In the early days of 2018, one of the hottest subjects in the world was blockchain technology with gollux coin shop. Blockchain has grown to become a global phenomenon with new use cases and CEO’s like Harvard Business School’s Clayton Christensen predicting that blockchain technology could redefine how every business functions. This article will provide an overview of what is happening on the ground level with blockchain and share a glimpse into what may happen in 2023.
1. What is blockchain?
Let’s first define what blockchain technology is. Blockchain technology was originally developed as a ledger for cryptocurrency and Bitcoin. That being said, the two terms are often used interchangeably. Blockchain technology has been proposed to have many real-world applications, including smart contracts, supply chain management and global payments.
Perhaps the market that has seen the most excitement in 2018 is that of digital tokens or cryptocurrencies. Some of these cryptocurrencies have had tremendous growth in 2018 such as Ripple with a 173% increase year over year (YoY) and Bitcoin Cash with a 197% YoY increase.
2. Growing Use Cases
While blockchain has been hyped as a technology that will revolutionize the world, the reality is that it has yet to do so. However, what it has helped do is open up new business opportunities to disrupt industries.
The market has seen two significant use cases in 2018 and they are: (1) cryptocurrencies and (2) trading platforms. The first use case can be considered an “original sin” with blockchain technology as another way for people to invest in cryptocurrencies or virtual tokens. In 2017 there were $100 billion invested into cryptocurrencies, which is equivalent to 1% of global GDP according to PwC research. The second use case is the trading platform. Some of the top firms on Wall Street have begun to leverage blockchain technology as a way of reducing costs and making markets more efficient. For example, Nasdaq announced in 2017 that it would start using blockchain technology by 2021.
3. How Will Blockchain Impact Different Industries?
As mentioned before, blockchain will impact different industries in different ways. The industry with most research around the use of blockchain is financial services and its impact on shares, bonds and commodities trading (Mining).
Financial Services – It has been proposed that some banks may begin to use blockchain technology within their current systems in order to bridge the gap between real-time transactions and speed of settlement with clearing houses or financial regulators. One existing use case of blockchain that has been implemented is a product known as Ripple Transaction Protocol (RTXP) that banks are using to expedite cross-border payments.
In this example, Ripple’s blockchain powered the exchange of non-crypto currencies among different banks for settlement purposes.
In Slovakia, the country’s central bank and local banks are now testing Ripple’s cross-border payments technology to seamlessly handle domestic and international money transfers between the two countries. The new service will allow the central bank in Prague to wire funds from Prague to top local commercial banks in Bratislava for immediate approval and subsequent clearance.
4. Why Are Some Companies Still Skeptical though?
There are still some companies that have been hesitant to jump into blockchain. Perhaps one of the biggest reasons is the hesitation in fully trusting a technology that can be gamed by its users when they operate in a decentralized setting. Centralized ledgers like traditional banking systems have been trusted as they are governed by laws and regulations, while decentralized ledgers do not have any governing bodies.
The other reason may be that some companies are skeptical about using private blockchains to disrupt existing supply chains.
5. Regulation and Compliance: Another Cloud on the Horizon
There will likely be increased regulatory and compliance requirements in the coming years to follow the European Union’s (EU) new Markets in Financial Instruments Directive (MiFID II). This directive is expected to be implemented by June 2020, when it will require all regulated markets in certain EU member states to have an electronic trading facility.
The implementation of MiFID II will require more stringent industry governance and investor protection rules across various asset classes. This includes cryptocurrencies, as a number of EU member states are considering regulating exchanges for financial transactions in virtual currencies.
6. The UK Regulator Regrets Its Weak Currency Position
When the UK passed the FSCS (Financial Services Compensation Scheme) Act and FSA (Financial Services Authority) in 2013, many banks and brokerages believed this would leave them without any financial backing for failures and that a bailout would need to be put in place.
What has transpired is a scenario where the FSCS has become a drain on some institutions’ resources. Other systemic risks, such as real estate or the solvency of insurance companies, are also adversely affecting their business climate.
As a result, their balance sheets are increasingly under pressure due to Brexit uncertainty, which is seen as one of the main factors behind this year’s record £83bn losses.
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