The announcement that Belgium-based financial services company, Euroclear, is to invest in Finality.org  is potentially very, very significant for the UK financial services sector. Firstly, we had the FPC announcement and then (the deputy governor at the Bank of England) Sam Wood's letter on 24th March. This was followed on 25th March when Finality.org revealed Euroclear as a new investor. Finality is to have a commercial relationship with the Bank of England, even though the Bank of England website claims it “only offers banking facilities to the government, other central banks and commercial banks.” The new synthetic CDBC that Finality is looking to issue would seem to suggest that the Bank of England is going to allow institutions to trial a sterling-backed digital currency which will need to operate outside the Bank of England’s long-established Gross Real Time Settlement (GRTS). The reason is because a cash-backed digital currency will be able to trade 24/7, unlike GRTS that operate 5 days, certainly not 24 hours.

Banks backing Finality

Source: LedgerInsights.com

It would appear though that London is striving to be on a par with Europe which had announced in November 2021 its “pilot regime for market infrastructure based on distributed ledger technology” enabling financial markets in the EU to use Blockchain technology to create digital stocks, bonds and UCITs (mutual funds). These new digital securities will also be able to be settled in digital commercial bank money and cash-backed stablecoins. Not to be left behind, ANZ mint (issued/created) the first Australian cash-backed Dollar A$DC  in March 2022, using the Ethereum blockchain. ANZ is one of Australia’s biggest banks. Meanwhile, it is worth remembering that cash-backed stablecoins generate no money for the issuer, especially when interest rates are so low. However, as interest rates rise it is possible for cash-backed stablecoins to pay out 80% of the interest they generate - so if we have interest rates of just 5%, that equates to 1% p.a. Of greater significance is that digital cash-backed currencies are like 'the oil in an engine', enabling financial markets to operate more efficiently and smoothly by allowing smart contracts to transfer value (cash) outside traditional banking rails - potentially faster, cheaper and with greater transparency. Trust evolves from transparency together with the promise of stronger compliance and risk controls.

Furthermore, there is also the promise that CBDCs and, indeed, stablecoins offer the ability to address a country’s shadow economy since a digital currency leaves a digital footprint - something that cash does not. Perhaps this explains why, for tax purposes, French residents are only allowed to make cash purchases of up to the value of €1,000 and in August 2021, Spanish residents had the maximum they were allowed to spend using cash reduced from €2,500 to €1,000. Meanwhile, if you take more than $10,000 in cash into the US you are required to notify customs and complete a Report of International Transportation of Currency and Monetary Instruments. So, this all begs the question - if you have cash-backed digital currencies that you can access anywhere, anytime, do you need to declare a digital wallet/your mobile phone that holds digital €, £, $ Yen etc?

Asset digitalisation, including CNDCs and stablecoins, will impact many aspects of the financial services sector. Bizarrely, we may well see compliance officers drive adoption as they appreciate the greater compliance and transparency which blockchain-powered tokenisation offers. This is not about crypto, but about a technology which has been tried and tested using BTC and Ethereum et al and which is now going to be used in conjunction with real assets, including cash.

In 2008, a developer (or group of developers) under the pseudonym Satoshi Nakamoto developed Bitcoin (although no one knows who Nakamoto really is) that would enable the transfer of value/unit of exchange employing a hash method used to timestamp blocks. To put this in more simplistic terms, it is useful to think of the hashes that link different blocks of data together as being a series of fingerprints so that, unless the correct fingerprint/hash is used, the different blocks of data cannot be linked/chained together.

Furthermore, blockchain is a record-keeping technology designed to make hacking information or forging the data stored on it extremely difficult, thereby making it secure and immutable. It is a decentralised, distributed and unchangeable ledger used to record transactions across many computers so that the record cannot be altered retroactively. It establishes trust, accountability and transparency. The use of blockchain-powered platforms results in removing intermediaries therefore helping to make transactions less expensive and more efficient. The technology has a broad range of applications that can be integrated into a variety of businesses giving investors an extensive range of options. The financial sector is one industry where Blockchain technology has obvious applications and many benefits. 

Use of Blockchain technology in the financial sector

Source: Research gate

Cross-border transactions

Transferring money internationally has always been slow and costly due to the fact that systems often go through many intermediaries and banks on their way to the payment's final destination. That could all change by using Blockchain technology to enable consumers to conduct digital transfers with mobile devices, whereby avoiding the necessity to use banks or many of the existing international payment transfer firms in order to send money to people and companies overseas.

Security

Blockchain technology uses advanced security compared to other platforms or record-keeping systems. Any transaction that is ever recorded needs to be agreed upon according to the consensus method. Since blockchain transactions are peer-to-peer and decentralised they are potentially more secure than traditional transactions. There is less time for hackers to access transaction data when the data is held in multiple locations, and this means disaster recovery plans become stronger and more resilient by using blockchain-powered platforms. 

Accountability

Blockchain technology offers the opportunity for an organisation to create decentralised networks where there is no need for a centralised authority, so improving the system’s transparency. Blockchains make transactions traceable as, in effect, the hashes leave a digital fingerprint so allowing banks to process and monitor transactions more effectively. A good example of this is the recent FBI success in seizing $3.6 billion of Bitcoin that had been stolen in 2016. The ability to track and trace digital transactions becomes easier compared to locating a suitcase of cash. As a result, Blockchain technology is an effective technique for tracking transactions and assuring accurate and secure data.

Improved efficiency

Cash, wire transfers and cashiers’ cheques are secure methods of payment, but cash is untraceable. Wire transfers are time-consuming and cashiers’ cheques can be faked. Blockchain-powered platforms help to address these challenges resulting in more trust and less risk, which is a key reason for increasing adoption of the technology for regulated organisations. Blockchains are paving the way for a wave of technologically-based modern finance that is already fundamentally changing the banking and financial industries.

Blockchain in the financial industry market

As more banks and financial institutions use Blockchain technology to transform significant parts of their businesses, the value of blockchain in this industry has steadily increased over the years. According to business information provider HIS Markit (Nasdaq: INFO), the value of blockchain in the financial sector reached $1.9 billion in 2017. A significant increase in the blockchain projects expected to be launched and become commercially deployed in the banking and finance industry in the coming years is very much anticipated. With such projection, the value of blockchain in the financial sector is expected to climb up to $462 billion by 2030.

Blockchain adoption being challenged in the financial sector 

Although blockchain is viewed as a revolutionary technology due to its ability to reduce transaction costs and increase the effectiveness of cross-border transactions, large banks are beginning to question its reliability and whether the technology is mature enough to warrant large-scale application. The Central Bank of Russia and the Central Bank of Netherlands have both raised their concerns. Despite the inevitable reluctance for change, especially for regulated companies, the financial services sector is beginning to understand the transformational potential of using Blockchain technology Equities, bonds, commodities and real estate are already dematerialised, but they are recorded on a plethora of internal databases often requiring constant reconciliation.  

The business value for blockchains in the financial sector

Source: HIS Markit

For the many other start-ups, scientists and entrepreneurs who are trying to raise capital for their projects, NFTs have presented themselves as an alternative way to raise capital. Knowing how crucial it is for businesses to raise capital for whatsoever reasons and projects, in this article we shall endeavour to understand capitals and the place of NFTs. 

Conventionally, capital has been given through equity, i.e. this is a situation wherein business owners relinquish parts of their ownership of the business for capital. NFTs now bypasses this, leaving both sides satisfied. To better understand people’s motivation, collection system and the building of a vibrant community, an example, such as the one following, would suffice: Let’s say an existing streaming service wishes to launch a new business line - a new documentary section, but at a higher price than the basic plans. It probably needs $5,000,000 to start this new division i.e., investing in equipment and staff, etc. The streaming service could create 2,500 diverse kinds of NFTs, at $2,000 each or even at different prices, whilst increasing the benefits attached to those costly NFTs. Of course, all the NFTs give special benefits to their owners, investors, but they wouldn’t be equal. The NFTs could give access to investors at a discounted price, either to a new section or to the whole streaming platform. This could then motivate the streaming platform’s audience to invest capital in the business because they want the benefits that come with it. 

This new model of raising capital using NFTs is beneficial to both the business and the investors. For the business, it gives them the opportunity to raise capital without relinquishing any ownership over the business. This model establishes alternatives for incomes which encourages investors and their audience to front the business while counteracting the risks and losses that come with the funding. Once the business is launched, investors can also sell or rent their NFTs with profits. The same applies to someone who bought an NFT from an investor. In the end, this model presents a scenario where everyone involved is happy. Interestingly, a new Hollywood film which has turned to NFTs to help raise the finance to produce it is called Zero Contact and stars Anthony Hopkins. 

Source: YouTube

Meanwhile, the success of an NFT project depends on the audience and community built around it and is a key attribute as to whether an NFT project is a success or not. A vibrant community is vital for success when issuing NFTs. Building a vibrant community usually starts with defining who the target audience is, since this is tantamount to building value for your project. A vision can then be shared with the community explaining what the project is and how the community stands to benefit from it. The aim of the vision is to get the audience to believe in it. Once communicated, a social media platform easily accessible to your audience is then chosen for easy reaching. Discord is the most used, alongside Telegram, Twitter and Reddit. The remaining efforts needed to build a vibrant community are getting the audience excited for the project and being transparent with the community. Pitching to your audience about your project can be hard, but an influencer can easily sort this out. If done right, all these will make sure the project is successful.

Once the capital has been raised, efforts should be channelled into creating a vibrant community for your project. Here, the investors are kept updated about the project. This is also the time where the hype is built around the project for its success. Businesses have to do all they can to convince their audience to join their projects because they will definitely have heard of scams and rug pulls. Another important factor is the time and effort that needs to be spent making the project enticing to your target audience. One also needs to be mindful of the transaction fees to use a blockchain as this can be problematic, especially using Ethereum.

The usage of NFTs as a financial instrument has only just begun, as more innovative ways will be unveiled in the nearest future. Although NFT price volatility is a constant, NFTs offer a way to help build businesses and create memorable customer experiences. Another factor that is also overlooked is, if designed correctly, NFTs can be designed to create ongoing recurring income for the issuer similar to a royalty income that is seen in the music and media industries. 

Of note, cryptocurrencies have allowed for the by-passing of institutions that might not allow for payments to Ukraine. Given the fact that martial law has been implemented in Ukraine, bank activities have been suspended. However, cryptocurrencies are good for donations in times such as this since they allow individuals and organisations to directly support causes, cutting off means whereby corruption could thrive. Unlike countries that have banned cryptocurrency and blockchain-related activities, Ukraine had been working on the digitisation of governance (also recently seen with Salvador adopting Bitcoin as legal tender). Ukraine’s Ministry of Digital Transformation, which was established in 2020 and tasked with the advancement of Ukraine’s infotech industry, was recently charged with the procurement of needed equipment in the fight against Russia. The ministry is also charged with gathering cryptocurrency donations. Prior to this, every donation had passed through traditional payment channels. It wasn’t until February 26th, 2022, that the Ukrainian government began receiving crypto donations. The plea for donations was soon posted across different platforms starting from the deputy prime minister, Mykhalio Fedorov’s, Twitter to Ukraine’s Twitter account. Following the success of the donations, there has been a promise for future airdrops as a means to facilitate the long-term support of citizens and organisations worldwide. One can only but wonder what would have happened if Ukraine had taken an anti-blockchain stance as most countries have. Although, the donations received pale in comparison to the sum the US has donated (Biden recently demanded $10 billion authorisation from congress, after America had pledged $350 million) joining many other countries which have offered Ukraine support.

Source: Twitter

Insomuch as Putin’s Russia is the cause for the financial situation in Ukraine, it, too, has fallen onto hard times what with sanctions from a vast number of different countries now potentially beginning to cripple its economy. Sanctions usually work by powerful countries curating a list of important businesses and people its inhabitants must avoid having transactions with. Concerning, but ironic, is the fact that cryptocurrencies serve as a means of sanction evasion for Russia, not just as a means for raising donations for Ukraine. Two sides of the same coin and furthermore highlighting the concerns most have about cryptocurrencies. Habitually, in the global finance scene, banks would block transactions from persons under sanction or their business, as can be seen with the UK sanctioning Ibrahimović and what it has meant for Chelsea football club. Previously, the US and western countries had, in 2014, sanctioned Russia for its invasion of Crimea, the result of which was the swift economic change and the yearly loss of $50 billion. But Russia has not been idle since then. The emergence of cryptocurrencies and digital assets has presented a way potentially for it to evade sanctions. The US has been aware of these developments and warned that cryptocurrencies could pose a serious threat to its sanctions, stressing it had a lot more work to do in understanding how these digital assets can be used.

Blockchain, cryptocurrencies or any other technology or innovation are usually neutral, posing as docile tools. Whether technology is good or bad depends on its users. On the other hand, blockchain, when applied to tackle problems with international payments and finance related problems, can also be used to evade accountability, such as Russia is doing. Some of the reasons Blockchain technology and cryptocurrencies are being criticised are the same as the reasons for which they are being adopted. The US is already looking at regulating cryptocurrencies with a new executive order - all in a bid to stem how Russia is evading sanctions. Is there a way or scenario where blockchain enthusiasts and governments leave happy? Not yet. It is worth bearing in mind governments are usually reluctant to regulate technology.

It is worth remembering that technology is a tool in the hands of its wielder - technology is neither bad nor good. It is, after all, just technology.

For a while, Shopify, Canada’s retail giant and answer to Amazon, has enabled the merchants using its FinTech platform to accept cryptocurrencies. Shopify has even devised a simple guide for merchants to follow, explaining the advantages of using cryptos and how to get started so that it can offer cryptos as a payment option for their customers. The most valuable FinTech firm in Europe, Klarna (with over 90million customers), is rumoured to be preparing for an IPO in 2022 and has been a veritable leader when it comes to Buy Now Pay Later (BNPL). However, for now, it’s chief marketing officer, David Sandström, has said that Klarna “has no plans offer customers the option to pay using cryptocurrencies”. Sandström has gone on to say “Credit card companies have made an astounding amount of money by essentially cheating and taking advantage of people with bad terms and conditions, high rates and extremely disadvantageous interests. Roughly 70% of American millennials don’t have a credit card because they fear them more than they dread death, according to some reports.”

Furthermore, the main credit card providers such as Visa and Mastercard have shown a much more positive attitude towards cryptocurrencies. In an interview with Barron’s, Vasant Prabhu, Visa’s vice chairman and chief financial officer, said: “What we can do is be the bridge between the crypto economy and the fiat economy.” Indeed, both Mastercard and Visa now offer a wide range of debit cards that deal in crypto and can use their respective network of merchants globally. This is helping to onboard more people with digital wallets, currently reported to number almost 300 million people, with potentially 1 billion digital wallet holders by the end of 2022. Presumably, this excludes 20% of the population of China who have access to the Chinese CBDC have a digital wallet.

As we see more jurisdictions issuing their own CBDC payment platforms, there will potentially be the need for banks and FinTech firms worldwide to upgrade their processes and systems in order to accept digital currencies. Awareness of crypto and digital currencies is certainly growing and being fuelled by marketing and advertising campaigns, such as the 2022 Superbowl which attracted 112 million viewers. A 30-second advert cost $7m, a 27% increase on last year with the adverts being run by eToro, Coinbase and Crypto.com to promote their various crypto and digital assets products and services. During the Superbowl itself, FTX gave away $1million of Bitcoin as part of its marketing mix!

Source: Twitter

Certain jurisdictions are looking to overhaul their legislation and regulations, as was highlighted last November by Australia’s Treasurer, Josh Frydenberg: “For consumers, these changes will establish a regulatory framework to underpin their growing use of crypto assets and clarify the treatment of new payment methods.”  A common trait is that FinTech firms are making it simpler for users to buy and sell goods and services digitally, often bypassing the bank’s existing payments infrastructure. It is worth remembering the basic technology behind cryptocurrencies is likely to be the preferred choice for many CBDCs, and also for cash-backed stablecoins. Interestingly, such cash-backed stablecoins could prove to be popular for global corporations as a way to improve their ESG credentials and reduce the potential risk of leaving money on deposit at a bank as well as being exposed to the systemic risks of fractional banking. 

But this is an article for another day!

Almost two years later, such travel bans still exist in the second and third largest economies of the world (China and Japan) as their boarders remain closed to the majority of foreign visitors. Meanwhile, in the world’s largest economy (thanks, in part, to huge handouts) the US government has spent $3.5trillion to keep the economy running. With the worst of the covid restrictions now having been lifted, we have seen a new phenomenon, ‘the great resignation’, whereby over 33 million Americans have handed in their resignation since 2021 as they look for better pay, conditions, work-life balance and more working from home. The reasons are varied, but the phenomenon is very real.

The percentage of workers looking to quit their job in the next 12 months

Source: JobsList

Labour markets are tight as employees struggle to retain staff, let alone attract new ones. This can be seen by global recruiters such as Robert Walters which has reported a surge in profits as employees demand higher wages. Furthermore, there has been a shortage in the number of applicants. Page Group, another quoted recruitment company, has also seen its profits rise as companies struggle to compete to attract the right staff. However, there is another trend that has emerged - workers at some of the most iconic and successful tech firms globally, such as Amazon, Facebook, Google and Microsoft, are struggling to find staff and, indeed, staff are leaving in search of the next new exciting sectors. The world’s most valuable quoted company - Apple - which earlier this year became the first company to be valued at more than $3 trillion is finding it hard to retain staff. 

9to5Mac, the publication which closely follows Apple, has reported: “Companies like Apple, Amazon, and more take time deliberating if or how to jump in, fast-moving startups in the crypto space are attracting executives and engineers from the tech giants”. 9to5Mac has also quoted Sandy Carter, who quit as a vice president of Amazon’s cloud computing: “…she posted on LinkedIn she was joining a crypto technology company. She included a link for open positions at the start-up. Within two days, she said, more than 350 people — many from the biggest internet companies — had clicked the link to apply for jobs at the firm, Unstoppable Domains”. The start-up sells website addresses that has created a blockchain-powered platform and is also engaged with NFTs. Of note: “Ms. Carter, said people were interested in working at crypto firms for more than just money. Some were drawn to the ethos of web3, which strives to decentralize power and decision making. It’s an alternative to how Google and Facebook came to dominate the internet by sucking up personal data from users to sell targeted ads”. It is difficult for some of the older tech firms to simply offer more money or fringe benefits when staff are leaving based on fundamental beliefs such as these. This interest in those decentralised organisational structures trying to give people back control over their data together with a more community-based, more inclusive ethos-promoted sectors such as by Decentralised Finance (DeFi), does indeed appear to be gathering momentum.

Sriram Krishnan used to work for Twitter but when he left to join a new tech start up, tweeted:

Source. Twitter

Krishnan was also reported saying: “As we have had the same central companies dominate the tech landscape for over a decade. There is strong motivation to find a new playbook/space which can help overturn that or where the existing companies don’t have a presence in. I must have personally had at least a dozen conversations over the last week with FAANG/web2 talent at all levels looking to move. This is just the beginning IMO”. 

David Marcus, who was head of Facebook’s failed digital currency (and left Facebook) seems to be equally enthused about Web3 on Twitter:

Source: Twitter

Another example of the attraction of Web3 and staff leaving highly successful existing firms to join or, indeed, set up tech start-ups is the recent announcement of the departure of Alan Chang, Revolut’s chief revenue officer. Chang is quitting Revolut, where he was its fifth employee, to set up a new Web3-focused firm reportedly to be looking to raise $100million. Chang will clearly command a following as, having been at Revolut since 2015, potential investors will be hoping this new venture can emulate the success of Revolut which has seen its value rise to over $33billion currently making it the third most valuable European fintech firm after Klarna and Checkout.com.

On 22nd February this year, Ukraine’s ministry of agriculture forecasted: “2021/22 exports would have potentially been 33.8 million tonnes of corn, 25.3 million tonnes of wheat and 5.5 million tonnes of barley” yet, given Russia and Ukraine are responsible for in excess of 25% of the world’s wheat exports and Ukraine on its own makes up 13% of all corn exports globally, it is of little surprise that in the first week of March 2022 we saw some of the greatest price rises in these commodities since 1959. Ukraine, itself, is responsible for almost 50% of the global production of sunflower oil and has replaced the US as the largest supplier of corn to China. Both commodities are key ingredients used in many food products and as farmers in Ukraine are impacted by the Russian conflict, or exports are blocked, it is likely to lead to further pressure on prices and thus global inflation.

Price of Wheat

Source: Markets busines insider

Price of Corn

Source: S&P Goldman Sachs Commodity index

As the above chart illustrates, the price of other commodities has also risen as in the last year this index has increased in price by over 70%.

Price of Aluminium

Source: Markets-Busines Insider

14% of global aluminium production comes from Russia and also 11% of the world’s nickel which is required for the production of stainless steel and used by electric car manufactures.

Price of Nickel

Source: Markets-Busines Insider

Price of Brent crude oil

Source: Markets-Busines Insider

Oil and gas prices were already on the increase and the turmoil in Ukraine in the last couple of weeks has only served to add further pressure. According to statistics from BP: “Russia remained the second largest gas, and the third largest oil producer, ‎accounting for 17% and 12% of the global output, respectively”. Therefore, any restrictions imposed by sanctions (or by the Russians) would have a huge impact, particularly in Europe which is highly reliant on Russian petrochemicals. 

The potential impact of the Russian conflict in Ukraine will undoubtedly be felt globally, not simply in terms of higher commodity and energy prices, but also directly by the banks. The Bank of International Settlements data shows that Italian and French banks have the greatest exposure in Europe, with $25 billion of loans to the Russian economy as at the end of September 2021. Austrian banks had $17.5 billion of exposure and US banks had $14.6 billion. In a report from Nikkei Asia, Japan Mitsubishi UFJ, Mizuho and Sumitomo Mitsui have reduced their exposure from 1.6 trillion yen in March 2014 to 539 billion yen. If it were necessary for these three to write the loans to Russia off, it equates to 20% of their combined current expected annual profits.

Potential lessons learnt

As well as the price rises, we have seen in commodities and the inevitable disruptions to supplies as a result of the Russian - Ukraine conflict, we need to understand how we can try and avoid other complications caused by those largely centralised economic structures we have historically relied upon. One example is the pricing of equity and debt instruments which are largely based on analogue systems and, in many cases, are listed on one exchange. Yes, some of the larger quoted companies’ shares are listed on multiple exchanges but for the fast majority of 41,000 listed companies globally, they are traded on one exchange. If, for whatever reason, the exchange that a share is quoted on is closed (as is the case in Russia), there are no prices. Thus it is not possible to trade the shares or even correctly price a fund that the shares are held in.

However, if the securities were digitised and traded on multiple exchanges, not only could one trade 24/7 but, in the event of one exchange being shut, other exchanges would still be able to trade. This would avoid asset managers being obliged to stop trading, as we have witnessed with BlackRock as it suspended all dealing on its Russia funds. There is uncertainty as to why it made this announcement almost a week after the Russian stock market was closed. It does make you wonder what prices BlackRock had been using to allow any trading before the announcement was released. Not being able to make a price on Russian securities has also forced the creators of index fund, MSCI, to withdraw Russia from its emerging markets fund.  Presumably, any asset manager who is trying to track the MSCI emerging markets index would be unable to create or redeem units for investors as they would not be able to offer a fair/correct price due to not being able to buy or sell Russian shares.

Meanwhile, it is worth bearing in mind that two of the reasons that financial services regulators globally have been established are to:

• maintain confidence in the financial markets - difficult to do if the firms they regulate cannot make a price in the funds they manage and have to suspend dealing.

• ensure customers are treated fairly - technology such a blockchain provides the ability to create digital versions of securities (equities and debt instruments) that can be traded on licensed digital exchanges such as Sixth, Swarm Markets, Tokeny, etc. The decentralised nature of most blockchains means that digital versions of securities can be traded 24/7 and have far better disaster contingency plans and less systemic political risk.

It is fundamental that we learn from the past and strive to embrace technology where it is able to reduce risks (particularly in regulated markets) in order that we can maintain trust and confidence. Global trade has encouraged many countries to reply on the cheapest location to source goods and given scant regard to the consequences of what would we do if some unforeseen event happens. COVID-19 and now the Russian - Ukraine conflict will no doubt encourage a different and, hopefully, more resilient mindset.

The main reason for the wide adoption of Blockchain technology within the industry is quite simple: blockchain-powered solutions can solve many issues within the traditional insurance system and bring transparency, and therefore trust. Although Blockchain technology is still in its infancy within this industry, the transparency, immutability, security and speed of blockchain solutions could certainly transform the way the sector operates going forward. 

Blockchain technology in the insurance industry

Source: Fintechtris

Unsurprisingly, many processes throughout insurance are outdated. Policies are invariably processed using paper contracts, and many interactions are completed either via the telephone or face-to-face. With a predominance for paper-based analogue processes, there is always the potential for human error, tampering and lost information. Blockchain technology solves these problems by digitising transactions as part of a secure and immutable ledger and (with the use of smart contracts) much of the administrative process can be automated and even payments made without the need for the policy holder to formally make a claim. 

Benefits of blockchain

Examples of the benefits of blockchain within the insurance industry include:

• speed and efficiency - a single place to store transactions streamlines processes, making them faster and more efficient; this also helps to negate human errors.  

• transaction traceability - blockchain transactions cannot be edited or deleted, whereby bringing welcome advantages over those supply chains typically prone to theft and fraud. 

• cost reduction - without a centralised player, vendors’ and intermediaries’ costs can be removed. If authorised via a blockchain-powered platform then less interaction is required on transactions, so reducing the time spent on them. 

• enhanced security - every transaction on a blockchain platform needs to be agreed upon via a consensus of network members. Transactions are always encrypted and link to the previous transaction by a method known as hashing.

• better transparency - using Blockchain technology, there is no centralised authority and therefore the transparency of the system is improved; it is also possible to only give certain information to relevant parties. Greater transparency creates a securer and more trustworthy environment, removing some of the uncertainties for the underwriters and thus enabling insurance policies to enjoy lower premiums. So, a win-win for underwriters, brokers, and policy holders. 

Application of Blockchain technology in the insurance industry                                        

1.Parametric insurance - the use of smart contracts could be particularly appropriate for parametric insurance policies as it could make payments automatically once an event has occurred. Examples of parametric insurance cover are such as, seeking protection from an earthquake or from weather events such as tornadoes, hurricanes, etc. The severity of these types of events can be verified by independent agencies, for instance the National Earthquake Information Center or Africa RiskView (a satellite weather surveillance system). One of the key advantages is that payments can be paid much faster - an important factor when, historically, assessing the levels of damage, engaging loss adjusters and completing claim documentation has been an arduous and time-consuming process.

2. Fraud detection - the FBI estimates non-health insurance fraud in the US to be around $40 billion per year. Blockchain technology helps reduce the many frequent causes of fraud in the insurance business by transferring insurance claims to an immutable ledger.

3. Life insurance - Blockchain technology takes the distress and burden of filing a death claim away from family members by replacing the previously manual process of filing claims with an automated system built on a blockchain ledger. 

4. Re-insurance - Blockchain technology eases the flow of information and payments between insurers and re-insurers by safeguarding re-insurance contracts on the blockchain with the use of smart contracts. 

5. Health insurance - medical records may be cryptographically secured and transferred between health providers using Blockchain technology, subsequently boosting efficiency in the health insurance industry.

6. Property and casualty insurance - insurance policies and a shared ledger executed through smart contracts can bring significant improvement in efficiency as regards property and casualty insurance.

7. Claims management - it is claimed that insurers could generate efficiencies of as much as $200billion p.a. if smart contracts were to be utilised in the property and casualty insurance sector. 

Market size of the insurance industry in the Gulf Cooperation Council from 2011 to 2020, by segment

Source: Statista.com

The Gulf Cooperation Council (GCC) has been one of the world’s fastest-growing insurance markets, registering growth of nearly 7% each year in gross written premiums over the last six years. It is projected to grow from $26.5billion in 2021 to $31.1billion by 2026. The GCC has used digital assets in the form of the Wholesome Coin to tackle high obesity rates in the Middle East and thus, in time, reduce the cost of life assurance. The insurance sector is innovating across the value chain by deploying new-age technologies such as AI, Internet of Things (IoT), drones and Blockchain technology to generate more value in marketing, product development and underwriting as well as in claims prevention and customer support. Maximising the impact of these initiatives starts with digitalising insurance firms’ core operations in order to equip them for seamless integration and alignment with the new technologies. Addenda, a UAE insuretech firm, is using Blockchain technology as a part of its digitalisation strategy and to streamline its processes.

Insuretech investment activity is growing

Source: Kearney analysis

Digitalisation is no longer simply propelling the growth of the insurance industry; it is also transforming the entire value chain. Digital assets and Blockchain technology have already caused significant changes in this industry and, as we witness greater adoption and understanding about how Blockchain technology can be used, it will be interesting to see what other innovations will be introduced to effectively develop the insurance market.

Digital asset management software, also known as a digital asset management platform, enables organisations to manage, organise, discover, store, retrieve and share data from a single point of access. Digital asset management systems enable internal teams to manage complex portfolios of rich media content from a central interface with ease.

Source: Pimcore

The importance of DAM software and blockchain in managing digital assets

As the volume of digital assets increases, so does the coordination effort. DAM offers many benefits to organisations that work with digital assets, and this is a reason to get DAM software if you have none.

Although Blockchain technology is not limited to financial transactions, it has many advantages over traditional transactions and it is for this reason, Bitcoin (alongside many others) uses blockchain in the management of financial transactions. In view of this, it is fitting to surmise that blockchain and DAM platforms have matters in common i.e., management of digital assets.

What Digital Asset Management encompasses

Source: dataworld

Asset protection 

At the most fundamental level, DAM software offers a secure repository for valuable digital files, making sure that valuable IP is protected and that brand media are stored safely. Also, the DAM’s reporting tool and file logging system makes it possible for you to track any user who accesses a file. Operating your company’s digital assets without digital asset management software may expose your digital assets to many dangers. Blockchains rely on the idea of distributed peer nodes that resolve the state of data using a consensus model. Any peer can accept a transaction and by this eliminate the need to rely on a centralised system that is at risk of attacks. Hackers majorly disrupt systems through distributed denial-of-service (DDoS) attacks; the attacks focus on a central server. This single point of failure does not exist with decentralised blockchain. Also, in digital cryptography, records can only be assessed or modified by the owner. However, owners can give special viewing permission to individuals to see the records in full or part. These permissions can be made time-sensitive, expiring after a certain time.

Prevents duplication

DAM plays an important role in preventing duplication of files and efforts by ensuring that original/source files don’t go missing. By doing this, it also prevents confusion during the creative process enabling much easy and faster location of assets in many organisations, which employees historically have spent hours searching for relevant data. Organisations that use DAM, can keep track of multiple iterations, store them centrally and know where to go for the latest version of an asset. It enables you to perform fast and targeted searches, thus increasing the productivity of your employees. This is particularly interesting as it doesn’t only save time but helps with content management and cost-saving. It also helps in the import and export of files and their enrichment with additional information. DAMs do not only ensure quality control but also facilitate organisations in sharing assets freely between multiple teams.

The benefits of DAM are inexhaustible, the results of which are increased productivity and creativity, better control over branding and measurement, lower cost and higher returns on digital assets. With this, it is safe to say digital asset management has a high return on investment.

DAM for digital agencies

Digital agencies are at a time where they have to consistently intensify the creative spark between themselves and their clients. They have to set the clock ahead of the time to meet the clients’ rising expectations. There are challenges such as asset automation, collaboration and brand consistency facing digital agencies. However, the key challenge is digital asset management. DAMs help digital agencies to streamline asset management and improve efficiency, boost creativity and innovation, and also reduce cost.

Digital asset management market size

In 2020, the digital asset management market was valued at $2,962.2 million, and it is expected to reach $8,158.6 million by 2026. DAM space is currently in the period of growth and this tremendous growth is due to the increasing investments and focus on digital marketing. Vendors in the market are now adopting strategic focus to attract customers.

Conclusion

The right digital asset management platform will provide control over vital materials that support marketing and production. Recently, companies have begun to evaluate the benefits of blockchain solution and how the existing DAM software interacts with blockchains. Integrating both will provide robust application programming interfaces (APIs) that facilitate integration into emerging technology. 

• Selfridges - which is, “bringing digital goods to real-life shopping and broadening its accessibility in fashion……. featuring artwork by Victor Vasarel and new physical pieces from designer brand Paco Rabanne inspired by Vasarely’s work.” (Vogue magazine)

• Gucci - selling virtual handbags at a higher price than the physical ones

• All 20 of the Premier Football League clubs 

• The British Museum is to sell its second set of NFTs

• The Hermitage Museum in St Petersburg to sell NFTs of Michelangelo paintings

• Hollywood actors and celebrities are selling NFTs

As the below chart shows, the attraction of NFTs is global. 

Countries with the highest NFT adoption rates

Source: Finder.com

However, is it the lawyers, accountants and consulting firms who are helping their clients to issue NFTs? If so, this could be treading on thin ice? If NFTs were to be classed as a form of cryptocurrency, then potentially should they only be issued by those organisations (in the UK) on the Financial Conduct Authority (FCA) crypto register? 

The reason this is ‘potentially’ is because the FCA definition of cryptocurrencies quotes: “Cryptoassets are cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically.” The FCA has further stated that if a firm is engaged with the trading of crypto assets it is a requirement to apply to be on the FCA crypto register - which is not an insurmountable problem, especially for those firms already regulated. However, although required to have existing AML/KYC processes in place, the challenge for these firms is the time it can take to actually be entered onto the FCA crypto register since applications to date have involved a slow process. In addition, the FCA has already declared that in the summer of 2022 it will be announcing new rules: “The FCA’s draft rules include proposed restrictions on the marketing of cryptoassets, in preparation for the Government bringing the promotion of these high-risk investments under the FCA’s remit.” Meanwhile in the US, whilst no formal definition for crypto assets exists, the Investment News publication has reported that “the SEC has the authority to regulate crypto-currencies because they're often part of an investment contract, which meets the definition of a security under current law”. So, given that an NFT is a unique digital representation (typically of intellectual property i.e., an asset), will the American regulators endeavour to argue that NFTs are securities?

Something else for consideration is that, if in the future we see record labels, museums, sports clubs, tech start-ups being sanctioned by regulators in different jurisdictions for selling crypto assets without the appropriate regulatory licenses, will these issuers of NFTs therefore sue their advisors? Furthermore, if this were to happen, are the legal, accounting and consulting firms actually insured? Ben Davis at Superscript (a specialist digital asset insurance brokerage in the UK) told us: “Companies need to ensure that they have kept their underwriters/ providers of insurance up to date with any changes in their business activities. Most insurers specifically ask whether their clients engage or work with digital assets as it changes their exposure and the risk they’re insuring. If the client does not keep them apprised of material changes to their business activities, it could potentially invalidate their insurance or have a claim denied. This is true for all insurance but specifically for Professional Indemnity, Directors and Officers liability and Media/IP insurance cover.”

If nothing else, maybe those giving advice on NFTs ought to double check their terms of engagement with their customers or, in any event, keep their insurers up to date with which activities they are engaged - just in case they need to make a claim on their PI or DOL insurance.

Source: DeFi Pulse

Due to the flexibility, control, and ease it offers users, DeFi has created an entirely new financial system that continues to evolve and strengthen. Another incredibly important component of DeFi is the decentralized exchange (DEX). In 2021, DEXs saw over $1 trillion in trading volume.

DeFi Yield Protocol (DYP)

Unlike some DeFi user interfaces, the DYP interface is quite simplified, accommodating new and expert yield farmers. It may be used for staking, yield farming, Non-Fungible Tokens (NFTs) and a variety of other trading options. DYP has a unique protocol that not only rewards its users with Ethereum but also enables them to provide liquidity and earn DYP tokens as yield while maintaining the token price. Recently, the protocol has revealed exciting projects planned for the coming months, and these include version 2 of its NFT dAPP on Binance Chain/Ethereum/Avalanche, acting as a launchpad for this high-quality project on these three blockchains. 

DYP developers developed the unique DYP staking. The DYP staking permits users to stake dAPP through the Ethereum smart contract that is front-end integrated with the digital wallets Metamask and Trustwallet. DYP, having studied some flaws of the DeFi ecosystem, gives users the best experience in open finance. Unlike the centralized finance where ‘whales’ have a huge impact on the network and can influence the price of tokens to their own advantage, the operability of DeFi is well-protected. In a bid to prevent whale attack, DYP developed an automated anti-manipulation feature that converts all pool rewards from DYP to ETH at 00:00 UTC every day. After this, the system then shares the rewards among liquidity providers. The anti-manipulation sets to maintain stability, fair access to liquidity, and provide a secure and simplified DeFi platform to all users. 

The decentralized network is an open space regulated by a smart contract, and a great risk in yield farming is the smart contract bug. To prevent the risk of a smart contract bug on its network, DYP ensures all its smart contract codes are audited.

DYP Staking

For staking: to start earning DYP rewards, one needs to deposit one’s DYP token into the corresponding list of pools. There are four staking options of the pool; they are all different and the rewards range from 20% APR to 35% APR, depending on the lock time from the minimum of 30 days to a maximum of 120 days.

The staking pool has a feature that enables you to automatically add your daily rewards to the staking pool. When you refer DYP to people, there is a benefit of referral bonus in which 5% of the referred person’s reward is automatically sent to you without any transaction fee.

DYP yield farming and the Ethereum mining network

As the Ethereum network grows in size and number, and the need for mining on the network becomes apparent, the DYP team has committed itself to Ethereum mining and also has invested more than $1 million in the mining farm. To reward users, every Ethereum miner address that interacts with the DYP smart contract earns a monthly bonus of 10% in DYP of the ETH income earned monthly. In 2021, at a time when yield farming in DeFi has become one of the major trends, the DYP platform announced to have launched its buyback, farming and staking pools. This provides investors with a better opportunity to increase their income-generating activities. $1.9 billion is currently locked in DeFi, showing that cryptocurrency owners are adding increasingly more value to DeFi applications most of which run on the Ethereum blockchain, as can be seen by the chart below.  

Four of the five biggest DeFi Apps are run on the Ethereum blockchain

Source: DeFi Pulse

Difference between a cryptocurrency and e-money

Source: Visual capitalist

What is a digital wallet? 

According to Bankrate in the US:  “Digital wallets are exactly what they sound like: a digital version of your financial accounts made easily accessible via computer, smartphone or smart device that ultimately eliminates much of the need to carry around an actual wallet. Apple Pay, Google Pay, and Samsung Pay are probably three of the most popular digital wallets, but there are quite a few others. Some other popular digital wallets include PayPal and Venmo, both of which are uniquely social by allowing you to easily send money to retailers and friends”.

Whilst the concept of a digital wallet and, indeed, paying for goods and services electronically has been around for a while, a digital wallet that enables one to buy and sell using Digital Assets (such as cryptocurrencies) is relatively new. The digital wallets allowing transactions using Digital Assets come in two formats:

• Hot wallets - where your assets are kept on-line. Arguably less secure as since they are on-line, they can be hacked.

• Cold wallets - are hardware devices not dissimilar to a USB stick, holding a record of the Digital Assets you own. Are more secure as they are only on-line when you plug them into a computer/laptop.

Source: Business Insider

Both types of digital wallet do not actually hold your Digital Assets in the same way that a paper wallet holds physical cash but can be seen as a way to access those of your assets which are held on a blockchain. The range of Digital Assets is expanding, so digital wallets are not only used for cryptocurrencies but also for Central Bank Digital Currencies (CBDC), Non-Fungible Tokens (NFTs) and, increasingly, other real assets now being offered with a ‘digital wrapper’. As the infrastructure and regulation is clarified in different jurisdictions, we are seeing digital wrappers being applied to traditional fiat currencies such as £, $, CHF, Yen, € etc, and to other assets such as equities, bonds, commodities, real estate etc. 

The on-line stockbroker, Robinhood, was only established in 2013 in California but already has over 22.5 million customers. Robinhood is set to launch its own digital wallet whereby making the trading and storage of cryptocurrencies and other Digital Assets much simpler, and has recently reported that over 2 million  people have registered with it to open a digital wallet. However, this pales into insignificance compared to the number of people who own a Chinese central bank digital Yuan wallet, since there are over 260million of these. The digital Yuan, officially known as the e-CNY and issued by the world’s second largest economy, has been in the development phase since 2014 and is set to be launched at the Winter Olympics in Beijing which is starting on 4th February 2022.

The e-CNY app seen in Apple’s App Store atop a Yuan banknote

Source: South Chinese Morning Post

87 countries which represent over 90% of global GDP are developing digital currencies, which are more accessible for people without bank accounts. But there are concerns with CBDC. For example, in jurisdictions such as China, they could be used to automatically fine citizens for disallowed activities such as jaywalking (where facial recognition cameras are already being used to send fine notifications via text). The Chinese claim their state-run digital wallet will not replace the hugely popular payment apps such as Alipay or WeChat Pay, however, those providers cannot be used at the forthcoming Olympic Village, whilst China’s digital-wallet can be….

On a personal note, if you have not already obtained a digital wallet for your Digital Assets, it is likely that it will not be long before you do!

Source: Bloomberg

As of 22nd January 2022, Bitcoin price was $34,015 and Ethereum at $2,300. This means that a $1,000 investment made at the peak would be worth less than $500 at the moment. This is a massive drop and a heartbreak for cryptocurrency investors. Other cryptocurrencies are not spared - when Bitcoin dips, altcoins fall harder. For example, Solana and Cardano have both been over 20% down in the last 24hours. Meme coins are equally affected; Dogecoin was down over 10% and Shiba Inu declined more than 13%.

Source: Coindesk

It is not only the cryptocurrency market, since other riskier assets are also taking a big hit - NASDAQ and the S&P 500 have suffered losses as well. Cryptocurrencies and technology equities  have been declining at the same time this month, showing an increasing correlation between the two. 

In 2019, China - one of the world’s largest cryptocurrency markets - officially banned trading of cryptocurrency. However, trading continued online through foreign exchanges. In 2021, China’s central bank announced that all cryptocurrency transactions be illegal, and effectively banned digital tokens such as Bitcoin. This created a great negative impact on the cryptocurrency market. Furthermore, there has been concern over the potential for more cryptocurrency regulation in the U.S., as well as how the Federal Reserve (potentially dialling back its monetary policy) would impact the crypto market. The cryptocurrency space is experiencing additional pressure after Russia’s central bank proposed to ban all cryptocurrency operations in the country. According to the central bank, cryptocurrency acts as a threat to financial stability and its monetary policy sovereignty and was one of the biggest blows to the crypto world after China’s ban. Undoubtedly, this negative effect is to be expected since Russia is one of the top three Bitcoin mining countries in the world. Globally, other regulators are focusing on cryptocurrency markets as well. 

For Bitcoin, dip isn’t unusual; cryptocurrencies are volatile and fluctuate from time to time. As rapidly as prices rise, they can tumble back down. For instance, Bitcoin went as high as above $64,000 in April 2021, but three months later, the cryptocurrency had lost more than half its value, diving to below $30,000. Following this, it hit an all-time high at nearly $69,000 in November 2021 and now it has plummeted by more than 50%. Earlier this month, some analysts predicted that the crypto market will go ‘bullish’ and hit $100,000 by May. However, there are recent predictions that show a possible drop below $30,000 and the probability of even hitting $27,000 mark. Whichever way the market goes, there are things you need to know as a trader or investor:

• stay calm

• assess the situation

• remember that volatility is the name of the game

• evaluate the future

• determine how to act

The volatile nature of cryptocurrency attracts traders looking to make a profit but it is nail-biting, especially for new investors. Because of this, it is important to consider if you can actually handle the fluctuation before investing in Bitcoin or any other cryptocurrency. Emotional stability is fundamental; some people rather believe it is safer not to allow your emotion to come into play when trading cryptocurrency. However, humans are humans. Regardless of your tolerance level, it is advisable to only invest the amount of money that you can afford to lose. For cryptocurrency ‘hodlers’ the last two months have been quite the test of endurance.

Source: Cointelegraph

Relevant to this subject, according to the World Bank, there are 1.7 billion people who do not have a bank account and are therefore typically excluded from being able to access basic regulated financial services - such as borrowing, investing and lending. Several reasons exist as to why the unbanked fall foul of higher charges: in order to pay for basic utilities such as electricity and gas, to use cash meters, or to pay for more expensive mobile/cell phone fees by having to resort to pay-as-you-go contracts they are often forced (in order to borrow money) to pay considerably more for their loans by ‘back street lenders’. Whilst most of us are familiar with the challenges of inadequate banking provision in parts of Asia, Latin America or Africa, surprisingly in the US (the world’s biggest economy), 63 million Americans are unbanked or underbanked - an average of $3,000 in annual costs per person. Rationale would suggest that if the proportion of a country’s population who are unbanked can be reduced, then this can not only significantly help the unbanked but can help to increase the GDP of the country as a whole.

The following table shows a summary of the viewers who looked at the above-mentioned LinkedIn post about El Salvador. What is interesting to note is where the LinkedIn viewers are based (i.e. a broad selection of countries) and also the global financial institutions in which the LinkedIn viewers typically work. Could this be an indication that some of the largest financial services companies in the world are looking at the unbanked as a target market? After all, 1.7 billion people (often based in some of the fastest growing countries) could be very profitable and long term for these institutions. Or is this just too cynical?

Summary of viewers of  LinkedIn post about El Salvador.

Source: TeamBlockchain

However, the real difference was there was no central control, management, CEO nor CFO - actually no board. Rather confusingly, the first digital asset DAO was called ‘The DAO’ but unfortunately it did not get off to a great start. It was hacked and, having raised $150million, $50 million was stolen.

A DAO is established by codifying rules and decision-making processes and procedures of the venture, thus removing the need for paperwork and boards and management teams to govern the day-to-day activities of the entity. In effect, the organisation is created so that all the control is decentralised. Investors who own the DAO are given tokens and they can make proposals to the DAO regarding what to do with the money in the DAO, for example. It is then up to those members who own the DAO’s tokens to vote and decide as to reject or accept the proposals. The whole process is designed using smart contracts, which means all the profits and losses are equally share among the token holders with no central overhead/ management team taking a slice of the profits.  

In many ways it could be argued that a DAO structure shares a lot in common with the way that cooperatives were established (or indeed traditional with-profits funds) in that the rewards and gains from investing in a selection of assets were predominately reserved for the co-op members or those who had held their with-profits policy to the termination of their original policy date. As the Guardian newspaper explains: “Co-operatives are businesses owned and run by their members. Whether the members are customers, employees or residents they are everyday people who have an equal say in what the business does and a share in the profits”. 

With-profits funds date back to the 18th century and were used typically by insurance companies to help smooth out the volatility of investments, with regular savings plans being sold usually for ten years or more. Each year, the insurance company increased the value of the savings plan by a small amount so that at the end of the savings contract (10, 15, 25 years) a much larger bonus was credited to the saver, based on how well those underlying investments selected by the insurance company had performed. This type of savings plan lasted until 1980’s when the insurance industry began to be introduce unit-linked savings plans which could be valued daily, and are similar to the mutual funds as we know them today.

So, in essence, one can see the similarities between DAOs, co-ops and with-profits funds. However, with the use of Blockchain technology and careful scrutiny and third-party auditing of smart contracts (and in order to try and avoid the hack suffered by Slock.it’s DAO), we are now seeing more capital being committed to DAOs. For example, a DAO has recently been established to fund the acquisition of the Blockbuster Video brand with the intention to create a video production business and capitalise on the booming film and movie industry.

Source: Giant Freakin robot

It is not only the film industry that is looking to use DAOs. The asset management firm, Index Coop (with $400million undermanagement) relies on its 6,000 members to vote on the way that the money is managed rather than employing expensive fund managers. Index Coop can be purchased via Coinbase and it offers a choice of five funds:

• DeFi Pulse Index 

• Metaverse Index 

• Bankless BED Index 

• BTC 2x Flexible Leverage Index

• Data Economy Index (DATA).

There are also decentralised exchanges such as Sushi swap (which has been set up as DAO) and, with its 74,000 members, it is clear to see that the centralised nature of DAOs is gaining traction. We are also seeing some venture capital funds being established as DAOs: “We’re trying to democratize crypto investing and provide access to those that never had such access,” said Joyce Yang, founder of Global Coin Research, a DAO that “aims to disrupt the VC model.”

Once again history is teaching us old tricks and demonstrating how very little is actually really new.

Summary of people looking at Bitcoin-related posts on LinkedIn: 

who they work for and where they are based.

Source: TeamBlockchain

Nasdaq.com has reported that Marathon (a US-based, NASDAQ-quoted firm) has been investing $879million on new mining equipment, thus, increasing its Bitcoin mining capabilities. Whilst it will become harder to mine Bitcoin, presumably Marathon believes the price of Bitcoin will more than compensate. This news also demonstrates the growing importance of the US as a jurisdiction for Bitcoin mining as companies that were Chinese-based are relocating to other countries in light of the crackdown by Chinese authorities on cryptoassets.

Another post in Digital Bytes just before Christmas was regarding a digital wallet which has held 321 Bitcoins for eight years, yet had not entered into any transaction until the middle of December 2021. The value of these 321 Bitcoins eight years ago would have been worth $6,594 yet, based on a Bitcoin price of $42,500, these 321 Bitcoins would now be worth over $13.6million! As was said when Digital Bytes posted this information: “Not a bad Christmas present, perhaps they forgot they had these Bitcoins....... Easy to see why there has been so much interest in cryptocurrencies, a classic case of Fear of Missing Out - FOMO. But, by appreciating how cryptos such as Bitcoin function, this can help one understand what else Blockchain technology can do and hence it has given birth to: NFTs, DeFi, CBDCs, stablecoins, and bonds, equities, real estate and commodities in a digitised format. Looks like 2022 will be exciting and busy year as Digital Assets are poised to impact on business, society and the economy.”

Meanwhile, if Goldman Sachs is to be believed we will see much more media attention surrounding Bitcoin since the multinational investment bank and financial services company has suggested the Bitcoin price is to take on gold and rise to be worth $100,000 each. As ever, a question continuing to be asked is, “Is now a good time to buy Bitcoin?” Digital Bytes is not authorised to proffer financial advice but we thought it may help those who have yet to have any exposure to Bitcoin to consider allocating a small amount of capital on a regular basis to this asset. As mentioned in the past, the concept of regular savings is highly appropriate, especially for very volatile assets since it helps to smooth out the ‘ups and downs’ as the price rises and falls. If you save the same amount, then when the price is high, you will buy less Bitcoins, but when the price is low (has fallen) you will automatically be buying more Bitcoin.

The results of saving £5 a week over the last year

Source:dcabt.com prices as at 8th Jan 2022

The table above illustrates the results of saving £5 a week (but could be $5 or €5 etc) over one, three and five years, i.e., less than two takeaway coffees a week! Admittedly, in order to be disciplined and save £5 each week a few years ago was a hassle, but now it is easy to organise. Crypto.com, founded in 2016 in Hong Kong but now based in Singapore, has over 10 million customers and offers a regular savings facility for a range of cryptos, including Bitcoin. 

A film called 'A Wing and Prayer’, based on an actual incredible flight around the world in a micro plane, has also turned to NFTs for funding. It is the first ever film to be completely funded by NFTs, and is being produced by Niels Juul. Jonathan Bixby, executive chairman of NFT Investments (the firm behind the NFT funding) who is also co-founder of Bitcoin-mining firm, Argo Blockchain, has commented that "the NFT drops come with executive producer-like perks, like going to the set for a day, meeting some of the talent, getting swag like props, and going to both physical and digital premieres." 

A wing and a prayer

Source: NFT studios

Not to be outshone in the NFT limelights, India’s Bollywood has been issuing NFTs with one of Bollywood’s biggest stars, Ayaan Agnihotri, selling 8 million Bolly Coins (of the 20 million available) within days. When they are launched, these cryptos will be able to be used to buy NFTs. Back at the end of October 2021, one Bolly Coin was issued at 10 U.S. cents, rising to be worth 21 cents by 27th December 2021, but now having subsequently fallen back to 10 cents. With many things, all that glitters is not gold - as with many cryptos, the price of NFTs can be volatile. So remember - ‘caveat emptor’ (buyer beware)!

Meanwhile, in China, Xinhua (the state-controlled news agency) has revealed it is to issue a collection via NFTs. The collection will consist of eleven photos taken by journalists over the next twelve months and each photo will consist of 10,000 copies. That being said, of note does this issuance of NFTs by Xinhua indicate official support for them? Whilst the Chinese government has been tightening its grip on tech firms and restricting Bitcoin mining and the trading of cryptos in 2021, the Chinese government have just issued tacit support and guidance on the use of the metaverse. As reported by CNBC: “A Shanghai city department released Thursday its five-year development plan, which included encouraging metaverse use in public services, business offices and other areas”. Therefore, will the Chinese authorities subsequently allow, or even encourage, the use of NFTs in the metaverse?

Although the word alchemy dates from Egyptian times, around 300 BC an alchemist known as Zosimos of Panopolis wrote about the concept of a ‘philosopher’s stone’, a legendary material that supposedly was able cure all ills, grant eternal life and turn metals into gold. It was believed by some to have been given to Adam by God. However, in more recent times it is Harry Potter who has made ‘the philosopher’s stone’ famous again but unfortunately the alchemists, even famous ones such as Sir Issac Newton, were unsuccessful in creating money out of thin air.

We had to wait until the Medici family from Florence opened its first bank in 1397 to find a way in which to create money and interestingly, in the same way that Blockchain technology offers greater transparency and trust, the Medicis traded on the fact that people trusted them together with their banks. Arguably, the Medici family pioneered many of the financial concepts that we still use today in our banks - double entry bookkeeping (e.g., assets = liabilities + equity, and also ‘letters of credit’) as way to get around the religiously frowned-upon act of usury (lending of money) which existed at the time.

The Medici family

Source: News of the new age.com

In essence, rather than merchants travelling around with sacks of cash they could receive 40 pence for a Florin in London, 90 days after a merchant had deposited money in Florence. The London bank then offered 36 pence for a Florin, again payable in 90 days for someone who wished to send goods to Florence thus generating a 4 Florin profit for the Medicis, i.e. 22% p.a. However, although it was essential that the transaction/letter of credit lasted for 90 days, before long the Medici family had secured branches in Milan, Venice, Rome, London, Geneva, Lyon, Avignon, Barcelona, and Bruges so expanding the use of their letters of credit, the holding of deposits and the making of loans. A fortune was made from the letters of credit which, themselves, became a method of exchange/payment based on a promise to pay, since merchants trusted they would be paid simply by presenting their letter of credit.

The ability to create money ‘out of thin air’ really took a massive leap forward with the development of fractional banking, which is when a bank holds only a portion of the money deposited with it as reserves and then offer loans to other parties and, in doing so, charges interest on these loans. Arguably, this concept was honed by goldsmiths realising that not everyone needed their gold or silver, all at the same time. Therefore, when customers deposited their gold and silver at a goldsmith they were, in turn, given a promissory note. These notes were used as a form of ‘exchange/money’ with the goldsmiths using these gold and silver deposits to issue paper certificates/loans, and again they then charged their borrowers. In the 17th century, goldsmiths therefore transitioned from being guardians of valuables to interest-paying and interest-earning banks. The goldsmiths in London developed these services as, prior to such activities, they were mainly to be found in Italy, Germany and Holland. In part, this led to the first central bank which was in 1668 in Sweden.

But why is this relevant to Bitcoin? Well, many argue that Bitcoin is a form of money but, rather than being backed by promise from a bank or backed by gold, it is limited by design to only being able to create 21 million Bitcoins and is backed digitally by code and algorithms. It has been designed specifically to eliminate the ability to double spend, as there is a record to prove when it has been passed from one party to another. The challenge is that if Bitcoin (or any crypto derivation) were to truly become a globally accepted medium of exchange it could threaten the control that the central banks, and therefore governments, to control their economies. However, after 11 years the value and acceptance of Bitcoin continues to grow and, despite the naysayers, it is increasingly becoming bought by millions of individuals and is now much easier for asset managers to hold and trade.

How Bitcoin as an asset, which can be held by Fund Managers, has changed

Source: Teamblockchain

*BTC on Apple Pay, Google Pay, Mastercard, PayPal, Square, Samsung Pay & Visa

Here are just a few examples:

• Alibaba - one of the largest holders of Blockchain technology patents globally, using this technology in supply chain logistics, financial services and the fight against counterfeit food.

• Ernst & Young - is actively involved in the development of the Baseline Protocol, which uses the Ethereum Blockchain to record business data. Baseline Protocol is being used to share business data among multiple stakeholders and by companies such as Coke One North America and SAP.

• IBM - Hyperledger Fabric is one of the keyways in which ‘Big Blues’ is rolling out Blockchain technology to its clients. IBM’s Food Trust network is used by household names such as such as Nestlé, Dole, Walmart and olive oil giant, CHO. IBM has also been very active in the shipping sector, working closely with Maersk’s TradeLens platform to digitise the movement of global shipping logistics and supply chains.

• Hedera Hashgraph - developed in 2016 and designed to offer secure applications in real-time. Hedera Hashgraph has an impressive range of global corporations that own and govern the organisation have just announced that U.S-based AVC Global subsidiary Medical Value Chain will be offering a track-and-trace platform for global pharmaceutical supplies to Bahrain.

The Hedera Governing Council

Source: Hedera Hashgraph.com

• IconLoop - South Korea is very active in the use and development of Blockchain technology. IconLoop has applications using Blockchain-powered platforms in banking, healthcare and government sectors as well as using the technology for driving licenses, which it is currently developing.

• JPMorgan - the biggest bank in the United States has gone on to create the JPM Coin, despite its CEO being verbally disinterested in Bitcoin. JPMorgan is a member of a blockchain consortium comprising of 130+ banks called the Interbank Information Network, using technology to improve compliance monitoring and controls whilst reducing the time it takes to process payments.

• Oracle and Microsoft - these two global-technology ‘titans’ both sell cloud computing services offering blockchain-as-a-service attracting companies such as GE Aviation, Singapore Airlines, Indian Oil, Nigeria Customs, Starbucks, JP Morgan.

• PayPal - as one of the largest online payments systems, it has accepted Bitcoin for years and now offers a service to institutions enabling them to hold cryptocurrencies as part of their treasury reserves. PayPal has recently stated that “it was looking for a way to understand how to leverage blockchain to better serve merchants and users.”

• Salesforce - Salesforce Blockchain offers an additional facility to Salesforce’s customer relationship management system (CRM) which already has 150,000+ clients. Lamborghini is using the Salesforce Blockchain-powered platform to prove the heritage of its cars. This proof of provenance can substantially increase the value of a Lamborghini.

• Visa - five years ago, Visa invested in a blockchain start-up called Chain, then proceeded to develop ‘Visa B2B Connect’ with Chain as a fast and secure way to process business-to-business payments around the world. Visa also offers a number of crypto debit cards such as Binance, Coinbase, Baanx and Revolut.

• World Economic Forum - of all the supernational organisations, the World Economic Forum is one of the most active and has established the Global Blockchain Council, helping with the adoption of Blockchain technology for the global public interest. An example of this is its initiative, to track greenhouse gas emissions from mining and metals companies.

Still not convinced about the adoption of Blockchain technology? Simply by searching on Google for Blockchain+xxxx (xxxx being the name of industry in which you are interested), there are plenty of examples to be found. However, despite this, TeamBlockchain presented at an on-line financial services event only last week and it was still astonishing to hear feedback comments from the attendees such as: “Didn’t realise how widespread Blockchain technology was”; “Thought it was just about crypto”; “Wow, there are 80% of central banks looking at digital currencies!”; “Can I have more information about how Blockchain is helping companies to meet their ESG targets?” But then again, writing every week in Digital Bytes is a continuously learning curve as to how, why and where Blockchain technology and Digital Assets are being used by governments, companies, individuals and society. Indeed, Deloitte and the World Economic Forum stated in their 2021 Global Technology Governance Report that: “Blockchain’s characteristic immutability and transparency of transactions as a “single source of truth” could increase trust in the accuracy of critical official data…”

One thing is immutable, we are becoming ever-more digital in the manner in which we conduct our lives. As we witness more and more AI, machine learning and robotics being used to automate the many dangerous, mundane and repetitive processes or jobs, we will undoubtedly see the harnessing of Blockchain as being one of the key technologies going forward.

These are just a couple of headlines currently bringing attention to the growing inflationary pressures. The price of commodities as recorded by indices such as CRB and S&P GSCI and the cost of moving goods around the globe, which can be seen by an index such as Baltic Dry, are closely watched by governments and central bankers. The trend of indices such as these three are often followed as a key indicator to watch when determining whether to change interest rates. 

Source: Trading Economics.com

Therefore, it will not have gone unnoticed that inflationary pressures have been rising in 2021 and, given the recent hike in energy prices, the cost to move goods around the world will have added to these inflationary pressures. As energy prices rise, there is an impact on the cost for fertilizers (as can be seen from the chart below) and certain agricultural produce is diverted to making ethanol whereby reducing the amount for sale as feed stocks for animals and food for humans, therefore raising its price and so increasing inflation.

Source: Farm Policy News

According to the fund manager, Cazenove, US equity markets have enjoyed a total return (share price growth and dividends included) of over 4175, having risen for over 9.5 years and making this the longest ‘bull market’ for equities ever. But even those who do not follow stock markets daily know that nothing continues to rise forever. At some stage we will see a fall in share prices, which is actually the reason many less sophisticated investors tend not to invest in stocks and shares for fear of the fact that prices do, indeed, fall as well as rise. There is a genuine concern that, given the levels of debt governments have taken on especially due to the massive handouts due to COVID-19 together with the levels of borrowings by companies, the impact of rising interest rates could well prove fatal for some companies. According to analysis from Retire Before Dad, there are now only four companies in the S&P 500 that are net cash positive and, as the list below reveals, most are not exactly household names nor are they exactly trading on low Price Earnings ratios (P/Es).

List of Debt-Free S&P 500 Companies 2021

Source: Retirebeforedad.com

Therefore, the question has to be - where will investors place their capital in the event that interest rates are forced to rise thus undermining bond prices (which have performed so well as quantitative easing has crushed yields and driven up bond value) and potentially triggering a fall in stock markets? Historically, real estate, precious metals such as gold and silver have performed well when inflation rises. However, thanks to a much more globally interconnected world economy, much of which is conducted on-line, the speed at which asset prices can change is fast. Added to this, we now have a new range of digitally traded assets that do not respect traditional national boundaries and countries but offer investors the ability to trade 24/7/365 and are competing for investors’ capital as never before.

In the last year we have seen tremendous growth in capital being allocated to assets such as Non-Fungible Tokens (products traded on De-Centralised Exchanges). In a survey of US crypto investors, 55% of them had bought cryptos for the first time in the last year of which 91% of whom had sold their Bitcoin holdings, had done so at a profit. The summary from the Royal Bank of Canada offers some insight to just how far the adoption of crypto assets has come.

Source: Royal Bank of Canada

Blockchain technology has been accused of being unscalable and not able to handle the number of transactions compared to the volume of transactions that Visa or Mastercard cope with. Well, just one blockchain (Ethereum) seems to have proved the naysayers wrong. Even national institutions such as the British Museum are involved with NFTs, and even sports such as rugby and the German Bundesliga are engaging.