On Payments, Enterprises and a JPEG Blockchain?

Off the Blocks | Vol 103, February 25, 2020

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The Changing Face of Finance

With a combined $276B in market cap, the crypto economy is, by some objective standards, flourishing. It is ironic that most of it has not permeated into the mainstream. However, blockchain technology has certainly moved beyond the experimentation stage and notably, its use in the payments space is gaining a lot of traction. Fintech solutions designed to transform decades-old trade finance processes are beginning to offer alternatives and boosting the efficiency of payments while stock exchanges are readily embracing the efficiency around settlement/clearing and collateral management.

Yet, a bulk of the growth in digital assets or non-cash payment mechanisms has come from Asia and mobile wallets with card and digital money payment options have thrived. Paytm in India and Wechat and Alipay in China have become mobile payment giants and will continue to expand and integrate into the payment ecosystems outside of their respective countries. The share of cashless payments has grown 5x since 2014. By some estimates, the mobile payment industry in China alone is expected to reach $44T.  

Facebook shook up the entire payment industry landscape by launching its own digital currency, Libra. While some governments looked at it as a threat to their sovereignty, others have used the opportunity to think about how to stay relevant as technology permeates through the once impenetrable bastion of central banking. It is important to realize that the long-standing central banking institutions still enjoy more public trust than private currencies. The existing system has been built up over more than 100 years and tested in a variety of market conditions. Sure, it has its shortcomings, but there is a lot of institutional knowledge and competency buried in its structure, and not every aspect is up for disruption. For example, interbank payments and settlements may not be the best area for a decentralized system as the relative efficiency to be gained is marginal.

The Bank of England chief cashier Sarah John, perhaps rightly concerned about tech companies overtaking central banks in the payments space, expressed support for an official cryptocurrency.

We need to think as an institution about how to position ourselves to make sure society still has a broad range of payments that it can use with confidence…… It is absolutely right that central banks think about whether a public sector or private sector would be best to provide a digital currency going forward.

- Sarah John, Bank of England

It is no surprise then that the market conditions are now ripe for a new kind of financial system to emerge. At Proteum, we believe that the foundations of a digital payments ecosystem have been laid and we are witnessing the seeds start to germinate. Fintechs are starting to not only integrate but embrace digital currencies and assets. Companies like Square are not reinventing the wheel on cryptocurrencies, but are strategically taking an open approach to digital assets, ensuring that the infrastructural layer is available to all.

An internet company can launch something and it’s available around the world. Whereas with payments, you have to go to each market and pay attention to regulators. You need a partnership with a local bank. This is a very slow process in any new market. The Internet having a native currency will enable us (Square) to be more like an Internet company.

With this in mind, it is critical that, first, entrepreneurs embrace the challenge of filling the gaps in the ecosystem. Just like water flows through the path of least resistance, entrepreneurs would spend their time and capital better by working on the mundane tasks of integrations and interoperability rather than by chasing esoteric ideas that will get mired in regulatory and compliance hurdles. Second, another huge opportunity is in the realization that there is a huge need for verification of data accuracy when interacting with blockchain systems. Data in an immutable ledger is only as valuable as its accuracy. This is a recurrent theme that comes up in our conversations with CXOs across verticals - payments, supply chain, credentials etc. This is a significant impediment to the growth of blockchain solutions and is a problem looking for a [scalable] solution.

In the US, larger banks have mostly shied away from the digital assets space. While the idea of providing affordable banking services is appealing, it erodes their profit margins. They may be playing a game of wait and watch before they make their first moves. In the menawhile, nimble institutions like Signature Bank are beginning to enjoy their first-mover advantage, creating their proprietary Signet platform for payments, duly approved by the NY authorities. The upshot: providing a healthy, instant alternative to SWIFT and ACH transfers, which may take days to clear and settle.

Sensing another opportunity, Caitlin Long, just launched Avanti Bank to fill in the gaps required for the mainstream advancement of digital assets. Based on the idea that a regulated bank that can act as a bridge to the Fed for payments and custody solutions, the bank is targeting big institutional clients such as pension funds and endowments who will need this to be interoperable with the financial institutions as well as be agnostic to underlying protocols.

For large finance institutions, regulatory compliance is not optional - it is baked into their business models. A bank that can step in and provide on-ramps for institutional players to participate in the digital economy will eventually have large trickle-down effects on everyday finance and payment options. While Asia may have taken an early lead in the adoption of digital wallets, much of the world is still intertwined with the US financial institutions. The early successes in China indicate that the transition from fiat to digital assets and a cashless payments system can be managed at scale, provided there is an integration of traditional financial institutions with the new age digital ecosystems.

Meanwhile, as Naval Ravikant pointed out on Twitter:

Now some significant news from the world this week:

  1. Enterprise | Enterprise Blockchain Startups Are All Of A Sudden Cool: Ethereum is up 102.89 percent year-to-date, while Bitcoin and Ripple are up 34 percent and 46 percent, respectively. These are all positive numbers for the sentiment in the blockchain ecosystem, but something else is creating a positive trend too, and that is the amount of established companies and institutions heavily investing in enterprise blockchain companies. This comes as a surprise for some as they still think that the blockchain space is too new or that it’s not solving real issues, but the validation received from Google, Samsung, Wells Fargo, and Salesforce speaks loudly. [… Read More on Forbes]

  2. Pharma | Using Blockchain to Track Down Counterfeit Drugs: Some of the industry’s largest pharmaceutical companies, including Pfizer Inc. and Eli Lilly and Co., have developed a blockchain-based system to track prescription drugs across the supply chain to better halt the flow of counterfeit medicines. Some two dozen companies in the industry including drugmakers, distributors, retailers and delivery firms created the blockchain-based MediLedger Network, which it has been testing in the verification of drug returns. They said they intend further expand the system this year. The World Health Organization estimates that counterfeit medicines worth 73 billion euros ($79.26 billion) are traded annually. [… Read More on Insurance Journal]

  3. Developers | The Convergence of IoT and Blockchain is Transforming Industries: If you step outside the notion of blockchain facilitating new currencies, it’s fair to say that when you are looking for real-world use cases of blockchain technological, the combination of blockchain and IoT (and other technologies) offers the most compelling use cases.  Blockchain developers are highly sought after in a range of different capacities and the convergence of blockchain and the IoT strengthens and scales existing IoT use cases.  [… Read More on Codemotion]

  4. Banking | Central Bankers From Canada, Netherlands, Ukraine Call Blockchain Unnecessary for “Centralized” Digital Fiat: Central bank digital currencies (CBDCs) have been a hot topic in blockchain circles recently, but central banks are lukewarm about blockchains. Representatives of a number of the world’s central banks discussed their CBDC projects last week in Kyiv, Ukraine. The one-day conference was arranged by the National Bank of Ukraine, or NBU, which itself is a CBDC pioneer, having run its own digital currency pilot in 2018. The tests showed that “there are no fundamental advantages in using specifically the DLT [distributed ledger technology] to build a centralized e-hryvnia issuance system” in which NBU is the only issuer, the report says. However, the central bank does not rule out an alternative “decentralized” model, in which multiple trusted payment processors would issue e-hryvnia. [… Read More on Coindesk]

  5. Cybercrime | Blockchain Beats Back Cybercrime: 2019 has been a year flooded with news about ransomware infections hitting left and right. Companies in the private sector, managed service providers, schools and municipalities have been hit the most.

    • 113 state and municipal governments and agencies.

    • 764 healthcare providers.

    • 89 universities, colleges and school districts, with operations at up to 1,233 individual schools potentially affected.

    What’s this got to do with blockchain or cryptocurrencies? A lot, actually. That’s because blockchain is going to put cyber scumbags out of business. And, it’s going to create big opportunities for businesses and investors. Why? Because NO ONE has ever hacked Bitcoin. That’s because Bitcoin is stored over blockchain, the most secure computing network in the world. And this security is exactly why the business world is rapidly incorporating blockchain technology into their corporate databases. [… Read More on FXStreet]

The Final Word | JPEG on the Blockchain: Image Format Creator Believes Tech Can Fight Copyright Theft

Image Source

The organization that created the popular JPEG picture format believes blockchain could be used to verify images as well as flag fakes and image theft. The Joint Photographic Experts Group (JPEG) said blockchain has "great potential" as the basis of a system that would use a combination of encryption, hash signatures and watermarking in an image's metadata to protect copyright. The system could have advantages over existing verification models, JPEG said at a recent meeting in Sydney, Australia. Instead of signing up for a particular program, blockchain means content creators and end-users can simply reference the metadata built into images themselves. At the meeting, the group also discussed whether blockchain, and possibly smart contracts, could be used in media forensics as well as to better protect user privacy and security. [… Read More on Coindesk]

About Proteum
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for startups and emerging ideas based on blockchain solutions.

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