Digital Bytes- weekly analysis of some of the developments in the Blockchain and Digital Asset sectors.
Weekending 12th April 2019
UN aviation president claims Blockchain can help its industry, which is estimated to double in size by 2035
In a speech at the inaugural Council for the International Civil Aviation Organization (ICAO) in Abu Dhabi, the UN aviation president claimed that air traffic is going to double up in the next 15 years and believes Blockchain technology can make the industry more efficient. Handling the huge amount of data and security measures required to transport passengers across the world is a real challenge for the airline industry. However, by using a technology such as facial recognition, interacting with government data bases and having access to information in a secure manner and real-time globally via a Blockchain, offers some solutions.
It is not just dealing with passengers that it is thought Blockchain can help, but also to reduce the huge amount of paperwork and customs documentation required in the air cargo industry. Then there is the necessity to be sure that aircraft spare parts are genuine, and as increasingly airlines and their spare parts suppliers start to use 3D printing to manufacture spare parts to avoid the need for lots of expensive parts to be held in multiple locations globally, there has been discussion about the need for “A Chain of Trust”.This refers to the use of Blockchain technology to protect the intellectual property (IP) when using 3D printing, by issuing a license. If you consider a situation where none of the parties (the airline, the printing service provider and the parts manufacturer which owns the IP) do not trust each other. One needs to determine who owns the IP and whether the part has already been licensed by someone else.
It may be helpful to think of Blockchain technology as a skeleton, from which other technology hangs, as it facilitates data to be stored and distributed in a highly secure manner thus enabling, where required, Artificial Intelligence, 3D printing, facial and biometric identification to be used.
How Blockchain is being used to clean up the challenge of rubbish
In different cities across the world Blockchain technology is being used to help tackle the challenge of mountains of rubbish which we create in our throw-away culture. For example, in Sharjah, in the United Arab Emirates, Blockchain technology is being used to create a platform designed to cut costs for customers applying for permits, from several days to only a few hours. This platform validates, processes and store transactions about Sharjah’s rubbish.
Plastic bankhas been using Blockchain technology for a while to track, monitor and record for various projects aimed to recycle plastic waste. As multinational-corporations, are increasingly coming under pressure from shareholders to prove that their Corporate Social Responsibilityinitiatives have real value, Blockchains can, and are indeed, helping. Plastic bank worked with the SC Johnson program in eight villages in Indonesia, where tokens are being given to people to encourage them to collect and recycle plastic. These tokens can then be redeemed for clothes, food, medicine and even books, so not only is SC Johnson fundingan initiative to help clean the environment, but also makes a real difference in remote communities.
Shell is offering bonuses to it staff if they are able to suggest ways to reduce its carbon footprint. I would not be surprised if we saw using incentives and gamification in the form of tokens to nudge and encourage clients to change behaviour, and create less carbon emissions.
Meanwhile, in Bangalore Blockchain technology is being used to record complaints and create a more transparent record. So, when residents report and complain about rubbish, there will be a data base that cannot be tampered with, available for all to see about when and where the rubbish is reported, and then what follow up action has resulted.
Initiatives using Blockchain technology like those in Indonesia and Bangalore, are not going to change the world, but they will have a very positive impact on the local communities and hopefully can be replicated elsewhere.
Amazon, Coca Cola, Fedex, McDonalds and PayPal, via ICC, will tap in to Blockchain-powered solutions.
The International Chamber of Commerce (ICC) was set up after WWI ,in 1923, to help make global trade more efficient and has signed an agreement with a Singapore-based business Perlin to use its Blockchain expertise.John Denton, the ICC’s current secretary general,
before being appointed said. “We think this might be one which we can look back on in 100 years and say the ICC shifted blockchain in a way that enabled the private sector to function more effectively in a sustainable way and actually create more opportunities for people.”
Bold words indeed about a technology that is still in its infancy, as it continues to meet the challenges of scalability and adoption. However, with multi-national corporations, like Coca Cola, McDonalds and Amazon as members of the ICC ,along with its 45 Million other companies in over 130 countries,it has the global reach to raise Blockchain’s profile. The ICC is thought to be looking to use Blockchain technology to help with cross-border transactions, with traceability and transparency of goods, and to improve the efficiency of how supply chains functions
Game of Thrones and Ravencoin — where is the link?
Game of Thrones is the most valuable TV show ever produced, and as the graph below shows, it has commanded massive audiences since it was launched in 2011.
But despite its name, Ravencoin is fictitious and is borrowed from the fantacy world of Game of Thrones, yet has no commercial link to the hit TV show.
RavenCoinwas created in January 2018 and did not carry out an Initial Coin Offering, but has organically, grown like Bitcoin. Ravencoin today is in the top 40 in terms of its capital value being, valued at $250Million according to Coin market Cap.
So, as ever, be careful of a headline as ‘things an’it what they often appear to be”…..
Despite this, Ravencoin has not had a bad track record, and initial miners of RavenCoin will be very pleased to have seen their coins increase in value by over ten-fold in just over a year.
When is an IPO not an IPO? When it is an ICO, STO, IEO, DPO, TCR or a Direct Offer!
In 2014, Mastercoin launched the first Initial Coin Offering (ICO) It took nearly three years for this capital-raising mechanism to really take off, which subsequently created over 5,000 tokens being issued and raised over $22 Billion on a global basis. As regulators turned their attention to ICOs, arguing that many of the ICOs ought to be treated as securities, it has led to development of Security Tokens (STOs). STOs are normally asset-backed and typically subject to security regulations in the jurisdiction in which they are marketed and launched.
STOs are usually backed/pegged/linked to an asset, for example including private and publicly traded shares and bonds, property (both residential and commercial), commodities (gold diamonds), foreign exchange ($, Yen, Euro, £) and even exotic investments like wine, violins, art and other collectables. STOs, being Digital Assets, mean that potentially they can be listed on Digital Exchanges, which in theory, enables them to be traded 24//7, and enables smaller investors to buy and sell these assets. Historically some of these assets, such as real estate and collectables, have proved to be illiquid, and the preserve of the wealthy and institutional investors. However, STOs ought to be able to widen the number of investors who can gain exposure to these previously illiquid assets in the future.
More recently we have seen organisations that want to raise capital by issuing tokens, using one of the 300 digital exchanges which exist, launch Initial Exchange Offerings (IEOs). These IEOs are put on an exchange, and are very similar to an ICO, but by being listed on an exchange hopefully have greater liquidity.
Potentially they also offer investors a degree of comfort because a third-party (the exchange they are to be listed on), has carried out a degree of due diligence on the IEO. Provided the IEO is a true utility token i.e. the company that is creating the IEO, is not intending to use any capital raised to build its infrastructure, IT, or platform etc. it will stand a chance of not incurring the wrath of the regulators. Some exchanges have decided to call their IEOs Direct Premium Offerings (DPOs), and they are usually designed to offer investors access to a Crypto currency at a discount to the market price. In traditional stock exchanges, I thought these are called “rights issues”!
More recently we seeing Token Curated Registries (TCR), which are designed to replace centralised lists eg a list of the top ten hotels or restaurants in a City. TCR is like an incentivised voting game that creates lists which are maintained by the very people who use them. Using the “Wisdom of the Crowds” principle, users collectively vote (using tokens) to decide which submissions are valid, which should be included in the list and where they will be ranked.
All of the above typically use Blockchain technology as part of the process of bringing a company to a wider audience, apart from Direct offers,which simply look at raising capital (much like an Initial Placing Offer (IPO)) but do so without the costly underwriting fees of using expensive investment banks. It will be interesting to see as Slack have announced they are doing a Direct Offer, will Pinterest, Zoom, Uber or AirBnb also use Direct offer as they to intend to become publicly quoted companies.
So, it is no surprise that all of the above is taxing for regulators and makes it very confusing for investors. However, for the first time in many years, we are seeing real innovation as financial markets adjust to our increasingly digital economy.https://haseebawan.com/ieo-initial-exchange-offering-a-detailed-guide
Digital Assets trading volumes expand, indicating increased institutional demand.
According to a report from South Africa it showsBitcoin has little or no correlation with other asset classes, and it has had a far better risk-adjusted return — Sharpe ratio, compared to other asset classes. To put this more simply, despite Bitcoin’s volatility, investors have had better performance and been more than compensated, even after you are allowing for the amount Bitcoin’s price has risen and fallen.
There has been increasing interest in Digital Assets as illustrated by the number of Bitcoins being traded on Over The Counter (OTC) markets, and volumes for Digital exchanges have been growing. The Chicago Mercantile Exchange (CME) recorded over $540 Million worth of Bitcoin trades on 4thApril, which was an all-time high. This illustrates the institutional interest in Bitcoin, as CME is dominated by large fund managers and banks.
Stablecoins becoming more like traditional cash
The Universal Euro stablecoin is being launched by the Universal Protocol Alliance (UPA), which is a group of Blockchain organisations, and is reported to enable the payment of interest to holders of this new stablecoin.
UPA is aiming to encourage 100 million people to use Digital Assets, while tackling one of the key potential challenges around Blockchain adoption — interoperability- in other words, ensuring different Blockchains are able to communicate with each other.
Tether, currently the largest stablecoin by value, has a current market capitalisation of over $2.3 Billion. Ithas finally announced that it is not entirely backed by US$,but also holds loans and other assets as collateral. The announcement that Tether appears to be engaging in fractional banking and is not backed 1:1 by US$, makes it more like a traditional fiat currency which also only has a proportion of its assets held in physical “cash”.
The similarities between Digital Currencies and traditional currencies appear to be growing, as organisations try and take features of both types of currencies. While some will be disappointed, although may not be surprised, that Tether is not actually backed 1:1 by US$. So, is Tether that different from the banks it is trying to compete against, as how often do the banks engage in activities that we do not think they ought to be involved in?
Christian Lagarde chairs Goldman and JPMorgan head to head, and we see more initiatives to embrace Digital Assets in financial services
The managing director of the IMF, Christian Lagarde recently chaired meeting — “Money and Digital Payments’ where Circle CEO ( part owned by Goldman Sachs) extolled the benefits of a sovereign currency using Blockchain technology and so allowing one to trade globally and not rely on central clearing institutions.
Meanwhile in MFU- Japan’s largest bank has confirmed that it is to issue its own Blockchain powered digital currency later this year as it believes that Digital wallets will replace physical wallets in the future. This announcement follows Mizho’s statement that it was launching a digital currency, J Coin pegged to the Japanese Yen which will use QR codes scanned from a mobile phone and so far Mizho have signed up 60 banks on to their new “Banking Digital Currency Platform” .The Japanese seem to be taking a more accommodative stance towards Digital Assets with proposed legislation being discussed that would relax their tax treatment. So this may explain why we are seeing a number of initiatives in Japan being announced.
In the UK we have seen the announcement that Coinbase are to launch a Visa debit card that will allow one to convert Digital assets to fiat and allow one to withdraw cash from ATMs/ cash point machines. The intention is that this card will be rolled out to other European countries in coming months although users will be disappointed to see that transactions charges of 2.49% are to be levied while usually there are no transactions charges using other types of debit cards. However, an interesting feature of the new Coinbase debit card is that they will notify users if their passwords were found on other websites, automatically blocking the Coinbase card as a way to protect card users.
Italian wine using Blockchain technology
MISE has reportedly already invested over Euros 40 Million in to Blockchain projects, as Italy looks at using its wine industry to see how it can bring more transparency to products made in Italy. This is hoped to be able to fight counterfeits and fraudulent products claiming to be made in Italy, but are actually not made there. Fraud in the wine industry is a real challenge, and this has encouraged Ernst and Young (EY), to use Blockchain technology to help vineyards via its EY Ops Chain,originally launched over two years ago. It is estimated that the Italian wine industry loses over Euro 2 Billion due to wine fraud.
It is not just Italian vintners who are turning to Blockchain.Bufala Campana, famous the world over for its mozzarella, is using Blockchain technology and QR codes that can be scanned, using a mobile phone, to trace the products’ provenance.
One of the first companies to use Blockchain to trace the origins of a product was Everledger,which brought greater transparency to the diamond industry. It is now turning its attention to the wine industry by using Near-Field Communication (NFC), tiny silicon chips, within labels and corks. These can then be detected, and the bottle’s provenance and wine can be traced, so giving consumers confidence they are buying wine as stated on the label.
Blockchain start-up completed in what it claims to be the world’s first end-to-end international blockchain trial for real estate
In the UK a new start-up, called International Property Network (IPN), believes that for the first time they have completed a property transaction involving banks, conveyancers, agents, legal teams, buyers and sellers using Blockchain technology.
U.S-based law firm Squire Patton Boggs, U.K-based law firms Ashurst and Clifford Chance, Barclays, Commerz Real, SBI Nihon SSI, BBVA, Swiss Re and Royal Bank of Scotland are among 40 companies on the IPNs platform as they all seek to save costs and reduce the costs of real estate transactions.
IPNS claims that the potential cost-savings could be as high as $160 Billion p.a. as the current system is very reliant on analogue and predominately paper-based systems. The ability for many different parties to work on the buying/selling of a property using one record and see its progress in real time, is thought be able to reduce the time to complete a real estate transaction from months to weeks.
IPN have teamed up with R3Corda to use their Blockchain expertise, and recent trials have illustrated that businesses can use the platform within a few days without the need for complex changes to their back-office systems. The reason for this is IPNs platform does not store information, but integrates it with users’ existing technology, so that each party retains control over their own data. This hopefully removes some of the GDPR challenges and other compliance issues, whilst reducing risks and the cost of continuous reconciliation of facts and information, which is what is normally required.
IPN has also been working in the UK with HM Land Registry’s Digital Street project, to explore how they are able to use Blockchain technology to improve how it interacts with different parties.
There is also some discussion regarding a token being created and used on the IPN platform as a way to reduce the costs of buying and selling real estate.
This platform could prove to be significant, as it has the potential to greatly assist many projects globally which are looking to tokenise real estate portfolios in an effort to have greater transparency and improve the liquidity, whilst making property investments available for smaller investors, via tokenisation.
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