blockchain technology makes it possible to conduct direct and secure financial transactions worldwide, within seconds. Potentially, it could even pave the way for automobile manufacturers to directly accept payment in central bank backed cryptocurrencies or Bitcoin.
Our take: Blockchain has received significant recognition, primarily in the financial services industry. But now it has reached a level of maturity, where enough on-ramps exist to make distributed ledgers not only useful for payments, but attractive to global leaders in different industries. The automotive industry is a complex ecosystem with many different parties involved in the design, production, distribution, marketing, sales, finance and vehicle servicing. Companies like Daimler are evolving rapidly towards a broader transportation and mobility position, where it makes sense to integrate blockchain, in order to reduce production costs, drive greater operational efficiencies and unleash new business opportunities.
Daimler’s pilot project was only the first step to wide range of possibilities for using blockchain technology and assessing the technology’s potential, for future transactions and financial processes.
In February, the German automaker joined the Hyperledger Project, soon after acquiring PayCash, a digital payments platform that offered several of payment options, including Bitcoin. The acquisition was a part of its “mobility and digitization strategy”, as Daimler will integrate PayCash’s payments technology into its own proprietary payment platform, “Mercedes pay”, that will be work from smartphones.
Daimler joins Toyota, that’s also exploring blockchain opportunities and uses. Toyota is attempting to use the DLT to increase production, delivery and service efficiency, while ensuring transparency to its customers. Last year, Toyota Financial Services similarly joined R3CEV LLC’s blockchain consortium to explore potential applications of distributed ledger technology in auto financing. The Toyota Research Institute partnered with Oaken Innovations, MIT Media Labs and other blockchain startups to develop concepts and applications, in preparation for a self-driving future. The concepts they are working on, include blockchain wallets for vehicles, that will allow cars to pay for tolls, parking fees and other charges, completely on their own. While Toyota seems focused on the use of smart contracts, Daimler seems more focused on traditional financial applications. Porsche is also experimenting with blockchain and created an innovation contest to implement blockchain processes into their corporation.
Blockchain can affect nearly the entire value chain, but up to now the automobile manufacturers have only scratched the surface of what blockchain can mean for their business.
The last few months we have seen an increasing number of ICOs, more money being invested and new projects coming out every week that are breaking the record for capital raised in previous ICOs. In traditional venture capital, these kinds of capital raises are reserved for proven, fast-growing and revenue generating businesses. Typically, a company with an unproven business model, would only be able to raise some seed money or maybe a Series A. But ICOs have changed the investment landscape. Only because of the fact that these startups are focused on blockchain, they are raising tens of millions of dollars and in some cases a lot more with their ICOs. Rightfully so, everyone is wondering how high will the next ICO go? Are we re-living the dotcom era of crazy valuations? When is the bubble going to burst? This was exactly question posted in Fintech Genome by Bernard Lunn, “Is the Initial Coin Offering window closing?”, basically asking if we are approaching an end to the current state for ICOs.
Over the last two years, the space has evolved. Token sales started capped with a fixed number of tokens, at a fixed price. Then, there were uncapped ICOs, letting people buy as many tokens as they wanted. And the evolution continued with several models being introduced. We’ve seen ICOs employing models like hybrid capped models, reverse dutch auctions, proportional refunds and the list goes on.
To explore this better, I thought it would be interesting to hear from a couple of people that have raised money with an ICO or invested in ICOs and get their take. I wanted to keep it simple, so I twitted to them, asking the same question posted in our forum, “Is the Initial Coin Offering window closing?”, to get a laconic response in 140 characters. I asked Vinny Lingham and Brock Peirce. Vinny is the CEO of Civic.com that raised $33 million in an ICO in June and Brock has invest in over 30 blockchain companies and runs the investment firm Blockchain Capital, that also raised $10 million with an ICO this past May.
Vinny Lingham: “Yes & No. It’s moving up the curve to more established brands – the money for high risk, unknown entities will dry up to an extent.”
Brock Pierce: “ICOs are the future so the window definitely isn’t closing though we will see ups and downs.”
Reading their answers, I understand that ICOs are here to stay, but things will change, becoming more rational. It will no longer be a cake walk to raise millions and we will see more established companies jumping in.
I couldn’t agree more.
We are already seeing traditional non-blockchain companies, pivoting, building blockchain products and launching ICOs, and we’ll only see more. Kik is one of those examples. Kik runs one of the prominent mobile-based chat apps and it has announced its intention to launch Kin, its own cryptocurrency. Kin will be a general purpose cryptocurrency for use in everyday digital services such as chat, social media and payments.
The ICO rational is going to change. In many ways, today’s ICOs are very similar to penny stocks. Its pure speculation, that borders gambling. You invest a few dollars in a low-value token and hope, that with some hype, the price will exponentially rise, so you can flip it. They way they are run today, I can’t really see a long-term sustainable future.
In more ways ICOs are and should be like IPOs. When people invest in IPOs they are owners of stock and theses companies are heavily regulated. If fraud happens you will get some protection. In today’s ICO world, you’ll just loose your money. It will be interesting to see how regulators react, when a series of tokens collapse and lots of small time investors loose their money.
Public companies have thousands of shareholders and are subject to strict rules and regulations. Historically, only private companies with strong fundamentals and proven profitability could qualify for an IPO. In my view, companies that do ICOs are not private companies, when they take in investment from thousands of people that are not in the position to qualify the company or its technology. ICOs are IPOs, regardless of whether investors get equity or not. Any company the does an ICO should have in place all the processes to disclose to investors financial and accounting information, just like IPOs.
When projects or people raise money in one pack shot, without showing continuous and consistent progress things can only complicated. So far, the of measure of success for these ICOs, is how much they raised, when it should be what value they will deliver over time. In the startup world, when you raise money from a VC, a big round does not guarantee future success. A round, is only a starting point to take the company to the next level, to evolve the product and create real value. I see no reason why it should be any different for all these projects and startups raising money from ICOs.
What you think? Join the conversation and tell us what you think about the future of ICOs, on this thread on Fintech Genome.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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