On Thursday

Surely the G7 has more pressing needs than fretting over Libra? It would appear not as, according to Reuters, the G7 (United States, Canada, Japan, Germany, France, Italy and the United Kingdom) had Libar on the agenda to discuss at a recent G& meeting at the beginning of October 2020. It is somewhat ironic, as apparently most of the G7 members are currently exploring the possibility of launching their own CBDC (as it is a very inclusive payment mechanism), yet they wish to ban Libra. 



Reuters has reported, “G7 require payment systems to be supervised and regulated to guarantee:

  • financial stability;

  • consumer protection;

  • privacy policy;

  • security.

Without these guarantees, the risk is that coins like Libra are used for money laundering and terrorism financing, or other illegal purposes”.


However, is the G7 more concerned that Libra is, indeed, too closely associated with Facebook? Given Facebook’s 2.7billion active users in Q2 2020, which is almost 3.5 times the population of the citizens within the G7’s countries, it is easy to see why the conglomerate is nervous. In the light of almost zero interest rates globally, governments have lost control over their ability to stimulate economic growth by manipulating interest rates. One suspects the G7 subsequentially do not wish to see a loss in control over the effectiveness of its currencies, despite the fact that in January 2020 three of them (France, Germany and Italy) embraced the Euro.


Bank of England’s view on the opportunities a CBDC presents


Chart, sunburst chart

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Source: Bank of England


Whilst the G7 has been fretting about Libra, the Chinese have already launched their own CBDC. Chinese citizens have been fast adopters of making digital payments using their mobile devices, courtesy of Wepay or Alipay, which is possibly why the Chinese have said 


little about Libra - but, then again, Facebook is banned in China! According to the New York Times, Libra’s launch in June 2019 encouraged China to push ahead with its plans for its own CBDC. In a trial encouraging its citizens to use its new Digital Currency the government is giving away 10 million e-yuan ($ 1.5 million) randomly selecting 50,000 people, each of whom will receive 200 e-yuan ($30). However, the catch is: the winners must spend their e-yuan between October 12th - 18th at one of the 3,389 authorized outlets, i.e. use it or lose it. Is this a sign of things to come? Does this mean, should the Chinese wish to stimulate spending in a particular sector, they could give out e-yuan and put a limit on where the digital money is spent, and by when? The Japanese seem to be unsure as whether to deem it a threat that China has launched its CBDC, with Okamura, Japan’s vice-finance minister, declaring, “First-mover advantage is something we should be afraid of." However, a week later Kamiyama, the man responsible for investigating CBDC at the Bank of Japan, was reported as pronouncing, The first-mover advantage may easily turn into a disadvantage, and that no single digital currency will dominate”.

On Tuesday

IBM has announced 90,000 of its current 352,000 employees will be moved to a ‘New Co’  - name yet to be announced. It will also be transferring some of its existing customers and will thereby have an initial turnover of $19billion. The New Co will run IBM’s ‘Managed Infrastructure Services’, i.e. its legacy IT infrastructure, leaving IBM to focus on higher margin digital transformation offers such as AI, Blockchain and Cloud services.




IBM and its New Co - different services offered



Source: NewPlatform.com

When announcing the spin out IBM’s CEO, Arvind Krishna, said, "IBM is laser-focused on the $1 trillion hybrid cloud opportunity." This follows on from IBM having reported only in September 2020 about how Blockchain adds trust to AI and IoT and stating, “Blockchain and AI are on every chief information officers watchlist of game-changing technologies that stand to reshape industries”. IBM has 1,500 staff and over 500 projects dealing with Blockchain work in a wide range of industries, including financial services, shipping and healthcare. IBM extols Blockchain as being able to both help improve supply chain logistics and offer greater transparency as to the provenance of the origin of food. Indeed, IBM has had some great successes developing the Blockchain-powered TradeLens with Maersk, the shipping conglomerate, and TradeLens has now signed up five of the biggest shipping companies. A subsequence of this has been the been the necessity for TradLens to obtain special exemption in the US in order to overcome any potential anti-trust legislation, otherwise even discussions between a competitor regarding how cargo documents might be used on the TradeLens platform would have been illegal. This, itself, demonstrates how Blockchain technology is changing the shipping and global supply chains and logistics with the blessing of government regulations. Furthermore, IBM has also been successful in helping supermarkets provide provenance from where the food they sell is sourced using IBM’s Food Trust Blockchain platform. Food trust has been used by the supermarket giant, Walmart, since 2017 and this short video gives an insight to the advantages food trust offers for farmers, retailers and consumers alike.

We have seen many tech firms ‘muscling in’ on financial services with IBM (aka Big Blue) being of no exception, having developed its own banking payment platform and signing up banks such as Australia's National Australia Bank, Spain's BBVA, and Indonesia's Bank Danamon. Working with StellarLumens, IBM claims that using Blockchain technology can help banks make international payments faster and cheaper as well as being less susceptible to errors - a real win, win solution. More recently IBM has been working with the Thai Government, having just issued $1.6 billion of bonds using Blockchain technology. The process to issue government debt usually take 15 days but took IBM only 2 days, so illustrating the improved efficiency. The issuance of bonds is huge, with over 22,000 deals creating $7+trillion of bonds in 2019. IBM, with its massive global corporate client bank and contacts within governments, is in an enviable position by getting its clients to switch to using Big Blue’s Blockchain technology for issuing bonds going forward.

Surely one of the key drivers for this more focused strategy on AI, Blockchain technology and Cloud computing is for IBM’s management to inject some vigour into IBM’s share price? Over 1, 3 and 5 years IBM has ‘lagged’ the NASDAQ index, as well as the likes of Google, Microsoft and Oracle. Looking at the performance over 5 years of IBM’s shares (down 13.85%) compared...

Last Thursday

In the financial sector change is a constant as organisations search for new ways to raise capital and attract investors, and we have the Dutch to thank for creating joint stock holding companies - for example, the Dutch East India Company in 1602, to trade spices. Some of the oldest pooled/collective investments, and arguably a precursor to mutual funds, were investment trusts. The oldest is Foreign and Colonial, which was established in 1868. Investment trusts sold shares in itself and the money raised was used to buy shares in other businesses (often in foreign countries), thus giving investors in London exposure, say, to 

goldmines around the world or to the booming railway sector in the USA during the latter part of the 19th century.




Trading routes for the Dutch East India Company


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Source: Jean-Paul Rodrigue, Professor, Hofstra University


In more recent times there has been considerable hype, speculation and, unfortunately, a fair share of scandal and disappointment around Initial Coin Offerings (ICOs) - more commonly referred to as cryptos. However, the technology upon which ICOs have relied has been used to create Security Token Offering (STOs) backed by real assets such as bonds, commodities, equities, real estate etc. In order to trade these new Digital Assets, legislation is being introduced in order that the rights of the holders of these investments can be legally recognised and appropriate custody services offered.


As a taste of what may come, we are now seeing companies such as Ucrowdme and financial commentators such as Blockchain Analytica promoting the concept of Revenue Sharing Tokens (RSTs). Against a backdrop of low interest rates and a search for income, RSTs offer a potentially attractive option, as these are Digital Assets which pay an income similar to a dividend. However, the income paid out is based on the company’s revenue and not the profit generated by the company. Given the judicious use of clever accounting techniques it is possible for companies and individuals (just look at Trump, where it is claimed he has paid no income tax in 10 out of the last 15 years) to be able to adjust the profit, thus reducing or eliminating any tax liability. 


The trouble is, companies can only pay dividends if they are profitable. For fast growing businesses or owner-managed SMEs often looking for capital, they either reinvest into the business to fuel further growth or are able to take money from it in more tax-efficient ways. Therefore, the interests of management and existing shareholders may not be aligned with those of new shareholders who are looking for a business which grows its profitability so they, themselves, can enjoy rising dividends. A potential solution for this are RSTs. Rather than relying on the profitability of a company the income payable can be structured to be dependent on the firm’s income which, in itself, is very difficult to manipulate and ought to be very transparent. An added advantage of RSTs is that they can be issued so they are more of a debt instrument, as opposed to diluting the equity of the existing shareholders. In many cases this is something many entrepreneurial SME business owners dislike, as they think they are obliged to give away too many shares in order to raise capital - they are often more optimistic about the potential of their business than a new investor is.  


Therefore, will we start to see RSTs being issued to ‘slate the thirst’ for income as opposed to capital-orientated Digital Assets and thus act as an investment which will meet the needs of SME owners, and the investors often so desperately needed to satisfy in order to expand and grow? 

Last Tuesday

A short video looking at the size of the loyalty program sector, how JP Morgan are looking at monetising this sector as a possible precursor to digitise them this increasing their liquidity and enabling them to be traded more easily.

 

The importance of loyalty programs cannot be underestimated as a way to encourage customers to make repeat purchases, ensure loyalty and build a brand. According to Gartner, as much as 80% of a company’s future revenue will come from just 20% of its existing customers. This possibly helps to explain why so many, particularly larger firms, offer loyalty programs to their customers and, as the chart below indicates, between 30% to 56% of shoppers in different countries earn some form of loyalty reward each week. 



  % of customers who make a purchase and earn loyalty rewards weekly



Source: The truth about consumer loyalty KPMG.com

When researching over 18,000 consumers, KPMG found that 60% of millennials would prefer to donate their rewards with 81% also stating that loyalty programs encourage them
to spend more with the company offering the rewards. It is not only KPMG which has been researching loyalty programs as according to Forbes, 52% of American consumers will join the loyalty program of a brand from which they make frequent purchases, 84% of loyalty program members have used some of their rewards points and 57% of consumers wish to engage digitally, i.e. via mobile devices. However, the average consumer belongs to 14.8 loyalty programs but is only active in 6.7 of them. Despite the ubiquitous nature, it would seem there is still plenty of opportunity for the sector to expand since it is estimated that in the next four years the global value of loyalty programs is expected to increase to over $5.2 billion - a 17% p.a. growth.

Feedback about loyalty programs


Source: Big Commerce.com 

Whilst historically North America has dominated loyalty programs, Asia is fast catching up. In 2019, Carrefour China launched a 100% digital loyalty program, with the company entering into agreements with WeChat and Tencent. It is predicted that across Asia the loyalty sector will grow in the next four years by 25% p.a, to be worth nearly $2.3 billion. An example of the interest in loyalty programs in this part of the world can be seen with the recent announcement from luxury car manufacturer BMW in Korea which is set to launch a digital rewards program (initially in Korea) and based on a Blockchain-powered platform, and then expand it globally.

Interestingly though, reward points are of value not just to consumers. In the airline industry, despite unclaimed loyalty programs being worth over $200 billion, the airlines themselves are looking to use their loyalty schemes as collateral to borrow money and, in some cases, remain alive! As a consequence of COVID-19 and the huge decline in airline travel, four of America’s biggest airlines are now using their ‘frequent flyer’ loyalty programs as security to borrow capital from the US government. A recent article in Simply Flying.com notes, “According to analysis by the Financial Times, Delta’s loyalty program is worth $26 billion, while the airline itself is worth $19 billion. United Airlines’ MileagePlus is valued at $20 billion, while the airline is worth a measly $10 billion. And the world’s largest airline by fleet size, American Airlines, can thank its passengers for its $24 billion valuation of AAdvantage, four times the value of the airline itself, which analysis pegs at just $6 billion”.
Another sector where loyalty points are used is that of the hotel sector, itself struggling due to travel restrictions resultant from COVID-19. However, American Express, which offers loyalty rewards to its credit card customers in, has acquired an estimated 500 billion points by purchasing $1billion pre-paid points from Hilton group. Therefore, given these sums, it ought to be of no surprise that...

2 Weeks Ago

A 2-minute video about growing evidence of the US warming to Digital Assets - is this a precursor to a US Digital $?

Henri Arslanian, chairman of the FinTech Association of Hong Kong and PWC Global Crypto Leader has stated, “that stablecoins have the potential to bring about a meaningful difference in the cross-border payments sector”.



Well, certainly stablecoins have been attracting attention as there are now over $20 billion worth of them in circulation globally. Stablecoins fall into four different categories, those which are backed by:



The largest stablecoin, capitalised at $15.5 billion and accounting for 80% of all the stablecoins in circulation, is Tether. Arguably this is even more remarkable, since Tether was only $3.5 billion a year ago. It has increased in size despite the ongoing uncertainty as to whether Tether is, indeed, backed 100% by US$ (as it claims to be). Should Tether be unable to prove it has insufficient $, this could give create a real shockwave in the Digital Assets sector, especially in the #DeFi sector where it is often used as collateral.


Alongside this, there are other illustrations of how US institutions are also embracing Digital Assets. The U.S. Office of the Comptroller of the Currency recently announced, “We conclude that a national bank may hold such stablecoin 'reserves' as a service to bank customers." This change in tone has very much been driven by banks clients asking to have exposure to these Digital Assets. Meanwhile, Kraken (the crypto exchange which relocated from NYC to Wyoming) has become the first bank to be authorised to offer customers deposit taking and custody services for Digital Assets.


Recently, there has been a huge expansion in the supply of money in the US, an upshot of the government trying to shield its economy from the ravages of COVID-19, with the printing presses working 24/7 and resulting in a massive $3.87 trillion of cash subsequently ‘sloshing’ around the American economy.


US M1 money in circulation


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Sources: U.S. Federal Reserve; Blockchain.com


This may also help to explain why we have seen recent headlines such as the Wall Street Journal’s, “Central banks are getting closer to issuing their own digital currency. If they do, the dollar might finally face real competition as the world’s dominant currency”, which should be of concern to the US government. Headlines like this and the constant innovation in the FinTech sector has not gone unnoticed with the Fed iterating in August 2020, “The Federal Reserve is active in conducting research and experimentation related to distributed ledger technologies and the potential use cases for digital currencies. Given the dollar's important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDCs.”


Expect to see an increase in US institutions and regulators taking a more positive stance towards Digital Assets as they play ‘catch up’ with recent European proposals and the Chinese, who have already announced the launch of their CBDC!

The amount of money that the Decentralised Finance (DeFi) sector has attracted has risen sharply (according to DeFi Pluse.com) from $1.68 billion at the end of June 2020, to over $9 billion in mid-September. This significant level of interest has been fuelled by some of the spectacular returns from tokens such as Yearn Finance (YFI), which increased in value by 6,300% in six weeks as it token’s price rose from $6 to $38,000. Yes, just £1,000 investment at one stage was worth over £6.3million!



A number of firms have been involved in the DeFi sector for years, such as Maker DAO which was established in 2014. However, DeFi really took off this summer. It now offers a range of financial services such as lending, borrowing, insurance, payments, derivatives and even the opportunity to bet on the outcome of elections. This option to profit on the result of an election may offer citizens in some jurisdictions the ability to gamble by buying an asset such as the FTX’s TRUMPWIN or TRUMPLOSE token, even though betting may well be illegal - another question and hurdle DeFi may need to tackle as it gains more widespread adoption. As with anything new and different, education is vital in order to understand the facts before becoming involved. Certainly, if you wish to learn more about DeFi then click here to watch a short video giving a simple to understand explanation of how the YFI tokens operate and are governed.

A term to note which is used in DeFi is ‘yield farming’, being described as the rocket fuel of DeFi since it provides the collateral for many of the DeFi products available. In simplistic terms, it refers to when a holder of a crypto is paid a return/interest, yield (hence the name ‘yield farming) which is far higher that depositing the equivalent amount into a bank account. Unfortunately, given the almost zero interest rates available in banks, DeFi looks almost ‘too good to be true’. This always rings alarm bells as I have heard that expression too many times in over 40 years of studying investments, so please remember caveat emptor- buyer beware as all the glistens is not gold.
 

Performance of the Yearn Finance (YFI) token



Source: CoinGeko

Andre Crojne, founder of Yearn Finance that created the YFI token which has appreciated so much, has gone out of his way to try and introduce governance and controls, will others have created structures that have proved to be been less Decentralised. An example of a DeFi token that turned out not to be very DeCentralised is Sushiswap, where the chef at Sushiswap was able to take $14million of ETH tokens. The chef clearly had ‘baked-in’ the ability to get control/access of others’ money, but fortunately he could not ‘stomach’ the pangs of guilt and has subsequently handed back the $14million…. Nevertheless, this has to be a salutary lesson for all to check on how DeCentralised the DeFi products and services you are acquiring are, before you buy! Double check the protocols and be sure that someone cannot gain access and walk away with your money….

Furthermore, when studying the DeFi sector there are potentially lessons which Traditional Finance (TradFi) can learn regarding some of the innovation being used in the DeFi sector, as well as the TradFi sector offering lessons for DeFi practitioners:

Jargon free/user friendly language: 
In order to gain mass adoption, DeFi needs to have less ‘jargon’ terms such as flash loans, yield farming, staking, liquidity pools, vaults algorithmic market-making APY and even stablecoins (which...

3 Weeks Ago

The COVID-19 pandemic has resulted in unprecedented changes to our lives, economies, and globalisation. The enforced switch to virtual work, consumption and socialisation has generated a seismic shift towards virtual activity - anything that can be done virtually, that is. For those not on the front lines, lockdown has given some time for reflection and the chance to envision what a future world might be. The newly released whitepaper from FintechTV, “Covid and the New World Order. Actionable insights from global technology thought leaders” is a forward-leaning paper which provokes ideas, discussion and debate and serves as a call to action across a diverse readership.  



The whitepaper author and panel convenor, Dr Jane Thomason has stated,“We brought together global thought leaders to consider future challenges and built on it to produce a view of our world and its challenges, and the fresh new thinking and technologies that can enable us to build back better as we emerge from the Covid-19 pandemic. None of us represent anyone, and yet we've become influencers in this space. We are simply people who just have a belief that we can do something that can actually change things in this world”. 


Discussions by the panel included the rapidly emerging transformations occurring during the pandemic, including Central Bank Digital Currencies (CBDCs), health care, the future of SMEs, the global monetary system and global governance. Undoubtedly, these are transformations which have been accelerated at breakneck speed during the pandemic. The whitepaper urges a rethinking of the economic system, to rethink what we value, and to rethink how we live. Blockchain networks give new ways to design and build incentive systems enabling the capacity to rapidly build and implement large-scale structures for incentivising human behaviour. Can incentive systems be created which align the interest of the individual with the overall beneficial outcomes for the planet? 


For a copy of the whitepaper pleaser click here.

The EU have recently issued a report looking at Digital assets and the use of Blockchain technology. A number of items offer guidance on how the EU are approaching this sector. The EU commission would appear to be looking to actively embrace Digital Assets and Blockchain technology. Having issued a series of press releases the EU is looking to bring in new legislation to offer legal clarity, they are proposing to alter EU financial services directives and implement a clear strategy on digital finance. Four factors when looking at how to regulate Digital Assets, the EU state they are mindful of are:



the need for legal certainty; 
to support innovation;
to ensure adequate investor protection;
maintenance of financial stability.
It would appear that stable coins are very much on the EU’s agenda, presumably following the announcement, in June 2019, of Libra and the strong consortium of global organisations which were involved - not least of which was Facebook, with its 2.3 billion users globally.

Source: EU.eu

Together with this, the EU has also announced the Digital Finance Package that it is mindful that the EU needs to keep pace with an ever digitising environment; “If there was still any doubt it is now clear: digital finance has a lot to offer, and the people and businesses of Europe are ready for it. Europe must take full advantage of this in its recovery strategy to help repair the social and economic damage brought by the pandemic.  Digital technologies will be key for relaunching and modernising the European economy across sectors. It will move Europe forward as a global digital player”. 
 
The report went on to state its strategic objectives were to embrace digital finance for the good of consumers and businesses:
Europe and its financial sector must embrace these trends and all the opportunities offered by the digital revolution;
Europe must drive digital finance with strong European market players in the lead;
The aim is to make the benefits of digital finance available to European consumers and businesses;
Europe should promote digital finance based on European values and a sound regulation of risks.

It cited that, having consulted various parties, there was a general consensus of support due to:
Digital finance has the potential to “unleash” innovation and create opportunities to develop better financial products for consumers including for people currently unable to access financial services. Furthermore, it offers the ability to unlock new ways of funding to EU businesses, in particular SMEs.
Boosting digital finance would therefore support Europe’s economic recovery strategy and the broader economic transformation. It would open up new opportunities to support of the ‘Green Deal’; and the ‘New Industrial Strategy’ for Europe.
As digital finance transcends borders, it also has the potential to enhance financial market integration thereby to potentially strengthening Europe’s Economic and Monetary Union.
Finally, a strong and vibrant European digital financial sector could strengthen Europe’s ability to retain and reinforce its financial services and thus its ability  to regulate and supervise the financial sector to protect Europe’s financial stability and its values.

There was broad agreement to target 2024 as the date when it would be possible to have one license to cover all EU members, ensuring there were no national barriers to restrict access to EU citizens or to restrict those organisations looking to issue Digital Assets. Additionally, there was an acknowledgement of the efficiencies that Blockchain technology can bring to the financial services sector such as cutting the cost of payments, helping SMEs to raise capital while offering access to ‘real time’ financial information. 

In reference to firms looking to issue Digital Assets, three of the recommendations were, firstly, (as stated in 16) that small SMEs offering smaller issues would not need to produce a whitepaper/a prospectus. Secondly, see...

A Month Ago

The Swiss have consistently held themselves out as being crypto friendly and supportive of Blockchain technology and earlier this year they decided to maintain its positive stance towards the technology but not altering the way it was taxed. This has led to 900 firms employing over 4,700 staff now in Switzerland that are involved in Blockchain and or Digital assets.

These companies offering a range of services including digital banking for crypto currencies, fund management, property ventures, custody digital stock exchanges and various digital currency projects, such as Facebook’s Libra. The financial services sector in Switzerland accounts for over 10% of the country’s GDP and some of its largest companies are actively engaging with Blockchain-powered solutions and the issuance of Digital Assets. Banking giants such as UBS and Credit Suisse are part of a consortium which has a project to establish how Blockchains can be used to improve the efficiency of trading digital assets Julius Bär has a partnership with SEBA crypto bank and Vontobel looking at offering issues digital assets backed equities and bond certificates that could be traded on the Swiss stock exchange.

Switzerland GDP*

A close up of a map

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Source: *2018 WorldBank

 

Recently the Swiss Federal Institute for Technology has issued a report looking at the launch of an ‘eFranc’, which would be a form of a stable coin i.e. a digital currency backed by CHF Francs. The proposal is that the Swiss National bank, would issue it to other banks, in return for bank notes or other deemed eligible collateral. This would create a method for making digital payments as well as reducing the need to store and handle physical cash. The proposal is that the Swiss banking sector needs to adopt new technology and payment solutions in order to remain relevant, in a global economy that is increasingly becoming digitised. 


The Swiss on 10th September passed what some are referring to as “The Blockchain Act”.

Exchange Traded products which are set to help make it easier to create decentralised finance as well as offering Digital assets backed by equites bonds commodities etc.

It is likely that we are going to see more and more countries following Switzerland and changing their legislation and thus making it easier to establish and run Blockchain based businesses and thus create and trade all manner of Digital Assets. This will be needed for different jurisdictions attract the right types of organisations that are creating jobs and so bringing much needed revenue. It is increasingly being realised that there are huge opportunities to improve efficiency across a wide range of industries and society by using Blockchain technology  as well as offering greater transparency which leads to greater trust in corporations and governments, which in a world of ‘fakenews’ is much needed in our economies!

A brief post on LinkedIn about the possibility of Amazon launching its own Digital coin attracted considerable interest and viewers and strangely enough after London for some reason it caught the eye of a lot of people in Australia.

Amazon has had a fantastic 2020 with its share price at the beginning of January rising from $1,898 to over $3,531 in September enabling it to join the exclusive club of companies that are valued at over $1.5trillion, yet incredibly despite its success it is still not one of the 15 in the S&P 500 that is net cash positive. Given its internet sales it has also awoken, the retail’s giant, Walmart who saw its on-line turnover rise by 97% last quarter . However, last year Amazon generated revenue of $280 billion and in its latest quarterly results reported $89+billion of revenue, of which $10 billion was from Amazon Web Services (AWS), another $10billion from advertisers both of  which is generated from corporate clients. Much of the remaining $69billion turnover was from individuals shopping on-line so just think of all those bank charges and credit card fees that could be saved if Amazon used its own digital currency. As a rough guide if one assumed that it costs Amazon 1.25% to process payments i.e. card fees and we assume that only 33% of the $69 billion last quarter used an Amazon coin that could result in boosting Amazon’s profit by $280million. Over a year that would be an additional $1.1billion of profit which equals over 5% increase in profits and that ignores any savings in FX fees as it transfers money globally buying goods and services or paying its 647,000 staff.


However, in order for Amazon to issue its own digital currency surely it needs some technology. Well fortunately Amazon have been securing patents for a number of years around Blockchain technology. Such as back in 2018 its patent to be able to track crypto currency transactions or its proof of works patent it filled in May 2019 , which could be very helpful to assist any digital currency ambitions it harbours.


More recently Amazon have announced that drivers in the USA will be able to use Alexa to pay for fuel for their cars as they drive into gas/petrol stations. This 2 min video shows the convenience, although some may say the how Amazon is tracking and monitoring its customers, as this may feel a little like - ‘Big Brother”. 


In order for Amazon to keep enjoying the growth in profits it has been it will need to target other sectors of the economy. According to Deloitte the Financial sector accounts for 21% of US GDP. Having its own payment mechanism i.e.an Amazon coin could be a may that it makes greater inroads to financial services. Amazon already own  ‘Amazon coin’ so surely it is a matter of if not when and no doubt this will spur on other global multinationals to follow as after all having their own digital currency enables corporations to exert more control over its suppliers and offers them even greater access in to the massive financial services sector along with its tempting profits!

DeFi – Decentralised Finance is described by Forbes as being, “The idea of decentralized finance is that financial institutions can be created that are run by computers, blockchains and rules that anyone can access free of gaining permission or having to show trust or be trusted.” One way to assess the interest in a topic is to look at Google Trends since it records the number of searches that have been carried in each country. By entering ‘DeFi’ and ‘investing’ into Google Trends and selecting the last 30 days you will see that ‘DeFi’ has been searched for on more occasions than ‘investing’ across most of Africa, as well as some of the world’s largest and wealthiest countries such as France, Japan, China and Luxembourg. What is more is, if you only enter ‘DeFi’ into Google, there are 155million results - just try yourself!



Fans of cryptocurrencies often talk about the 1.7 billion unbanked in the world and how cryptos can create a more financially inclusive global society. Cryptocurrencies promise to make money and payments universally accessible to anyone, no matter where they are in the world. DeFi is claimed to be able to go even further than just having the ability to disrupt payments. It is also able to offer a global, accessible alternative to many traditional financial services such as borrowing, derivatives (the largest asset class in the world), insurance, lending, trading, savings and insurance. To access these, all people need is a smartphone and to be able to connect to the world wide web. DeFi services are available to all regardless of who they are, where they were born, or how much money they have. I suspect, though, that KYC/AML checks will be introduced before DeFi becomes a mecca for the inevitable nefarious actors who, like vultures, circle where there is money to be made and prey on those looking for a ‘quick buck’! However, since DeFi is built using Blockchain technology, it offers the transparency and auditability of traditional financial markets but at a fraction of the cost as brokers, dealers (i.e. intermediaries) are replaced 
with algorithms and smart contracts. A further advantage is that there is no need to trust to hold your assets in custody or to rely on a third party to settle transactions.

One of the key factors for any market to be able to function and offer scale is liquidity. DeFi liquidity is provided by ‘yield farmers’, i.e. owners of  crypto assets who lend cryptos to decentralised anonymous organisations (DAO), The DAOs offer varrious financial services via DeFi applications (DApps) which are run using complex computer codes and executed via smart contracts. The DApps need liquidity and reward owners of cryptos assets by paying them interest/yield i.e. a return, in the form of tokens. Binance states, “Yield farming is a way to make more crypto with your crypto. It involves you lending funds to others through the magic of computer programs called smart contracts. In return for your service you earn fees in the form of crypto.” The amount of capital tied up has grown enormously since the beginning of July 2020 - $1.1 billion rising to, at one stage, over $9.2 billion.
Total value locked in DeFi


Source: DEFI Pulse.com

The way fees are generated for yield farmers is that DeFi exchanges offer the ability to lend, borrow or exchange tokens for a fee. In effect, yield farmers are being paid to provide the liquidity. More important is that the DeFi borrowing, lending and exchanging of tokens is only possible if there are lenders, borrowers and those who wish to exchange assets, meaning there is no reliance on a third party which may, or may not, have the liquidity required. In effect, DeFi has a created an autonomous, computer-based way in which to match buyers with sellers. 

But, as ever, DeFi is not a risk-free panacea and there are risks of...

Cryptocurrencies have had considerable bad press historically because of the massive amount of electricity they consume. There is, as an example, Bitcoin, with its proof of work algorithm being cited as the very worst given the electricity that is needed to ‘mine’ when creating each Bitcoin. Digiconomist explains Bitcoin mining as, “The process of producing a valid block is largely based on trial and error, where miners are making numerous attempts every second trying to find the right value for a block component called the ‘nonce’, and hoping the resulting completed block will match the requirements (as there is no way to predict the outcome)”. This process consumes large amounts of electricity and the miner picking the correct nonce is paid in Bitcoins. Because of the huge amount of electricity that Bitcoin mining requires, many are concerned about the impact crypto mining is having on global warming. However, there have been studies which claim that 74% of the electricity Bitcoin miners use is from renewable energy sources. It is estimated that typically miners spend 89% of the Bitcoins they generate on paying for power, hence the pressure to find cheap sources of electricity



The amount of electricity Bitcoin mining consumes


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Source: Digiconomist.net


Of note, one of the ways to reduce the cost of electricity has been introduced to Texas where miners sign up to the Electric Reliability Council of Texas “controllable load resource”(ERCOT) which means users of power are paid to cut their consumption of electricity when the cost of power spikes. Texas has spent a considerable amount of monies on building solar and wind-renewable power generation which has led to cheap power but big spikes on cloudy days, or at night, when the wind is not blowing. In these meteorological conditions, Texan power is supplemented by expensive gas turbines in an attempt to smooth out volatile electricity prices. 



Cost of electricity in Texas


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Source: Genscape

Earlier this year, Lancium, a company owned by Royal Dutch Shell, claimed to be the first firm to sign up to a load-only Controllable Load Resource as it is typically a user of power, not a generator. However, by decreasing the amount it consumes when electricity prices spike and are high, and using more power when electricity is cheap, Lancium claims it can reduce its electricity bills by 50%. Meanwhile, in order to take advantage of cheap power, a Bitcoin mining firm called Layer1 (backed by PayPal co-founder and crypto-billionaire, Peter Thiel) has set up a Bitcoin mining firm in Texas. Layer1 claims it has increased its profit margins by 700% by taking advantage of load-only Controllable Load Resource. However, this has not escaped the attention of Lancium, which has filed a law suit against Layer1 for an infringement of its Lancium’s patent for controlling the amount of power being used during peak electricity prices. Wow, could we see Shell take on PayPal’s co-founder in court - who will blink first?


Either way, the above demonstrates that Bitcoin mining use of electricity is a little more complex than it first seems. Since crypto miners can be programmed to increase or decrease their power requirements depending on power prices they may indirectly be able to help reduce the cost for other electricity users, such as keeping the air conditioning on during a hot summer’s day in the Lone Star State!

In the US there has been a dramatic decline of Initial Public offerings (IPOs) with, according to the Economist, the average number falling between 1975- 2000 from 282 p.a. to only 118 between 2001-2019. According to Forbes,The average age of a company going public these days is 12 years. In 1999, the median age of a company at IPO was just four years.”



One of the reasons for the decline in IPOs is the huge amount of capital that Venture Capital and Private Equity funds have managed to attract over the last few years. This has meant that, instead of floating on a public stock market, firms have turned to VC and PE investors to raise capital. According to Ernst & Young, only 12% of firms that have been sold by PE firms have carried out an IPO - the remainder have been typically sold to trade competitors. Those firms which have carried out IPOs are usually able to recruit more staff as they expand and grow (as the chart below indicates) with IPOs not only offering companies access to staff, but also enabling private investors to have access to invest in what will hopefully be the next Amazon, Tencent or Google. 
IPOs Finance Significant Job Creation



Source: Venture Impact 2007, 2008, 2009 & 2010 by IHS Global Insight, IPO Task Force August 2011 CEO Survey

Certainly, there are signs that change is on the way as seen with the announcement that INX is about to float, having received regulatory permission from the SEC in the US. Indeed, INX will, itself, be the first Security Token Offer (STO) which can be sold to private investors in the US. Interestingly, the cost to INX for carrying out its IPO was only $6 million (i.e. just over 5%) compared to the average price of an IPO being 9% to 24% according to PWC. Clearly change needs to come given these massive IPO costs and the decline of IPOs. It is not just in the US that digital exchanges are being given permission to launch. In August 2020, the FCA in the UK granted approval to Archax and Gemini to offer regulated exchange services for Digital Assets. The ability to buy Digital Assets on a recognised exchange was one of the key parts of the regulatory infrastructure which has been missing for asset managers. Gemini is already trading in a variety of jurisdictions such as Canada, Hong Kong and Singapore, with Archax meanwhile claiming it has 35 assets that it wishes to start trading. As a result, Archax will enable these to be traded digitally and made available for external investors, which will potentially make the assets easier to invest into by third parties.

An alternative to an IPO is when a company carries out a ‘private placement’ and typically sells some of its equity, not via a public offering but through a private offering, to a small number of selected investors. This method of raising capital usually negates the need for an underwriter thus involving less costs but, even so, as the chart below indicates it is still potentially 40% more expensive than carrying out a STO.

The cost of a STO v traditional private placement over 5 years



Source: Survey of Entoro Capital, STO legal counsel, S&P and Pitchbook

One of the biggest cost savings claimed above is ‘Ownership Transfers.’ These refer to the costs required for a transfer agent who keeps a...

Awareness and interest from academic circles and governments’ central banks studying Central Bank Digital Currencies (CBDC) continues unabated. 


                                 Number of speeches and reports on CBDC                                 Google searches    

     

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Source: Bank of International Settlement



There have been numerous consultation papers, reports and analyses written by various central banks and global financial institutions such as the International Monetary Fund (IMF), the European Central Bank (ECB) and the Bank of International Settlement (BIS). Indeed, the BIS cite that, as of July 2020, thirty-six central banks have carried out in-depth analysis into the ‘pros and cons’ of issuing a CBDC of their own. The BIS has reviewed summarised various reasons central banks cite for looking to issue a CBDC.

Motivations for issuing a CBDC



Source: CPMI survey of central banks; Boar et al (2020).
The BIS also examined three jurisdictions which have introduced a CBDC:

China - reported to be using a mix of centralised and distributed ledger technology (DLT) designed be used alongside physical cash. The majority of Chinese citizens already pay via AliPay or WeChat pay, so these could be the competition not cash that the China’s CBDC needs to overcome. The Chinese have publicly stated their desire to have greater insight to the cash in circulation within their economy and to know ‘who, what where and when’ it is being spent. There it would seem that anonymity of who is spending what is to not be allowed!
 
Sweden - given that many Swedish shops do not accept cash and Swedes use very little cash to pay for transactions, the Swedish Central Bank is using the company R2 Corda to carry out a proof of concept for a Swedish CBDC. The current intention is that the transaction will remain anonymous.

Canada - this is interesting, as it has previously been written about in Digital Bytes that the Canadians claim they have no intention of issuing a CBDC. However, extensive trials are being carried out as a contingency in case the citizens wish to adopt one as the use of cash declines, or in response to private cryptos or stablecoins forcing them to respond. The Bank of Canada have also confirmed that it would not have access to digital retail transactions, so anonymity of who and what is being spent would remain

It was proposed in a paper written by the ECB that a CBDC could be seen as a third form of money, the first being overnight deposits lodged with the central bank, the second banknotes. A major constraint for CBDC is that it disintermediates many of the incumbent players so who are likely to resist change. The ECB report also high lights some potential advantages of introducing a CBDC


Overview of benefits that some have associated with CBDC, and related factors or requirements



Source: ECB. Eureop.eu

A working paper from the IMF - “A Survey of Research on Retail Central Bank Digital Currency” - was keen to highlight that given; “most of the major central banks and monetary authorities considering CBDC” this report had been written “not to advocate for retail CBDC issuance, but to take stock of recent research, central bank experiments, and ongoing discussions” This report believes the reason central banks are exploring CBDCs are primarily:
to improve financial inclusion;
to maintain the central...

It is rather ironic that a technology promoted to be decentralised, collaborative and open continues to see companies filing for patents on a global basis. The number of organisations filing patents globally continues to grow with China, South Korea and the USA leading the way.


Percentage of global blockchain patents by country


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Source: China Patent Protection Association



 
It is important to remember that only novel Blockchain ideas can be patented so, even if Blockchain technology is being used in an application/industry for the first time, unless it offers something unique or solves some tangible technical challenge, it is unlikely that a patent will be granted. As the World Intellectual Property Organisation has highlighted (due to the US court case Alice Corp v CLS Banking International - ‘Alice’) "software patents litigation has changed dramatically", since a claimed invention must be more than an abstract idea. A US judge testified before congress that, “the application of Alice has been excessively incoherent, inconsistent and chaotic”. Nevertheless, despite this, as of May 2020 there have already been 3,924 Blockchain patents filed of which 1,257 have been granted. Therefore, it is thought that the authorised Blockchain patents in 2020 will undoubtedly exceed the 1,799 granted in 2019.

Total number of blockchain patent applications filed globally as of April 2020, by leading company



Source: Statitica.com

In China, as reported by Forkast Insights, there were over 10,000 patents filed although only a handful have been granted. Up to April 2020, out of the 20 companies that filed the most Blockchain patent applications 13 were Chinese. It could be argued that, rather than having a Blockchain patent race, it would be better to follow the lead from the mobile phone industry and develop a range of global standards. This could have several advantages, such as:
greater adoption - better clarity together with the ability to follow a standard encourages engagement as it reduces the risk of having to speculate when selecting one provider’s solution;  
interoperability and compatibility - this enables one to move more easily between different Blockchains;
better technology - sharing ideas and gaining multiple inputs ought to produce better results rather than relying on one organisation.

Notably, there are a number of organisations trying to develop standards such as the International Standards Organisation, the Institute of Electrical Engineers and the Blockchain in Transportation Alliance. There have also been examples in specific sectors where traditional arch-rivals and competitors are merging to solve common challenges within their industry in a far more collaborative manner. Examples of this include:
Tradelens - international shipping; Vakt - petrochemical industry; Aura - luxury brands.

However, there are fears we could see a situation where one country owns the patent on a Blockchain application and denies its use in another jurisdiction, as a form of trade sanction. This fear was raised recently in an article in a leading Indian newspaper with reference to China’s own huge investment in Blockchain technology. Although this concern has given interest to Blockchain technology and its potential ability to impact on many aspects of commerce, governments and society, is it such a good idea that a handful of organisations could own the patents on a technology with the potential to have such wide-reaching applications? If, however, there were to be a set of global Blockchain standards (and companies/nations could work collaboratively) then this could overcome these fears thus limiting the need and use for...

Farming is big business, with some estimating that the global food and agriculture market be worth over $6 trillion. While the sector is massive it also faces increasing regulatory pressure from governments and demands from customers as to a farm’s sustainability and the impact it has on climate change. These pressures are encouraging farmers to rely more and more on technology and thus become digitised by using Artificial Intelligence, Blockchain, cloud storage, drones, tractors powered by GPS navigation, Internet of Things, Machine Learning, robotics and sensors. The use of these technologies is revolutionising farmers across the world so improving crop yields, helping to improve the efficiency of water use, reducing the use of harmful chemical pollutants (such as pesticides) and offering consumers the ability to track and trace produce from field to fork.



Interestingly, as part of the EU’s landmark €750 billion ($885 billion) COVID-19 recovery package it was agreed €15 billion ($17.7 billion) was to be allocated for the European Agricultural Fund for Rural Development so as to help in the digitisation of agriculture across European farms. This funding was also designed to help meet the EU’s agriculture sector plans in order to achieve its ‘Green Deal’ targets. 

A list of some of the Blockchain-based agricultural systems and their implementation platforms


Source: Victoria Wang


The drive for digitisation on farms has encouraged a number of companies (see above for examples) to offer services to the agriculture sector helping them to digitise operations and often at the same time become more environmentally friendly in their farming techniques. The above chart gives examples of the various types of applications of how Blockchain technology is being used and that, notably, various Blockchains are being used already. Nori is an example of a US-based start-up which uses Blockchain-powered to incentivise farmers to reduce carbon and earlier this year attracted $1.3million of funding. Nori is to issue a cryptocurrency and intends to pay farmers who ‘lock up’ carbon in the soil by using sustainable farming techniques which promote the growth of microbes and bacteria in topsoil. The logic behind Nori’s cryptocurrency is that, while governments set the price for capturing carbon (sometimes referred to as carbon credits), its CEO, Paul Gambill, believes that “if we want people to do something that is going to pull carbon out of the air, the simplest way to get them to do it is to pay them”. One of the first farmers in the US to use Nori is Terry Hill, from Maryland, who received $115,000 to capture and store 8,000 tons of carbon in his farm’s topsoil and who now could potentially earn up to $150,000 a year demonstrating how Nori is able to offer an additional income for those farmers its company works with. 


Meanwhile, the agriculture sector is fast becoming digitised, driven by government legislation and customer demand in order to be able to track and trace the provenance of the food we consume. Blockchain technology, with its ability to offer greater transparency and therefore trust in what can sometimes be complex supply chains spanning across different continents, is a great tool to help farmers assure their consumers. As is often the case, Blockchain technology is even more effective when it is used in conjunction with other technologies such as AI, IoT, QR codes, RFID tags, etc. Although it is still early days as governments, processors of foods, farmers, retailers and consumers gain access to more structured data which, in turn, can be interrogated and used by each of these parties for their specific needs, we will no doubt discover additional new ways in which digitisation can help the agriculture industry.

2 Months Ago

Decentralised Finance (DeFi) aims to address the current limitations and failings of many of the existing centralised financial institutions and can be achieved in fours ways:


  • disintermediation (removing the need for middlemen using smart contracts); 

  • not being reliant on single points of failure - having a decentralised system minimises corruption; 

  • distributed ledgers/databases cannot be easily modified in order to ‘cook the books’;

  • reduction in the cost of transactions - due to transactions being digital (and invariably automatic), therefore no need for human intervention.



Total value of DeFi sector



Source:DeFi pulse

While cryptocurrencies have given the ability to store and transfer funds in order to create a decentralised financial system, there is also the need to be able to invest, lend, borrow and earn interest from assets. Subsequentially, the demand for these types of services has led to the creation of decentralised apps, more commonly known as ‘dapps.’

On Yavin, CEO of Cointelligence (who has recently written a book about DeFi), maintains, “DeFi has the potential to completely disrupt the financial system, on top of the disruption caused by cryptocurrency. Unlike today’s completely centralised financial institutions, DeFi could give individuals full control of their own funds”.  The Cointelligence book gives an explanation about the basics of Blockchain, tokens, DeFi as well as listing a range of additional reading and sites from where readers can get more information, including:

defiprime.com  - “a media outlet and analytical services provider for the DeFi community, aiming to inform, educate, and connect the community as the definitive source of news dedicated to decentralized finance space”;
DeFi Pulse - “a site where you can find the latest analytics and rankings of DeFi protocols. Our rankings track the total value locked into the smart contracts of popular DeFi applications and protocols”; 
DeFi Telegram - where DeFi projects can be discussed. 
loanscan.io - which offers more information on DeFi loans. 

DeFi has grown in just the last six weeks, from $1billion to $6 billion! With the ability to earn up to 11% p.a. by investing in US$ via a $Stablecoin (compared to earning practically 0% holding US$ in a bank), it is easy to see why this sector is attracting so much interest and capital.

However, there are plenty of obstacles in the way before we see mass adoption, and DeFi can undoubtedly make in-roads into the massive derivative market which is estimated to be $12+ trillion, compared to the Foreign exchange (FX) market at $6.6trillion. The main challenges facing DeFi are:

moving assets between different Blockchains and, in any event, most assets (i.e. equities, property, commodities, bonds, currencies etc) are not even available in a digital format;
ensuring that the code in-bedded in smart contracts is secure from hackers;
a lack of international regulations and legislation as, indeed, smart contracts in some jurisdictions are not even recognised. Also, there is currently no global agreement relating to KYC/AML;
the compatibility with traditional financial markets and engaging with DeFi and crypto assets (with their hot and cold wallets, private keys passwords etc) does not offer an easy user experience for those new to this market. However, Wedefi and anyswap.exchange are good examples of how this topic is being made more accessible and understandable.

Nevertheless, caution is required as was seen by the recent loss suffered by Yam token which fell from $57million on 13th August 2020 to $0 in two hours as an error was discovered in its smart contract! Examples such as this support Vitalik Buterin, co-founder of Ethereum, who is concerned that users of DeFi are potentially underestimating its risks, with DeFi damaging the long...

Historically, public Blockchain’s have not been seen as an attractive proposition to corporations as they often need to keep certain data confidential - hence private or permissioned Blockchains have tended to be favoured. Indeed, this was the initial route that the Coca-Cola bottlers-owned firm Coke One North America Services (CONA) took when it looked at using Blockchain technology to help improve the efficiency of its supply chains.

 

Hyperledger was selected thus allowing different bottling companies to share information e.g. one of the bottlers could have insufficient stock ready for delivery, so another bottler would be able to make up the shortfall. Previously this had required the bottlers to reconcile their paperwork, which unsurprisingly took time as well as producing the inevitable queries. The use of Hyperledger has sped this mechanism up and made the whole process of lengthy reconciliations and calculating ‘who owns what?’ considerably more efficient. Given the experience of using a Blockchain-powered platform, CONA is now looking to include external suppliers, such as the manufacturers of cans and bottles, and has decided to use Baseline which is built on the Ethereum public Blockchain. 

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Source: Coca-cola.com


Baseline is described by ConsenSys’s John Wolpert as, “A way of using the main net (public Ethereum) that will be acceptable, we think, to very conservative corporate CSOs (chief security officers), CIO, CTOs, where they can finally say, yep, it’s okay to use the main net in this way.” Baseline allows companies to use the Ethereum Blockchain for complex and confidential processes, but private, sensitive data is not held on the Blockchain. By using Baseline, it will enable transactions to be reconciled along CONA’s supply chain between internal departments and external suppliers.


One cannot help but wonder if CONA has visibility of the whole supply chain, should a supplier run into cash flow challenges, it ought to be very easy and relatively low risk for such a supplier to be able to borrow money from CONA or maybe even Coca-Cola itself. Who knows, could this be financed by a ‘Coke coin’ i.e. a Digital Currency backed by Coca-Cola? And why not? After all, as at 30th June 2020, it had net assets of $94 billion. As an additional idea, potentially Coca-Cola could also use a Coke coin in some form of digital engagement program i.e. as rewards, or even as a way to achieve promote climate change and/or social responsibility targets thus giving a new meaning to an old Coke advertising slogan, ‘Share Coke”. Indeed, were the use of a corporate coin proven to act as way to help finance Coca-Cola’s operations, move money more efficiently around global operations and/or act as a more convenient digital loyalty/rewards mechanism, would this act as a catalyst for other multinationals to follow?
CPRAS and the BBFTA have launched the Fairer Finance Hackathon which runs from 1-30 September to hack the poverty trap and end the debt spiral so we can help some of the neediest in society get access to fairer finance.

Created to harness the brightest minds in tech towards one of our greatest social needs, programmers and technologists will be working virtually throughout September to re-invent access to credit by solving the following core challenge.

The challenge is to re-imagine Direct Debits as Direct Credits by combining three readily available technologies: An “open banking” service, a marketplace platform and a digital wallet into a single web application empowering people with a more natural and intuitive way to budget, plan and cope with day to day financial challenges.

We have some fantastic cash and other prizes offered by CPRAS and by our partners at the British Blockchain and Frontier Technologies Association including opportunities for revenue sharing for the most successful participants and a year’s mentoring.

Interested to sign up? All the hackathon details including pre-registration, technical specifications etc are at www.fairerfinancehackathon.com.

Blockchain
Business Opportunities
Finance
Social Change
Source: Helen Disney

There continues to be much hype and speculation around Blockchain technology and the some of the crypto currencies that now exist. The outlook for Blockchain technology being  adopted and embraced by corporate and governments looks promising. According to Markets and Markets, whilst the financial services sector is likely to see the greatest adoption, Blockchain technology offers huge opportunities for SMEs and in the emerging markets with the likelihood that private Blockchains become more prevalent. Indeed, Markets and Markets forecasted in a report released earlier this year that the Blockchain market will grow at a Compound Annual Growth Rate (CAGR) of 60%+, from $3million in 2020 to over $39.7 billion in just 2025. Added to this, Gartner concluded that , “the business value added by Blockchain technology” is projected to expand to be worth over $170 billion by 2025, and an incredible $3 trillion by 2030.




Selection of some organisations’ views on Blockchain technology

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Source: LeadBlockchainpartners.com


As the above quotes in a recent report from Lead Blockchain Partners (LBP) illustrate, it is evident that Blockchain technology is being globally embraced by different types of organisations in various jurisdictions, and that LBP’s analysis found that (aside from financial services), agriculture, energy, food and healthcare were sectors showing most interest in using the technology. LBP’s report also focused on the SME sector citing that the top 3 reasons for founders adopting Blockchain technology are:

  • cost reduction; 

  • immutability; 

  • auditability. 


This, in turn, enables other complementary technologies to be adopted since 70% of start-ups use Blockchain with Artificial Intelligence, Machine Learning and/or Internet of Things. One of the other features of many European SMEs using Blockchain technology is that the founders often have experience working with multinational organisations. In many instances, individuals have left large corporates and established businesses to address the challenges that bigger firms face.

Companies where SME founders have previously worked 


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Source: LeadBlockchainpartners.com


Unfortunately, LBP equally found that 80% of investors are not familiar with Blockchain technology and 60% do not differentiate between blockchain and cryptocurrencies which, given cryptos’ questionable headlines, it is not difficult to understand why firms can experience reluctance from traditional investors when raising capital. However, the European start-ups now number over 3,000, with 500 per year swelling the ranks of SMEs engaged in various ways with Blockchain technology. The publication I-scope warned that organisations need to embrace Blockchain technology as, “early adopters will have the opportunity to establish very strong positions in the ecosystem, while slower adopters will not be entirely boxed out but should be exploring use cases”.


However, it is not just commercial organisations that are interested in Blockchain technology as only this week we have seen the US Department of Agriculture announce that it is going to use the technology to ensure its rules are complied with by manufacturers claiming to produce ‘organic’ goods. This is a good example of how the technology can be used by offering greater transparency, and therefore trust, whether relevant to the goods we consume or ensuring that government aid reaches the intended recipients. The Blockchain market is evolving quickly and, having been driven initially by many start-ups and forcing itself onto the front pages of many publications globally with its use and creation of various of cryptos such as BTC, ETH and XRP, we are seeing a very different cohort of users and sponsors. The ‘cyber -punks’ who talked of a new paradigm embracing the unbanked and by-passing institutions are now a minority and have been replaced by multinational corporations and governments using and continuing to explore the ‘how and where’ they can use Blockchain-powered platforms.

The integration of the financial services world and the world of Blockchain seemed a very long way off just two years ago. Yet consistently we see Blockchain technology being at the core of a number of projects in the UK’s FCA sandboxes. Indeed, we have recently seen Project Pyctor where ING Bank is working with ABN AMRO, BNP Paribas Securities Services, Invesco, Société Générale, State Street and UBS i.e. a cohort of European financial services heavyweights which have just been accepted into the FCA’s 6th sandbox. Interestingly, this group of companies have announced they are looking to build a “digital asset safekeeping and transaction services, with a focus on regulated security tokens issued either on private or public blockchain”.






Source: TeamBlockchain Ltd

Also, in this latest Cohort 6 is the highly-respected law firm, DLA Piper, which is proposing a RegTech platform that offers a rules-based methodology to digitally manage regulatory compliance with regards to the issuance of digital assets. Martin Bartlam, International Group Head of Finance & Projects and FinTech at DLA Piper, said recently, “ We are looking to create a much more efficient way for firms to navigate the complex rules and regulations around the issuing of digital assets, making it more structured for regulators and ultimately faster and cheaper for issuers”. Notably, DLA Piper is also involved in Project Pyctor as it looks to offer an institutional grade custody solution.

This unification of some of the world’s leading financial institutions offers more evidence that institutions are becoming more engaged with Blockchain technology and are considering ways to use both the technology and Digital Assets as more of their clients look to become involved in this asset class. However, it is not just commercial entities, but regulators too, who are looking to understand how and where these assets fit into the financial structure and how Blockchain technology may, indeed, be able to strengthen risk and compliance controls. Interestingly, much of this is happening in the world’s leading financial centre, London.

Another development showing endorsement of this sector is Komainu’s debut as a joint venture between Japanese bank, Nomura Holdings Inc, and cryptocurrency partners, Ledger and CoinShares. Komainu is proposing to offer custody services to other institutions for Digital Assets and cryptocurrencies, such as Bitcoin. Meanwhile, Korea’s largest bank, (Kookmin Bank) believes that the digital assets industry will continue evolving to include a wider range of digital assets, not only cryptocurrencies. Hence, it has teamed up with a couple of other firms to offer custody services, commenting that, “other traditional assets such as real estate, artwork, and other reified rights will be issued and traded on blockchain platforms.”

We are seeing institutions  giving Blockchain technology and Digital Assets the seal of approval, and VC and angel investors are also being attracted to opportunities around Blockchain technology and the creation of Digital Assets, such as SpiceVC. The early stage equity funding platform, Stakeholderz, has had, on its regulated platform, a steady increase in the number of companies using Blockchain technology and/or looking at tokenisation. Dermot Hill, CEO of Stakeholderz, recently stated, “We are seeing more interest in businesses that are looking for capital and the right mix of experience from people with a proven track record to help them not only invest but work with them to grow the company. One project is Invluencer, which uses tokens at the centre of their offering to compound investment intelligence”. To this end, on the 21st August at 10.30am, Stakeholderz is putting on a webinar entitled ‘Blockchain and Tokenisation: What investors need to know’.

It would appear that we have reached an inflection point for all sectors of the commercial world to embrace Blockchain technology and see how this technology can impact on their day to day activities. Almost daily there is...

Forbes published results of a KPMG survey last year to determine how important auditing and blockchain expertise is for finance directors and managers. It identified that 79% of those questioned expect their auditor to provide an understanding of blockchain’s impact on their business or the financial reporting environment. Henri Arslanian, from PWC, was reported as saying, “The Big Four accountancy firms specifically have a very important role to play in the advancement of the cryptocurrency ecosystem. Although Bitcoin was designed with a trustless ideology, the reality is that the industry still requires trusted entities to catalyze the development of the ecosystem.



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Source:TeamBlockchain


Blockchain technology is impacting a wide variety of organisations globally and notably changing the way business is carried out. Deloitte undertook Global Blockchain Survey in 2019 in which 53% of responding firms reported that “Blockchain has become a critical priority for their organisations (up 10 points from the prior year), and 83 percent see compelling uses for blockchain”. Therefore, accountants need to have a thorough understanding about the technology and digital assets which can be created. The initial Blockchains, such as Bitcoin and Ethereum, were public Blockchains presenting challenges around data privacy i.e. Europe’s GDPR (the right to be forgotten) and not being interoperable. However, Blockchain technology continues to develop, and private Blockchains (restricting those who have access to them) is proving to be a reassuringly effective way to address some of the challenges.


The application of Blockchain-powered platforms with other technology, such as AI and machine learning, ought to enable accountants to focus on risks facing a business as well as planning and valuation, rather than recordkeeping. These technologies afford the opportunity to reduce the costs of maintaining and reconciling accounts together with providing certainty over the ownership and history of assets. Equally, the use of smart contracts in conjunction with digital currencies will enable many payments to be made automatically and monies to be received faster and cheaper. These technologies also provide the ability to relieve the overheads, plus the time and aggravations of the accounts payable (AP) and accounts receivable (AR) processes. Increasingly, companies and well-known organisations (such as Wikipedia, Microsoft and KFC) are now accepting payments in cryptocurrencies. Likewise, there are solutions offering the use of digital assets to make international payments, such as IBM’s World Wire employing the Stella Blockchain. The Institute of Chartered Accountants in England and Wales (ICAEW) believes, “Blockchain is a replacement for bookkeeping and reconciliation work. This could threaten the work of accountants in those areas, while adding strength to those focused on providing value elsewhere. For example, in due diligence in mergers and acquisitions, distributed consensus over key figures allows more time to be spent on judgemental areas and advice, and an overall faster process”.


While undoubtably Blockchain technology can improve transparency and the level of trust that third parties have in the financial affairs of a company whose records are maintained on a Blockchain, the age-old adage, “rubbish in, rubbish out” still applies since someone must enter payments, orders, and contracts into the Blockchain. Companies will require accountants to interpret and categorise the data that is needed so, while the role of accountants will alter, they are still likely to be the ones implementing and maintaining the new system since they will still be responsible for the financial records. As a consequence, however: no, accountants will not lose their jobs but, yes, their role will change and ought to be more interesting as a result.

Trade At Settlement (TAS) reportedly helped Vega Capital London Ltd (Vega) to make $500 million in a day. Yes, $500million from a company that has a paid up share capital of £10 and paid ZERO corporation tax in 2019.

To explain how, we need to understand TAS and go back to the rather unusual day on 20th, April, 2020 at 14:30 New York time. This was when the price of the May West Texas Intermediate crude oil futures was at negative $37.63 per barrel. Yes, so-called liquid sophisticated markets packed with savvy traders appeared to be pricing oil so that you could top up your car, or even your jet, and be paid for the privilege of using fuel!



Price of West Texas Crude oil

Source: Revinitiv
Essentially a crude oil TAS trade is where you agree, at a given point during the day, to buy or sell oil futures at that day’s closing price, plus or minus a cent or two. For example, at 09.30 you agree to sell oil at 14:30, at whatever the settlement price is at that time. If you agree up to sell oil futures at the still-unknown settlement price, there has to be a counter party agreeing to buy the oil futures you’re selling. Such counterparties could be hedge fund managers, market makers or prop desks at banks i.e. professional investors who are looking to trade almost anything at what they see as price anomalies. The counterparties’ motive is to trade, not to actually buy (in this case) oil futures at the close of the day’s trading, thus they will use the TAS mechanism, while selling the same number of futures at around the settlement time – 14.30. 

On 20th April Bloomberg reported, “that a number of Vega traders sold the May contract just before it settled at 2.30 p.m. New York time, netting massive gains”. Was Vega manipulating oil futures (otherwise called ‘banging the close’) or hedging i.e. selling futures given the brouhaha due to Covid-19 and the fear that the demand for oil would plummet? 
It is hard to hide making $500 million in a day and Vega has now come to the attention of regulators in the US and the UK. Furthermore, it is not difficult to see why the market is somewhat perplexed as to how one of the most liquid and most widely traded commodities in the world, oil, could possibly be priced at -$37.63?

There are regulations to prohibit trading that have the objective of deliberately impacting on prices, that is, manipulation. There have been a number of incidences where ‘banging the close’ aka allegations of manipulating market prices close to when a market price is fixed. Indeed, a former FX trader was teaching people the pitfalls for others to be aware of back in 2014.The challenge is proving that prices have been manipulated and someone has been ‘banging the close’. You need evidence, which is a difficult unless there is a whistle-blower or a trail of incriminating emails/text message etc. However, according to Bloomberg; “Now regulators at the U.S. Commodity Futures Trading Commission, the U.K.’s Financial Conduct Authority, and CME Group Inc., owner of the Nymex exchange where the trading took place, are examining whether Vega’s actions may have breached rules on trading around settlement periods and contributed to oil’s precipitous fall.” 

Technology could enable regulators to identify and detect ‘banging the trade’ much faster as a combination of machine learning and smart contracts could help alert regulators as trades are occurring. If all the trades were recorded on a Blockchain platform, which all parties could have access to in real time, Vega and its trades could easily be identified to regulators while retaining anonymity within the market. A small, all be it regulated, firm...

There has been considerable debate about how Blockchain and the tokenisation of property will unlock billions of Yen, £, €, CHF etc and enable people from across the globe to invest into property. For a number of years the likes of Deloitte has been purporting how “tokenization will fundamentally change the investment world. And those who aren’t prepared risk being left behind.”  However, what the proponents of the digitisation of real estate tend to ignore are Real Estate Investment Trusts (REITS), as the last thing a firm looking to issue tokens wishes to draw prospective investors to is that their tokens will trade at a discount to net asset value.



The laws that originally established REITS were created in the US at the 14th September 1960 Congress and have now since been copied in 35 other countries. In the US REITS are valued at $3trillion and, in 2019, distributed $69billion of income to 87 million investors.

Average discount to NAV for US REITS



Source: S&P Global Market Intelligence June 2020

Therefore, faced with these statistics, how else can Blockchain be used in the real estate sector since fractional ownership (i.e. enabling smaller investors to get access to this illiquid asset) has apparently been already widely addressed? The Foundation for International Blockchain and Real Estate Expertise (FIBREE), originally established in Holland and now with members in 30 countries, has released its second global industry report -"Blockchain Real Estate". In this report, Jan Veuger, Professor at Saxion University in Holland believes, “Blockchain is the cement between artificial intelligence and the Internet of Things [IoT]. Convergence will play a major role in the field of information and communication technology. Different technologies and market players will converge and intertwine. I see that happening between blockchain, artificial intelligence and IoT.” Certainly a good example of this can be seen in Beijing’s newest airport which connects 5G technology with AI, Blockchain and IoT. The Blockchain technology is seen as a ‘skeleton’ from which other technologies can be connected.

The FIBREE report has also identified issues such as climate change and lack of trust are essentially the challenges facing the world. It accredits Blockchain as being the ideal technology within real estate to help monitor, effectively and inexpensively, both an individual building as well as the carbon footprint of different jurisdictions. Actions taken to help minimise the impact of climate change can be verified, recorded and monitored against those targets which have been set to achieve agreed environmental goals. FIBREE has identified that the use of Blockchain technology can be applied in the following ways:
smart contract energy deployment;
smoother international climate finance transfers;
fraud-free emissions management;
better green finance law enforcement. 

The use of Blockchain-powered technology and smart contract deployment enable recording, tracking, management and sharing solutions across a wide area of energy markets and climate change-related activities. It also offers the possibility of creating permanent records and an audit of transactions for any individual property giving reliable and secure data. Subsequentially, a unique property ID for a building can be created thus offering the ability for an investor to monitor the ‘green credentials of the property’ as well as helping local authorities and governments to build a clearer picture of the environmental impact of the real estate in their environs. Insurance premiums could be lowered while, at the same time, potentially increasing the value of individual properties. Equally importantly, ‘eco-friendly’ and sustainable real estate is likely to attract a premium going forward.

Global real estate projects offering tokenised access



Source: Fibree.org

Indeed, Florian Huber, Co-Chair of FIBREE in Vienna, has identified that the majority of real estate tokenisation projects have less than €200,000 of capital, so they could hardly be described as offerings from institutional asset managers....