On Thursday

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*

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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!

On Tuesday

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!

On Thursday

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...

On Tuesday

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!

Last Thursday

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...

2 Weeks Ago

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...

3 Weeks Ago

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.

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...

4 Weeks Ago

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

A Month Ago

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....

Bitcoin is now classed as money in Washington DC USA according to Judge Howell, 

who has said, “Money commonly means a medium of exchange, method of payment, or store of value.” Is this another step towards the US embracing cryptos?



Any organisations dealing in Cryptocurrencies in the Washington will now need a money transmitter license, so it was not all good news for those offering crypto-trading services in the country’s capital. Nor was Judge Howell’s other ruling in this particular court case, which stated that the plaintiff, Larry Dean Harmon, was not allowed to have the 160 Bitcoins that the law enforcement agency had confiscated, returned to him.


Meanwhile, Paypal, (with its 300 million users) is rumoured to be teaming up with a firm called Paxos to offer crypto services. However, it is not only Paypal which is becoming further involved with cryptocurrencies. It would appear that Mastercard is also looking to embrace cryptos as the lines between crypto and fiat become ever blurred. Mastercard has the third most Blockchain patents after IBM and the Chinese financial service giant, Alibaba, so clearly it has been carrying out considerable research into this technology. In a recent press statement regarding Mastercard offering Wirex to be granted Principal Membership License, Mastercard announced,Consumer interest and investment in digital currencies are growing, with research showing that up to 20 percent of the population of some countries are holding cryptocurrencies and an increasing number of merchants, digital players and financial institutions are exploring crypto payments”.


Most popular credit card by country


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Source: Merchant Machine.co.uk


Given the global reach of Mastercard, Visa and American Express, how long will it be before we see one of them launch their own digital currency/payments method? If not, then surely there could be some form of digital loyalty scheme to reward loyal customers, such as when Infosys highlighted the importance of loyalty schemes for financial services organisations to retain and attract customers in its report on ‘Global Trends in the cards and payments industry.’ The report included discussions on how traditional loyalty schemes have poor engagement often relying on cards as opposed to being digital (something that millennials tend not to engage with) and the fact that many existing loyalty schemes are not interoperable. Meanwhile, vendors (in particular smaller ones) find the expense of setting up loyalty programs not to be worthwhile. However, the use of Blockchain technology in a loyalty platform allows loyalty points/tokens to be earnt in one place and spent in another, simultaneously giving transparency, but not evading customers’ privacy, as data can be ‘hashed’ and thus anonymised on a Blockchain.

The cost of zoonotic epidemics is inordinate, with the International Monetary Fund predicting that COVID-19 alone will cause the global economy to contract by 3% in 2020, wiping out $9 trillion in productivity through 2021. Yet, even in the two decades before the present pandemic, the World Bank estimated direct costs from zoonotic diseases to be more than $100 billion.




‘Zoonotic’ diseases - 60%+ of all known human infectious diseases.



Source: Foodsource.com

COVID-19 is the first global pandemic arriving in an era when nearly the entire population can be tracked in real time, thanks to the ubiquity of smartphones and social media. Toronto-based start-up, Blue Dot (which uses an AI-enhanced surveillance system) seems to have been the first to detect COVID-19 outbreak several hours after its insurgence in Wuhan, but well ahead of the Chinese authorities and other international institutions and agencies. COVID-19 has decidedly manifested itself as a data problem and, according to the Blockchain Research Institute, the establishment of a self-sovereign identity system is integral to solving this problem. Undeniably, the question now facing non-authoritarian governments is how heavily to draw on the cache of private sector data in a bid to limit this deadly disease. 

Following the initial outbreak of COVID-19 in January, Chinese citizens had personal details leaked and published which, unsurprisingly, in turn led to personal harassment and reproach. The information circulated included names, photos, home and work addresses, mobile phone numbers and even ID numbers. Similarly, in South Korea, the government has published online the personal data of patients confirmed to have the disease. Its Health Ministry and regional governments have been disclosing not only patients’ movements, but also their personal information such as age, their admitting hospital, the approximate location of their residence and from where they are suspected to have contracted the disease. Equally, through text messages, citizens have been alerted in real-time when new cases are confirmed within the districts of their residence, with links to check the details of those known cases.

In Europe, governments and agencies have drawn location data from major mobile phone companies but, under European Union privacy rules protecting the confidentially of communication on telecom networks, location data can only be used by telecom operators when it is made anonymous, or with individuals’ consent. In view of this fact, on March 16th 

this year, the European Data Protection Board (the umbrella group of the EU’s data-protection authorities) stated that, “The public authorities should first aim for the processing of location data in an anonymous way” (i.e. processing data aggregated in a way that it cannot be reversed to personal data). Europe’s largest mobile operator, Vodafone, produced an aggregated and anonymous heat map for Italy’s Lombardy region (a global coronavirus hotspot), stating it was “willing to assist governments in developing insights based on large anonymized data” wherever it was “technically possible, and legally permissible.”  In Belgium, Proximus, Orange and Telenet all agreed to share part of their databases with a consultancy to help public authorities better fight the pandemic and in Germany, Deutsche Telekom disclosed anonymised customer mobile phone data to the Robert Koch Institute (a federal agency and research institute responsible for disease control and prevention) giving assurance that, “The tracking of individual citizens or infected people shouldn’t be possible”. However, Patrick Breyer, a privacy advocate and member of the European Parliament, concerned that the supposedly anonymous monitoring of movements within the...

In a rather bizarre twist, the US’s FBI has suffered a leak of its own data with the publication of hundreds of thousands of files. The files have been named ‘BlueLeaks’ and were published by Distributed Denial of Secrets (DDoSecrets).



DDoSecrets promotes itself as a “collective for transparency”, being described by some as an alternative to WikiLeaks. Emma Best, a journalist, reports, “It shows how law enforcement has reacted to the protests, it shows government handling of COVID, and it shows a lot of things that are entirely legal and normal and horrifying.” Part of the information leaked (assuming it was, indeed, a leak and not simply a ruse for the FBI to let the public know it is monitoring such nefarious activities) was details regarding the ‘washing’ of Cryptocurrencies via the dark web, such as Bitcoin in Panama. However, given the digital footprint that digital assets create, it seems odd that criminals would be keen to use such assets were they trying to be covert. Furthermore, it is alleged that, since 2015,  there has been a 90% reduction in the cryptos being used on the dark web. 

Historically, Blockchain, Cryptocurrencies (such as Bitcoin) and Ponzi schemes/the shadow economy were often thought to be one entity, resulting in many shying away from the technology and assets created by Blockchains for fear of being associated with such activity. However, these days more people are beginning to understand the transformational benefits Blockchain-powered solutions and Digital Assets offer. Indeed, they are being seen as an integral part of the solution in tackling criminal behaviour as they both can be used to address some of the challenges of reducing the social and economic impact of the shadow economy by bringing greater transparency to the flow of payments as well as goods and services.

2 Months Ago

A 2-minute video on a new ‘eco-city’ in Africa, and the creation of an ecosystem with its own cryptocurrency.

The American singer and song writer, Akon, has finally received the ‘thumbs up’ for his 2,000-acre crypto city in Senegal, Africa. Akon has been given the land, which is close to the sea and only one hour’s drive from Dakar’s new international airport, by the Senegalese President. Plans are for the city to be tax-free and enjoy tax incentives whereby encouraging others to invest. The US-based firm, KE International, has been given the initial $4 billion contract, with phase one of the city due to be completed by 2023. It will have homes, offices, a hospital, hotels, a school, a police station, a waste facility, and a solar-power plant (the intention being also to 100% power this new city by renewable energy). It will be the second of such cities in Africa, the other being Mwale’s Mwale Medical and Technology City in Kenya (also built by KE International).




Akon is, himself, also intending to launch a Digital Currency (Akoin cryptocurrency) which will be run on the Stellar Blockchain. ‘Akoin’ will be the method of payment in this new city and it is hoped that, by using Blockchain technology, there will be more transparency and less opportunity for corruption and fraud. The objective is that the cryptocurrency will be traded on exchanges and, via atomic swaps, it will also be possible to exchange Akoin on a Peer2Peer basis i.e. without the need to go via an exchange. This will enable people to swap Akoins in a similar way to which pre purchased ‘phone minutes are done currently. This Peer2Peer trading of pre-paid ‘phone minutes is common in countries such as Nigeria due to high inflation rates and a lack of traditional backing services. The intention is for Akoin to be 


available in all 54 African countries, thus making payments faster and cheaper across the continent (which could potentially rival national currencies).


This begs the question, will the likes of Google, Tencent (from China), Apple, Facebook or the global petroleum firms (such as Shell or Esso) be also looking to replicate this type of ecosystem, either by building their own eco crypto-based city physically or on-line? Many multinational firms already have customers and suppliers spread all over the world, by creating their own Digital Currency and using it as a method to allow payments to be made by its customers and suppliers. By creating a ‘digital-footprint’ and therefore offering optimum accountability in tracking and tracing transactions, these Digital Currencies could potentially help improve the speed of moving money and save costs whilst offering greater transparency and reducing the possibility of nefarious activities. This type of scenario could possibly come to fruition if we were to bear witness to what the publication Atlantic is calling, “The Coming of the Second Great Depression”. There is a very real possibility that the weakening of the US$ or the Euro, with their massive levels of debt and languid economic activity, could lead a loss in confidence with people turning to corporate currencies!
The debate continues to rage as to whether XRP is a security which, if deemed true it may have mean the US’s Security Exchange Commission (SEC) regulations had been broken. In the US, securities remain governed by both state and federal regulation including the Securities Act of 1933 and the Securities Exchange Act of 1934.

A 2 minute video looking at the challenges Ripple/XRP may face, but they still have their fans!
Given continuing confusion, the United States Supreme Court created the Howey Test in 1946 to give guidance as to whether on such matters. The Howey test relies on four criteria, all of which need to be met to be deemed a security. These include:
a transaction where money is invested
an expectation to make a profit
a common enterprise 
profits being generated by a third party.

Let us look at each criterium in turn with respect to XRP and Ripple (the company which created the XRP cryptocurrency).

A transaction where money is invested: Yes, investors paid to buy XRP - unlike a loyalty scheme, they were not given XRP tokens for free. Ripple took payment from the investors who bought XRP to pay for its on-going development. Indeed, in Ripple Labs’ quarterly reports in Q2 2019, it stated that “another 3 billion XRPs were released …..some were used to develop uses cases for XRP including Xpring (the Ripple VC initiative) and RippleNet partnerships such as MoneyGram.”  

An expectation to make a profit: Why were individual investors buying XRP, since they were unlikely to be using the services on offer from Ripple/XRP as this was an institutional (i.e. a B2B) service. It has to be assumed that they bought XRP with the purpose of making a profit. In addition, Ripple has made several announcements that, when selling XRP tokens from its trust, it is trying not to impact on the market price of XRP (presumably as Ripple does not wish for its investors’ profits to be damaged). Again, Ripple’s quarterly report states, “Ripple’s programmatic XRP sale was conducted with the goal of minimising market impact”.

A common enterprise: In essence this means will an investor share from the profits and losses of others. Ripple Labs is constantly developing and working on XRP with capital from the sale of XRP tokens and the more successful Ripple is then the more XRP is used so presumably the higher the price XRP rises. In an effort to distance Ripple from XRP, Ripple’s CEO, Brad Garlinghouse, has told Yahoo finance, “If Ripple the company shut down tomorrow, the XRP ledger would continue to operate”.

Profit being generated by a third party. The buyers of XRP have no engagement with the development of the business. They rely on Ripple Labs to develop its use cases (as stated above) with its VC ‘arm’ and with partnerships, such as MoneyGRAM.

An alternative way to look at whether a Cryptocurrency (Crypto) qualifies as a security or not is to look at what happens with the proceeds from the Crypto. Take the simple example of an enterprise wishing to operate a theatre issuing a Crypto to help fund its endeavours. Assuming that there is already an existing theatre and a Crypto is issued to current and new theatre goers to have a selection of ‘perks’, such as entitling them to have access to advance booking, discounts on merchandise, free pop-corn, premium seating etc This...

CurioInvest is looking to offer a range of digital assets backed by classic cars with the intention to actually tokenise 500 cars. Although CurioInvest’s team is based in Zug, Switzerland, it has received approval from Lichtenstein to issue a security token CT1 which will be backed by a 2015 Ferrari F12 TDF supercar. During the first five years, CurioInvest will accept a bid for the Ferrari if the price is more than 20% above the $1.023 million purchase price. If there has been no bid, then the car will be auctioned off and the proceeds paid to the original investors. CurioInvest will be responsible for insuring and storing the car in a highly secure location somewhere in Stuttgart, Germany, and it will earn 20% of any of the profit over the initial purchase price. The tokens that the digitised Ferrari represents will be listed on MERJ, a digital assets exchange which is based in the Seychelles.

A study, with data from 29,002 global auction rooms from 1998 to 2017, was used to ascertain the classic car Sharpe ratio (a measurement that takes into account the volatility of returns i.e. how much the price rises and falls, as well as growth of an asset). Regarding the gross annual Sharpe ratio of classic cars versus those of other asset classes over the sample period it was found that:


  • classic cars, overall, have a higher Sharpe ratio (0.35) than the S&P 500 Index (0.21), the MSCI World Index (0.16) and art (0.07). However, adding dividends would boost Sharpe ratios for the equity indexes to round about 0.30;


  • classic cars have a lower Sharpe ratio than global government bonds (0.40) and gold (0.40);


  • correlations between classic car returns and those of other asset classes are generally low, indicating the diversification benefits within a portfolio of other classes.


The study found that the value of classic cars bought and sold at these 29,000+ auctions was $1.3 billion p.a. Although private sales could boost this figure substantially, the global value of classic cars is estimated to be $130billion.


In a survey carried out in the USA by Bank of America it was found that, among its High Net Worth (HNW) clients, there was an average asset allocation to assets of 55% stocks, 21% bonds, 15% cash, 6% alternatives  and 4% other. These conclusions imply that the potential demand for alternative and other types of investments, such as digitised exposure to ‘non-traditional’ assets, is very real. So, how long before we see a variety of digital assets giving exposure to assets which have, to date, not been available? Interestingly, when the same cohort of HNW clients were asked, “What would make life better?” - more time and more friends and family were by far the most desired, as opposed to more trinkets i.e. more ‘stuff’!


What would make life better?


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Source: Financial Samurai.Com


Akin to classic cars, there is a range of other assets which are rare, illiquid and require specialist knowledge to select, store and find in the first place. So, what other assets could be targeted in order to be digitised? Well, Knight Frank (a UK-based estate agent/realtor) has been tracking the performance of luxury goods for a while, and some of the assets which have performed well over the last ten years have been rare whiskey, coins, wine, art and cars.

Knight Frank’s performance of luxury goods


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Source Knight Frank.com


There have been digitised/token offerings on most of these but, to be fair, although having raised relatively little capital, such digital assets offers illustrate the flexibility of being able to offer a digitised version of almost any asset class. Digitising these types of assets makes them more affordable for smaller investors, thus bring greater transparency and liquidity. Were we to see a fall in traditional assets (such as equities bonds or property) as a result of the slowdown in economic activity triggered by the Covid-19 pandemic, there could certainly be a propulsion of interest in these alternative assets.
Seemingly, Covd-19 has given added stimulus to Central Bank Digital Currencies (CBDCs) which are ‘moving up the agenda’ for quite a number of countries (although no doubt the fact that China has now launched its own CBDC has not gone unnoticed). The risk of spreading Covid-19 has encouraged many merchants not to accept cash, and many shoppers have equally turned to going on-line for their purchases. Subsequently, this has resulted in the dramatic decline of ‘physical’ cash being used and made people consider that maybe a Digital currency could, indeed, be feasible.


In September 2019, European Central Bank (ECB) board member, Benoit Coeure, was reported as saying, “The bank should ‘step up’ its thinking on a public digital currency”. This was then followed up in November 2019 when the bank, itself, added, “The ECB and other EU central banks could usefully explore the opportunities as well as challenges of issuing central bank digital currencies including by considering concrete steps to this effect.” One suspects that this statement was, in no small part, fuelled by concerns regarding the threat of a private organisation, such as Facebook, which could thus undermine the influence and control that the ECB has over Europe.


There would now appear to be several European countries jostling to launch some kind of Digital Euro. Indeed, in Germany, the Association of German Banks (a group of 200 private German banks) has been asking for regulators to issue a Digital Euro. Holland and France have both been asking for a while to see a Digital Euro and now the Italian Banking Association (ABI), comprised of 700 Italian banking institutions, has also urged for the process of introducing a Digital Euro to be sped up. A statement from the the ABI reported that, “A programmable digital money represents an innovation able to profoundly modify the way we conceive currency and exchange. This transformation can potentially deliver a great added value, in particular in terms of efficiency for both operational and support process. This is the reason why is so important to dedicate attention and energies to develop, quickly and in collaboration with the entire ecosystem, new instruments able to primarily support the development of the Euro area”.

It is not singular to Europe that Digital Currencies are being taken more seriously. According to the Bank of International Settlement (BIS) there are 44 central banks seriously contemplating CBDCs. As the World Economic Forum stated, “CBDC may be issued for general use (“retail” CBDC) for peer-to-peer payments and payments from consumers to merchants; or for use by commercial banks and clearing houses (“wholesale” CBDC) for more efficient interbank payments that occur outside traditional correspondent banking and other payment systems”. Indeed, it has just been announced that in Thailand the authorities are proceeding with the launch of a CBDC. This announcement follows on from both the Bank of Thailand and Hong Kong’s central banks revealing in January 2020 that they had moved a step closer to issuing digital currencies that could be used to make payments between the two countries far more efficient than at present.

Siam Commercial Bank (SCB) believes it needs to become digitally sophisticated in order to meet the potential challenges from multinational organisations such as Alibaba, Amazon or Samsung Electronics. SCB has also signed an agreement with the Bank of Thailand. SCB has been working with Digital Ventures (DV), a leading fintech venture capital firm, since 29018 using DV’s Blockchain-powered platform for to speed up procurement, invoice, and payment processes for companies. The platform reduces procurement processing time by 50% and reduces cost per transaction by 70%....

One wonders what planet some people inhabit, as the above expression is not uncommon. Even in financial services companies and when talking to MPs and government officials there still is a perception that Blockchain technology is frivolous at best and in reality, only for ‘geeks and cyber-punks’. However, this could not be further from the truth as increasingly multinational corporations and governments are seen to be turning to Blockchain technology as a means to solve, in many cases, what have become intractable challenges.

Indeed, many of the products that we consume of a daily basis are manufactured by the world’s leading ‘Fast Moving Consumer Goods’ companies (FMCGs) These include Pepsi, Nestle, Unilever and SC Johnson i.e. firms that sell packaged foods, drinks, toiletries, over-the-counter drugs, cleaning products and other consumables. Without doubt, the types of products we all use on a day to day basis are embracing Blockchain technology. Arguably, given the rise in own label products from retailers/supermarkets and the competition they pose, FMCG firms need to operate as efficiently as possible to keep their prices competitive as well as maintaining their brand appeal. Own label products are often cheaper, but a report from IBM found that consumers will pay more for a product if they have details regarding its provenance. Unilever’s Marmite



Source: Digital Bytes

One of the most enduring aspects of Blockchain technology is its ability to engender trust, in offering greater transparency. This is paramount for an FMCG endeavouring to prove both the sustainability of its operations and the environmental credentials of its products. However, it is not simply convincing consumers that a multinational corporation is acting in a responsible manner, whereby encouraging the purchasing of its products, but legislation is now also playing a role particularly with the growing concern over climate change. Indeed, 93% of the world’s 250 biggest companies submit reports on sustainability. Notably, those FMCG companies which pride themselves as leaders in ‘sustainable supply chain management’ are Coca Cola, Nestle, L’Óreal, Proctor and Gamble, Unilever and Nike. Blockchain technology allows for greater transparency (and therefore trust) in what is manufactured and from where. As a result, it demystifies complex global supply chains, whereby giving governments and consumers alike greater clarity about both what they purchase, and the sustainability of these products.

A prime example of how an FMCG is embracing Blockchain technology is Unilever, which has recently announced it wishes to have net-zero carbon emissions by 2039 and is investing €1 billion in a Climate and Nature Fund over the next 10 years. The aim of this initiative is to reduce carbon emissions and deforestation by using Blockchain technology - 11 years ahead of the Paris International Climate Agreement of 2015, which looked to limit global warming to 1.5° degrees. Unilever has reported that, “The company said it will use satellite monitoring, geolocation tracking and blockchain among other digital technologies to increase traceability and transparency within its supply chain”.

It is not only bringing greater transparency to improve supply chains and help the environment that Blockchain technology is being used. FMCG firms are massive advertisers, such as Proctor and Gamble, which, itself, spent $3.4 billion in adverts last year and which is using Blockchain technology and smart contracts to monitor the effectiveness of its advertising. Indeed, Pepsi saw almost a 30% increase in efficiency during trial advertising harnessing Blockchain technology.

In the same way that people do not really dwell on the technology powering their mobile phones, or how a search engine such as Google or the social networking firms such as Twitter and Facebook work,...