Blockchain: the future is here, now
By José Reis Santos | 28th of November 2018
Today I write as CEO and founder of DKJ International, a company that I set up a couple of months ago, that deals with providing solutions, consultancy and advisory in the areas of cryptocurrencies and blockchain. It is – as you know – a new area, with vast implications, that has existed since Satoshi Nakamoto published in 2008 the white paper that introduced the concept of Bitcoins (the first cryptocurrency), and the innovative technology that stands at its base: blockchain. The main intention of this this paper was the creation of an alternative finance and international banking system which, we recall, was at the origin of the 2008 global crisis; a crisis paid by taxpayers worldwide with a tremendous economic and social impact (recently Expresso reported that, since 2008, Portuguese taxpayers paid an average of 15 euros per month to rescue 5 national Portuguese banking institutions). At the base of the 2008 crisis, among other causes, was the excessive concentration of power in the hands of a group of institutions too big to fail, weakly regulated and devoided of any democratic or political controls. Institutions that, after being redeemed with public money, quickly returned to the practice of using and abusing a system skewed to the top (the 1%).
It was against this state of affairs that Bitcoin emerged, as a new payment system that, due to its decentralized nature, cryptographic and computational capacity (derived from that same decentralization), dispense the existence of institutional mediators in the financial relationship between parties, thus solving the problem of trust with a solution that ensures that between those who send and receive financial products (for example) there is no need of a mediation of a third party (bank or financial institution), because once this operation is inserted on the blockchain, in a decentralized form, it is sealed, immutable, and verifiable by anyone who wants to verify it. This is the revolutionary and disruptive character of this new technological proposal, because, contrary to what many predicted, this system is still safe in relation to any computational attacks, with all the information placed on the blockchain unalterable and transparent. So, despite all the noise surrounding cryptocurrencies, the truth is that few do not recognize the premises and advantages of its technological base (blockchain), as well as its disruptive applications in practically all economic sectors. Blockchain is today one of the most promising technologies of the future / present, and a centerpiece in the current disruptive moment we live in, and rightfully called the 4.0 digital revolution. Proof of this is the fact that the overwhelming majority of the major multinationals, and the government sector, are developing, applying or studying solutions based on blockchain technology.
However, and before we address in more detail blockchain, it should be noted that the path taken by cryptocurrencies has been slow but solid. If at first its use was very much associated with the silk road and the dark web, last year saw its widespread acceptance, with a peak of interest and increased value during Christmas of 2017, when the price of bitcoins reached USD 20,000, and the total value of the crytpo market exceeding USD 800 billion. During last year, especially until this summer, the interest in this sector can also be seen by the number of ICO’s that have raised billions of euros in the market, symbolizing this route as an alternative to traditional forms of financing, outside the Venture Capitals circuit, banking, etc. (theme for another article), and the entry into the sector of major players in the financial sector and the main multinational companies. Recently, the topic of cryptocurrencies was again in the spotlight due to the sharp drop in its market value (by about 40%); which, despite leaving open its value as a Currency (due to its high fluctuation, the existence of no central bank and of no corresponding regulation – despite few examples of some regulations, like Malta), it keeps its appreciation as a Commodity and source or Value, as well as the obvious benefits of taking advantage of the blockchain solutions promoted by each project. It is in these points that we want to focus in this first article on the topic.
Blockchain, as we have already mentioned, is a technological solution / platform that seeks to create “trust” where trust does not exist, that is, when unknown parties intend to develop a relationship without needing to depend on intermediation. In this sense, Blockchain allows to make a set of transactions more transparent, democratic, decentralized, efficient and secure, being – due to its encryption and decentralized nature – easily auditable, and resistant to counterfeiting. With these characteristics, it is not surprising that the Banking sector was one of the first to positively appreciate its impact, especially with regard to its use as international payment systems, as an alternative to those who do not have access to banks (more than 2 billion people), or that crypto deposits allow guaranteed access to value for those subject to high exchange rate fluctuations (as recently seen in Argentina, or Turkey) or subject to weak or non-indexed currencies. For these reasons, some say that blockchain will do to the banking sector what the internet has done to the media, with the overwhelming majority of the sector already exploring solutions of this nature.
Another of the sectors prepared to suffer from the disruptive effects of blockchain is that of logistics / distribution chain management, as transactions between parties can be documented in a permanent and decentralized register / ledger, monitoring the transport of products in a safe and transparent way, from their origin to the final destination, passing through the entire distribution chain providing full traceability along the route and new georeferenced management capabilities. Such characteristics allow, for example, to guarantee the genuineness of a certain product, to combat its (potential) counterfeiting, and to identify and control the origin of the products inserted in the blockchain, thus providing consumer confidence, and allowing immediate identification – throughout the chain distribution – of potential quality failures. At the same time, the possibility of using smart contracts can allow a set of operations to be automated, with evident added value for different economic operators and regulators.
Since one of the main characteristics of Blockchain is its ability to generate and manage trust, its influence can also be felt in the Insurance or real estate sector, through the use of smart contracts to optimize a set of bureaucratic-administrative processes, from verifying the identity of buyers and / or sellers, calculating premiums, paying taxes and / or commissions, resolving conflicts between contracting parties, etc., that is, optimizing bureaucratic machinery, dematerializing and decentralizing procedures. In the same way, the use of smart contracts may allow, for example, in the NGO sector to track the use of funds and follow their application; or electoral roosters can be placed on the blockchain so subsequently registration and counting will be immutable on a public ledger. In the same way, smart contracts can also be used to automate payments of royalties and copyrights, simplifying an often conflicting relationship between those who produce and manage cultural products.
Finally, we also identified the government sector as one of the most exposed to the positive effects of this technology, benefiting from its security and ability to insert in smart contacts a set of immutable information that can allow to increase efficiency in public administration, and consequently bring transparency in the relationship between the state and its citizens. It suffices for this purpose to think that social security or social support can be paid through smart contracts, or that property registrations if placed on blockchain can dispense with a set of intermediaries (notaries, lawyers, etc.) in order to optimize the sector, with evident administrative savings, not to mention the non-dependence on physical and perishable records. Or that public health services or energy management systems can be integrated into blockchain systems, or that information systems / IoT (Internet of Things) platforms can be integrated in order to create decentralized networks of IoT devices that, using blockchain, they eliminate the need for a communication center between devices, operating in a decentralized manner, communicating with each other directly to update software, resolve bugs, verify and manage energy use, etc.
In other words, examples of the good use of blockchain are immense, and we do not even refer to the role of ICO’s / STO’s as new forms of project financing, or to other areas that are suffering a strong impact from this disruptive technology. In any case, this is intended to be just a first article on the topic, to return soon with other appraisals. For now, it is important to note that the future that this technology promised us has arrived, and is being implemented in hundreds of projects around the world. It remains to be seen where and how the Portuguese market will be positioned. Theme that we will deal with in our next text.
(Text published online in Visão in 28th November 2018, in Portuguese)