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World’s Central Banks Are Dipping into Blockchain – What’s Ahead for Fintech?

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The term blockchain, or more conveniently known as distributed ledger technology (DLT) to traditional finance is increasingly becoming a popular household name in the banking sector. There may well be more than 200 investment, commercial, and Central Banks as well as other financial institutions including big names such as Bank of America, Bank of China, Bank of England, Bank of Canada, Deutsche Börse, Reserve Bank of India, HSBC (Hong Kong Shanghai Bank), JP Morgan Chase, Morgan Stanley, among others who are currently integrating or planning to incorporate a part of the technology with their business operations.

Heralded as one of the most transformative technologies for financial services, the blockchain could be the key to unlocking a new economic era. Here’s how Harvard Business Review puts it:

“The blockchain will do to the financial system what the internet did to media.”

Redefining the Narrative for Blockchain

The Bank of England may have been the first Central Bank to venture into the DLT space and in partnership with the Bank of Canada and Monetary Authority of Singapore (MAS) published a paper on Cross-border interbank payments and settlements.

With sixty-five percent of the world’s Central Banks reportedly exploring blockchain technology and DLT, what does this mean for the future of finance? Firstly, the true scope of blockchain exploration by these traditional financial institutions can only be truly appreciated when considering the combined weight of their valuation alongside the core value proposition of the technology. This supposedly gives the blockchain industry a stupendous valuation that dwarfs current estimates. Blockchain and finance are often considered to be two peas in a pod – giving this an alternate meaning, perhaps, in the future, anything related to finance will have a string of blockchain technology attached.

This possibly explains the stiff competition among tech giants like IBM, Microsoft, Amazon, Facebook and others vying for a future stake in the blockchain industry – and not settling for small portions. R3 Corda apparently has a stake as a major player across most of these financial-enterprise deals, having well over 250 institutional partners across the world, the blockchain hype may indeed be off the charts.

But the story wasn’t always this glittery, as legacy financial institutions always slighted cryptocurrencies – the premier products of blockchain during its limelight; mostly due to Bitcoin – a decentralized entity, and largely considered to be a repulsive aberration of financial principles. However, over the years, most traditional financial institutions have warmed up to the idea of a distributed ledger technology and have found useful applications in operational efficiency. For them, it’s more about the blockchain and less of Bitcoin – still a wonder though how they justify that unholy separation.

The Potential for Banks

For Central Banks, the DTL has several use case parameters set to address numerous pain points. As detailed in a whitepaper published by World Economic Forum, there are about 10 use cases. However, major areas of interest seem to revolve around cross-border payments, securities settlement, fraud detection/security and trade finance. Banks tend to focus more on border payments – how to ease the transfer of cross-border payments, as DLT is known for speedy transactions that could cut down the time spent in processing transactions in incumbent systems.

The Bank of Canada is currently running several partnerships to exploit the most out of DLT. Its current flagship projects – to include project Jasper – looks to transform wholesale payment systems and possibly integrate their findings with “other assets such as foreign exchange and securities.” Other initiatives would include exploring the opportunities in “securities settlement system using central bank money, cross-border/cross-currency settlement system as well as Digital Fiat Currency projects.”

According to the Bank of Canada:

“One estimate suggests DLT could enable banks to save as much as USD 20 billion a year in global back-office costs if applied to cross-border payments, securities trading and regulatory compliance.”

For this reason, the development of Central Bank Digital Currencies (CBDC) became a subject of focus for most banks. A report by Bank for International Settlements (BIS) revealed 40 central banks around the world are supposedly researching CBDC. The central bank’s design of a digital currency typically involved the use permissioned blockchain
network, granting only participants with access to participate in consensus.

Last year, talks about CBDC perhaps made more news than other financial innovations these banks could have thought of. Though, the subject of CBDC still remains sketchy at best as a study between IBM Blockchain World Wire and the Official Monetary and Financial Institutions Forum (OMFIF) revealed mixed results on the subject of CBDC among 21 banks. However, there were growing sentiments towards using DLT and smart contracts.

Moreover, considering the size of the digital currency market, it still remains to be known how an actual retail cryptocurrency issued by the bank will impact economies. For now, the versions of bank-issued digital currencies such as JP Morgan Coin are intended for inter-bank settlements with only institutions in mind.

Between banks are rising opportunities to share resources to develop CBDC protocols that would enable inter-bank transactions. In May, the central banks of Thailand and Hong Kong signed an agreement to research CBDC in the hopes that their experience sharing will foster the development of quality financial services through the platform.

CBDCs could change the narrative for digital currencies as a whole. Should it be widely adopted, on one hand lies the possibility of the acknowledgement of cryptocurrencies and thereby create massive adoption and at that make the already volatile cryptocurrency market spike further in valuation. On the other hand, a CBDC coupled with strict digital currency regulations could oust non-regulated cryptocurrencies and create a huge problem for Bitcoin and a host of other altcoins; perhaps it won’t be extremely destructive considering the decentralized nature of Bitcoin.

Still Hesitant

Despite the potential DLT could serve the banking industry, possibly saving banks billions of dollars, developments and adoption seem rather slow considering the amount of investments sunken in the research and development of DLT-related products. Having come this far with several initiatives and collaborations, could banks begin to resent their initial thrust into DLT – after all they were only super enthused because such a system like Bitcoin going on a decade seemed efficient thus far. McKinsey describes the current stalemate as blockchain’s Occam problem;

“By late 2017, many people working at financial companies felt blockchain technology was either too immature, not ready for enterprise level application, or was unnecessary. Many POCs added little benefit, for example beyond cloud solutions, and in some cases led to more questions than answers. There were also doubts about commercial viability, with little sign of material cost savings or incremental revenues.”

As for retail banks, the hesitation may roost on Bitcoin’s extreme volatility, as with other wild roller-coaster-rides in the digital currency markets, largely due to the unregulated nature of these emerging assets. Besides, for some banks like the Bank of Korea, CBDC may appear to be a moonshot project at best, and do not consider it a matter of urgency; the Bank would rather gather more information on the benefits and costs of CBDC implementation first. With Italy, it clearly stated that it had no inclination to embark on a CBDC despite vouching for its qualities. A few others are well concerned about the overall impact of the CBDC on their fiat system.

Another huge deterrent stems from the uptick in competitive solutions being offered by legacy institutions, thereby making DLT traction a bit slow. One of such includes SWIFT’s global payments innovation initiative (GPI), which is reportedly tackling initial pain points with an attempt at providing higher transaction speeds and increased transparency between transaction parties.

One of the world’s top bank Citibank has dumped its Citicoin project which it had been developing for about 4 years. It announced earlier this year that it is now considering SWIFT on the premise that SWIFT already has a ready market with about 10,000 financial institutions already onboarded.

It’s Inevitable

It’s not all gloom for the banking industry, as the competition with emerging digital assets gets stiffer – and it will probably get worse for banks. Recently, Facebook’s cryptocurrency became an important subject as its founding infrastructure could threaten the future of legacy financial services.

The International Monetary Fund (IMF) has predicted that central bank digital currencies (CBDC), or state-backed crypto, would soon be a reality, with central banks already issuing them in the near future. This means the end to the struggles for an inclusion into the DLT market may not be too far off.

On the off chance that digital asset regulations kick off almost simultaneously around the globe, the developments of DLT-related banking products may surge, however, the industry has to fine tune its scaling strategies as the world gravitates from fiat currencies to emerging systems of value exchange.

There’s still so much more to be done by banks before incumbent systems can fully trust DLT. Therefore, more research and contingency methods would have to be in place before a complete shift occurs. However, the psychological shift is first, banks need to come to terms with the changing system as peer-to-peer systems are taking over, soon there would be lesser demand for banking services – which for the most parts lack the allure to keep customers.

Other emerging doubts could be stemmed through standardization of DLT objectives and strategies. Above all else, banks venturing into the blockchain space must do so for the long-haul, as the nascent technology still has room for growth, and perhaps evolve into a more suitable system for the banking industry.

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Blockchain – A Game Changer for Healthcare?

Blockchain - A Game Changer for Healthcare

Over the years, the healthcare industry has made slow progress towards integrating emerging technologies. But with the ascent of disruptive technologies such as artificial intelligence, machine learning, internet of things, and surprisingly virtual reality, a unique opportunity opened up for distributed ledger technologies to provide a de facto trust infrastructure in the healthcare system and it is believed that integrating blockchain-based solutions could aid professionals at unprecedented rates.

An excerpt from a paper titled Metrics for Assessing Blockchain-based Healthcare Decentralized Apps, authored by Peng Zhang, Michael Walker, Jules White, Douglas C. Schmidt from the Vanderbilt University, provided an insight into how decentralized technologies could be harnessed to address key healthcare industry problems. Its researchers noted:

“Programmable blockchains have generated interest in the healthcare domain as a potential solution to resolve key challenges, such as gapped communications, inefficient clinical report delivery, and fragmented health records.”

Problems with Existing Systems

Electronic health records (EHR) is currently being used by a growing niche of medical stakeholders such as hospitals, doctors, pharmacies, research institutes, and insurance companies to access a secure database of patients’ health information. Initially, the design was tasked with basic patient administration such as organizing appointment schedules and issuing repeat prescriptions. Over time the system evolved, such that for hospitals, it meant storing or sharing accurate health records on their patients and providing the industry vertical access to relevant treatment and diagnosis history, and possibly help focus research on treatment plans and designs of new drug products.

Consequentially, healthcare informatics has grown to become a mammoth in the data industry. Data from this industry is projected to grow to as much as 15 times its 2013 value by 2020.

The growth rate of #healthcaredata is projected to be greater than that of the total global data set. At 153 exabytes back in 2013, the healthcare industry is expected to generate 2,314 exabytes of data by 2020, a 48% annual growth rate. pic.twitter.com/LcSKlovnvC

— John Snow Labs (@JohnSnowLabs) July 15, 2019

Meanwhile, the rate of adoption of EHR in developed countries is quite alarming, as research by Meeker reported an increase in the use of EHR system in the United States nearing a 100 percent, and in another report, physicians who had adopted EHR systems were up about 60% in just under a decade. This growth could further imply a concurrent growth of the problems in EHR.

Most of the data related problems plaguing the healthcare industry revolves around security and integrity due to data-breaches, interoperability, and censorship.

Data Security: In terms of data security and attestation, data stored by EHR systems aren’t always reliable due to possible human errors in data entry, conflicting data entries or worse, data tampering as seen in the cases of medical insurance fraud or pharmaceutical drug trial scandals. More so, data breaches are common attacks experienced in the industry. It’s been pointed out that:

“Globally, healthcare was racked with more cybersecurity breaches than any other industry in 2018, accounting for 25% of 750 reported incidents…

“Health information was the second most at-risk type of data in cybersecurity threats [in 2018] …

“Despite healthcare’s mounting cybersecurity threat, the industry’s security measures haven’t kept pace painting a gloomy picture for 2019.”

Lack of Interoperability: Another huge problem in the healthcare industry involves the silos of health data among disparate institutions. While shared information between homogenous verticals in the industry has a profound impact on the overall healthcare delivery system and could improve care quality, these data silos present a huge setback on both EHR system designs and security layouts. BIS Research measured the low threshold of information sharing among industry verticals, stating:

“Less than 10% of healthcare organizations regularly share medical information with providers outside of their organization.”

More so, running EHR through trusted intermediaries could be quite expensive as suggested by physician and specialist in medical informatics and health IT Dr. Christina Czeschik.

Patient-owned Data Censorship: Another important aspect of health data sharing concerns patients as well, as they are the primary data sources. While some argue about the ethical justification of allowing patients access to their health data, a lot of clinics and some general practitioners claim that putting patients in control of data from EHR provides them the “opportunity to become active partners in their care.”

The design-flaw impact on incumbent healthcare informatics – whether electronic or otherwise – has rippled into many socio-economic and political realms, aggravating the already complex systemic problems. However, this could all be unraveled with a trusted entity, and as far as humans go, none could fit in that role. Blockchain technology seems the only logical route to provide the ideal trust factor in the data stream network, and when it comes to the healthcare sector, no better solution seems applicable.

Surmounting Obstacles

Blockchain is reportedly being touted to be the panacea to a wide array of database-related problems and consequentially being sought out for trustless infrastructure. The thing about the technology is its cryptographic layer – which is made up of complex codes and algorithmic consensus that secures its system; and smart contract ingenuity which makes any blockchain-enabled system communicate seamlessly and almost autonomously.  A recent study revealed:

“The adoption of the blockchain technology could save the healthcare industry up to USD 100 – 150 billion per year by 2025 in data breach-related costs, IT costs, operations costs, support function costs and personnel costs, and through a reduction in frauds and counterfeit products.”

Currently, there are a plethora of blockchain-based startups exploring diverse opportunities to disrupt the healthcare system with the blockchain or in a combination with other emerging technologies. The solutions being provided by these startups can generally be grouped into EHR disruptors, pharmaceutical drug monitoring, patient data monetization. However, as Disruptor Daily would find after studying 40 blockchain startups venturing into the healthcare industry, other areas of the application included genomic data security, healthcare cryptocurrencies, and provenance and medical history.

This disruption wave seems rather logical given the stats of expected increase in spending opportunities – to a ballpark of USD 5.61 billion by 2025 – on global blockchain-related research and development in the healthcare sector, as well as the rise in digitized healthcare products, and an increase in the use of online health information systems – all seem to be drawing the attention of both decentralized and centralized interest parties.

It may not be all about the financial opportunities after all, as most people would think the blockchain and all of its underlying systems are limited to fintech innovations. Innovators continue to disprove this biased logic with more out-of-the-box turnkey blockchain applications that optimize processes.

This blockchain-based healthcare niche should be taken seriously, as an alliance comprising of major US healthcare companies are making moves to improve healthcare data using blockchain. Other emerging developments continue to dwarf the limitations of entry barriers and with the likes of IBM offering a proprietary blockchain-based solution to drug prescription tracking to stem drug misuse, and transportation giant Uber venturing into the blockchain-based healthcare sector, it does provide an overall sentiment regarding the future of the market.

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‘Global Cryptocurrency’ Coming, Says Ex-Trump Advisor Gary Cohn

Former Goldman Sachs executive and President Donald Trump’s ex-Director of the National Economic Council, Gary Cohn, shared his positive views on blockchain technology while predicting a future global cryptocurrency.

Speaking to CNBC’s Bob Pisani, Cohen shared his projection, telling him, ”I do think we will have a global cryptocurrency at some point.”

Cohen did say, however, that he does not believe Bitcoin will be the currency successful in this endeavor. “I’m not a big believer in Bitcoin,” he disclosed to Pisani.

Cohn finds fault in what he sees as Bitcoin’s inaccessibility and impractical high mining costs. For a global cryptocurrency to be successful, he regards it as necessary to not be “based on mining costs and costs of electricity and things like that”.

Speaking on the need for a more accessible currency to find success globally, Cohn said, “It will be a more easily understood cryptocurrency that will probably have some blockchain technology behind it, but it will be much more easily understood how it’s created and how it moves and how people can use it.”

Despite Cohn’s reservations about Bitcoin, he describes himself as ”a believer in blockchain technology,” the sentiment of many institutional and governmental figures in the US. Several states such as Arizona are working to instate legislation that would promote and regulate the blockchain industry while struggling to pass a bill that would allow taxes to be paid in cryptocurrencies.

CNBC’s Pisani pushed Cohen to discuss his views on Goldman Sachs’ recent decision to begin the trading of Bitcoin futures. It appeared Cohn was made uncomfortable by the question, responding somewhat defensively: “Look, they can do whatever they want. They can do whatever’s in their shareholders’ best interest.”

Goldman Sachs showing their support for Bitcoin in this form does undermine Cohn’s negative conception of the currency’s future.

Cohn left Goldman Sachs in January 2017 to join the Trump administration, leaving this position last month following reported contention with the administration regarding proposed trade tariffs on China.

 

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British Cryptocurrency Association CryptoUK pushing UK Government to Regulate the Industry

British cryptocurrency trade association CryptoUK is urging MPs and the UK Treasury to regulate the industry in the country.

The self-regulatory body made up of eight members has been approaching influential MPs, seeking support for its proposals to have the market regulated by the United Kingdom’s Financial Conduct Authority (FCA).

Earlier Developments
As previously reported by BitcoinNews, the FCA  is taking cryptocurrencies into serious consideration for future discussions, as outlined in their 2018/19 Business Plan; MPs, the FCA and the UK Treasury Committee will be examining the potentially disruptive impact of blockchain and cryptocurrencies on financial institutions and financial infrastructure.

That said, they’ll also be inquiring into the future benefits of the technology, with UK MP Matt Hancock echoing positive sentiments toward the sector. At the London Blockchain Conference in mid-April, a point noting the UK Government’s Digital Strategy, is revealing of a real capacity to which the UK could become “the best place in the world to start and grow a digital business and to trial new technologies like blockchain”.

CryptoUK Advances Discussions
Chair of CryptoUK and UK managing director at trading platform eToro, Iqbal Gandham said:

“Introducing a requirement for the FCA to regulate the ‘on-off’ ramps between crypto and fiat currencies is well within the remit of HM Treasury. Based on our analysis, this could be achieved relatively easily, without the need for primary legislation, and would have a huge impact, both in reducing consumer risk and improving industry standards.”

The group believes that regulation should give focus to exchanges, brokers and trading platforms instead of the actual cryptocurrencies themselves; furthermore, they propose that the HM Treasury should draw up new permissions for FCA to control cryptocurrency investment.

CryptoUK is also proposing that FCA should be responsible for licensing approved exchanges and enforce new rules including anti-money laundering practices, examination of investors and operational standards.

Blockchain Technology “Pixie Dust” and “Magic Wands”
Contrary to the positive stories emerging from the United Kingdom in recent weeks, think tank director of the Center for Evidence-Based Management, Martin Walker, spoke at a Treasury Committee hearing on blockchain in the financial system, claiming:

“All that it takes to make a credible idea into a fad is people just switch off their brains and stop thinking. Over 20 years in and around the banking industry — blockchain is a fad, but I have seen many fads in my career. If 10 percent of what I’ve heard in my career had come true, we would have these amazing banks that run for £1 a week.”

What Walker fails to address is the far-reaching impacts the technology has beyond that of its predominant financial functions, and that the UK is taking proactive steps to fund and develop blockchain startups.

 

 

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