Blockchain: The Global Search for Relevance, Broad Acceptance and Lasting Legitimacy
Notes and Quotes from IMTC World 2018 - Blockchain Series Seminar
{Author’s Note: I do not claim to be an expert in this field; to that point, I may have inadvertently misstated certain concepts and ideas. In fact, I may be completely wrong in some of my assertions. If so, please do not hesitate to correct me}
It was my privilege and pleasure to facilitate an all-day seminar on Blockchain at the recent IMTC World Conference in Miami. Among the 450+ attendees at the annual gathering of Money Transfer and Payments Services Business Industry executives was a cohort of Crypto-enthusiasts who participated in the Blockchain Series Seminar. The following day, a shorter session was held and the dialogue continued.
The mixed group contained at least 3 levels of experience:
Practitioners who zealously and tirelessly promote the Holy Grail of DLT. These evangelists included:
George Harrap, CEO, (Bit)Spark
Faisal Khan, financial services guru whose blog “The Coin” holds court on all things Blockchain and is a walking quote machine
Luis Buenaventura, CEO, Bloom
“Crypto-curious”—more or less novices who learn a bit more each time: if their grasp of the technology was liquid, it has moved from filling a thimble, then a small cup, perhaps now a sink basin, but a long way to go to catch up with the ocean of expertise purported by the panelists and presenters.
… These novices expected an entry-level course, but the session quickly moved to the graduate level with the expert panel making their heads spin!
And the “In-Betweeners” --those who have acquired more than a passing knowledge and look to implement some form of blockchain application into their business operations
In addition. Presenters included knowledgeable staff from Ripple, IBM Bitstop and Interstellar
In the opening remarks, the facilitator laid out challenges to the panelists:
Crypto-currencies appear to be hammered in value recently—what’s up with that?
Are there truly cost savings that accrue from implementing blockchain
Is there increased customer security?
Does blockchain usage guarantee full compliance with anti-money laundering and counter-terrorist regulations?
What are the paths to profitability for Crypto-firms using Distributed Ledger Technology?
Ultimately, what role do banks play—if any—in conjunction with crypto currency?
To the moderator’s statement that “Cryptocurrencies have been hammered in value recently” George refuted that claim by citing the Index that value has stabilized and holds it own vs. traditional securities. He cited the VIX Index, which tracks the volatility of Bitcoin and compared that to the Dow Stock Index, saying, as a measure of volatility, Bitcoin is still relatively less volatile than many stock markets.
Early in the discussion, Faisal pointed out there are approximately 1900 unique payments systems operating globally (e.g. Visa, Master Card, Amex, mPesa, Banks, etc.) and asked “Which horse are you going to ride” since most are not connected to each other.
Luis believe the Blockchain movement involves aficionados who are “both technologists and Ideologists”
One floated premise: Blockchain gains traction more rapidly in economies with problems like an inferior banking network but have telecom infrastructure and high mobile use aka Philippines (where Bloom operates). There could also be a correlation between the convergence of infrastructure challenges and a younger, tech-savvy population.
Enter Ripple with its suite of Crypto services, including XRP to tout its vision to create the “Internet of Value” with its techno-innovations the way the “internet of things” has given us messaging, photos, videos, etc. They believe traditional systems like Swift are limited in efficiency; sometimes smaller value transactions “…get stuck in the pipes” and take time to resolve. Using its ‘Bi-directional messaging” Ripple connects APIs with ledger technology to 150-170 FIs and growing, enabling payment transactions in real time.
Blockchain utility is not limited to smaller, lesser know entities: IBM has introduced ‘Worldwire” with its proprietary clearing facility (“CLS”). In conjunction with its recent acquisition of well-known Compliance firm Promontory, the combined resources enable IBM to be a leader in “Reg-tech” (regulatory technology) as they create new rails for cross-border payments using digital assets. Working with InterStellar architecture, Worldwire will empower the “digitization of cash” which Faisal claims to be “an IOU that cannot be denied!”
There is no argument that current payment systems hold the following warts:
Slow
Expensive
Provide a poor user experience with lack of control over the process
According to IBM, Worldwire will accrue the following benefits:
More transparency
Cleaner settlement
Network growth
In response to the question of banking immortality and necessary in any blockchain transaction, Faisal pointed to a well-known Bill Gates quote: “Banking is necessary, banks are not”. Perhaps, but in today’s world a user who wants cash still needs to convert any type of crypto-currency to Fiat (e.g. USD, Euro, etc.); thus, a financial institution enters the picture as the necessary conduit—at least in the current economic structure. Unfortunately, the money center banks are still too risk averse to adopt DLT in any meaningful way. Hence, the early adoption will come from smaller regional FIs, community banks or progressive trust companies.
Pushing that argument further, George indicated not all banks are safe, pointing to a recent experience in a developing country in which 2 banks closed its doors, leaving only those holding crypto currency able to practice commerce.
In the end, it’s not clear the initial challenges laid out at the seminar’s opening were factually explained away--although they were passionately refuted. In defense of the proponents, 3 critical benefits were cited that can reward companies or the customer they are serving:
Prefunding Payout Agents: The costly need for money transmitters to prefund their payout agents—especially on weekends--goes away when using the blockchain protocol. This frees up significant cash that is normally locked in for beneficiary payouts.
Consumer Currency: For consumers, Crypto acts as an effective backup e.g. when you are out of cash (foreign currency) and no ATM exists, or it eats your card. Holding Bitcoin allows you to quickly sell your holdings and you’re back in business.
Credit Scoring: DLT can be used as an enhancement to a firm’s credit scoring model
Conclusion of the Blockchain Series Seminar: The jury is still out on the true benefits of Blockchain and its Crypto-currency components in terms of global application. However, there is enough potential adoption in the broader economy, especially with mainstream players like Ripple and IBM, to begin legitimizing the activity. These and other case studies will enhance that march to acceptance and respectability, although evidence of profitability remains elusive at least according to this author.