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: Blockchain has just disrupted another niche. A recent venture between Microsoft and UK-based Nivaura has shown that the Ethererum’s public ledger can be used to support regulated assets.
The company tested the theory by registering, clearing and settling a pair of principal protected notes (PPN) that track the FTSE 100 index. PPNs are synthetic investment products that can be designed to guarantee an investor’s principal while providing profit based on the underlying asset value.
In the test, one of the PPNs relied on the Ethereum network and the other on traditional methods. The test was successful, and greatly reduced the administrative costs associated with the PPNs.
Nivaura is a fintech startup founded by Avtar Sehra, a theoretical physicist who has uncovered a number of inefficient practices in investment banking. Nivaura’s Ethereum-based blockchain investment platform is designed to reduce the usual costs and middlemen, associated with post-trade registration, clearing and settlement, making it cheaper and easier for companies to raise funds and launch investment products.
Our take: Securities and other related assets represent a more complex use case than cryptocurrencies, both in terms of their mechanics, how they are settled and held, and how ongoing contractual obligations associated with the securities are serviced, and in terms of the applicable legal and regulatory environment.
The application of DLT to a securities post trade environment yields a richer variety of questions and potential challenges than in the already well-established cryptocurrency industry. Everyone has been assessing how to allow blockchain technology to be integrated into the regulatory landscape. All agree changes are coming.
Using blockchain for real-time trading could clean up the capital markets in ways that have eluded the regulators for decades. The technology would stop some forms of market abuse, for example naked short selling and late trading. Alternatively, by increasing transparency, blockchain would expose and thus deter other egregious forms of abuse, such as insider trading, wash trades, front running, and spoofing.
Already several brokers are competing to create the first functioning alternative trading system for real-time trading of securities over blockchain technology.
The Canadian Securities Exchange, Canada’s upstart stock-trading platform, is aiming to create competition in securities clearing and settlement using blockchain technology. The CSE plans to apply to regulators for recognition of the new clearinghouse, which aims to provide real-time clearing and settlement that would cut costs and reduce errors when compared to conventional clearing services. The platform, using technology licensed from New York-based Fundamental Interactions Inc., would use tokenized securities called Securities Token Offerings (STOs) for both equity and debt issues, the CSE said in a release Tuesday.
Last December the Australian Securities Exchange (ASX) became the first major bourse to announce the adoption of blockchain technology to record shareholdings and manage the clearing and settlement of equity transactions.
A newly published report from the European Central Bank and the Bank of Japan argues that distributed ledger technology could be used to create new securities settlement mechanisms, including cross-chain atomic swaps between unconnected ledgers. The findings are the result of the central banks’ joint DLT research initiative, dubbed Project Stella, which was launched in December 2016.
Currently, very little automation takes place in the financial industry and it’s hard to create something that’s automated but flexible. A completely automated system that tracks all the data, and the money flows in a compliant and legal way, makes sense for issuers and investors.
Nevertheless, even with all of this excitement, the issue is not a technical one but an industry challenge. Over a decade ago, Europe tried to change the market structure and produced a report by Alberto Giovannini listing the critical barriers to an integrated European market. Those challenges had little to do with technology, and were far more about legal and structural challenges.
Those are still challenges that need to be resolved if we are to have an effective shared ledger in the clearing and settlement markets. It is for these reasons that even with distributed shared ledgers and smart contracts, one way or another the centralization of clearing will not disappear.
Decrypted: Over the past few weeks, Facebook has been in the spotlight like never before. Its been all about the data breach by Cambridge Analytica and its inability to control it’s billions of users private data.
Mark Zuckerberg’s testimony on Capitol Hill was an eye opener. The problems for Facebook go far beyond user privacy.
The fact is that Facebook’s business model relies on personal data of users. Without users, Facebook would not be worth anything. Data is one of the most valuable resources in today’s digital world. Not without reason are companies such as Facebook, Google or Amazon so successful. All three companies know how to turn data into money.
Our take: Youtube and Facebook have fundamentally changed the way we consume content, advertising, and communicate. Before the arrival of Silicon Valley’s giants we relied on traditional media for our content. Fast forward a few years later, Google and Facebook have become increasingly powerful both through virtually the same business model: get users attention. get their data and sell to advertisers.
Edward Snowden tweeted about Facebook:
The “facebook scandal” was not a theft or hacking. What has happened is part of the daily business of Facebook. Facebook collects data about users. Not just by posts you write or likes to distribute, but also by capturing which articles you read, which link you click, and what your friends do. From this data, Facebook creates a user profile with preferences, hobbies or even political orientation. The data and profiles Facebook sells to other companies.
We have to be aware of the Facebook’s ability to influence and manipulate the mood, opinions, and even voting behavior of an entire country. In January 2012, Facebook conducted an experiment on 689,003 randomly selected users that altered the quantity of positive or negative posts in their news feeds. In the recent USA elections it has been determined that Russian Influence Reached 126 Million Through Facebook Alone.
Now, YouTube has grown so big that it can complete with television. But the big problem here is their business model, that is driving away content creators. In order to be advertising compliant people can no longer say what they want and they have to censor themselves. People have lost free speech, they and can easily lose their income from the content they post. New users are no longer even eligible for monetization until they reach 10,000 subscribers and so there is very little incentive for people to start creating content for the platform.
Make no mistake: People are angry with Facebook, as demonstrated this week with CEO Mark Zuckerberg’s lengthy grilling before various U.S. Senate committees. That’s why people have been talking about leaving Facebook and YouTube for a while now and some have been fleeing to other blockchain-based alternatives, such as Steem, Dtube, Dlive, Dsound etc. While the movements like “#DeleteFacebook” have increased and gained momentum, the fact is that number of users choosing to actually abandon the service isn’t yet high enough to make a dent in Facebook’s astronomical bank account.
Facebook or YouTube may not last forever. But the answer isn’t necessarily new, better platforms. Both giants will probably remain the 800-pound gorillas in their industries for some time.
The solution is a new, open-standards infrastructure that lays a real foundation for a new layer of the Internet that could replace Facebook. A new layer where people own and control their own identities and connect to any number of tools and services under their own terms. With open-standards identity infrastructure, individuals don’t rely on another party, such as Facebook or Google, to issue them an identifier for their use. They create the identifiers and own and control them along with what information is shared with whom under what conditions.
Decrypted: The government of Hangzhou, the hometown of Alibaba Group Holding, China’s largest e-commerce company, is investing in a 10 billion yuan (US$1.59 billion) blockchain fund.
The fund will invest in quality blockchain projects, and a park has been designed to attract industry start-ups and professionals. The fund, which claims to be the world’s biggest fund investing in blockchain projects, will be managed by Tulan and INBlockchain, a company founded by virtual currency entrepreneur Li Xiaolai, who is also the chief executive of initial coin offering (ICO) project Press.one.
Our take: The fund’s announcement and the opening of the industrial park further establish Hangzhou as a rising center of blockchain technology in China. The government in Hangzhou has attached great importance to blockchain technology, ranking it just behind artificial intelligence and virtual reality technologies.
Despite a spate of enthusiasm to delve into the blockchain space, all of these companies will have to deal with the regulatory uncertainty in the country. In efforts to stem capital outflow and corruption, China has been increasingly clamping down on cryptocurrencies, initial coin offerings (ICOs) and cryptocurrency exchange trading.
China wants to be a front runner in blockchain technology, even if the ban on Bitcoin remains in effect. ICOs, which were banned by China last September.
But China is not alone in its efforts The EU hopes the 340 million euro blockchain funding, will help things move along even faster. The European Commission has been funding blockchain projects through the EU’s research programmes FP7 and Horizon 2020, since 2013.
According to data from Coinschedule, companies raised more than $5 billion in 165 ICOs since the beginning of 2018. In 2016, about $95 million were raised through 43 ICOs projects. In 2017, the total number of ICOs reached 164, raising more than $3.8 billion. In February, secure messaging service Telegram launched a pre-sale for its cryptocurrency, prior to an Initial Coin Offering (ICO), raising $850 million from 81 investors. The company ended up raising a total of $1.7 billion in March between the two sales.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
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