Blockchain Opportunities And Risks For Finance
Blockchain technology has been dubbed as big of a game-changer as the Internet has been for business and people. However, for most people, it’s still hard to see how that will happen and they still associate it with cryptocurrencies, tokenomics, ICOs, and what have you. How is Blockchain going to make a real difference? That’s the question that many companies are trying to answer these days running pilots on this that and the other. In the ongoing series “Blockchain Opportunities and Risks for Finance”, I’m trying to get past the hype and into how Blockchain will change business. This week I’m talking to Carl Christian Jenster from ARYZE, a company trying to develop a stable coin ecosystem for global payments. Carl Christian is the co-founder and community manager and has previously worked in Marketing for ISS and KRISS Group in Taiwan and Switzerland respectively.
What’s a stable coin and what difference will it make?
There are all sorts of coins out there being the most visible token of companies and activities related to Blockchain, however, Carl Christian could you explain what a stable coin is?
“Absolutely. A stable coin is an aptly named stable cryptocurrency. In most cases, it’s backed by fiat money, like USD, EUR, and so on; the way you can achieve a 1 to 1 peg is by collateralizing 100% of the underlying currency and keeping it safe in a bank, for example. Some stable coins achieve stability through a portfolio of crypto assets, using algorithms to control price. In this way, you get a stable, digital asset that is much more appropriate for payments and trade.”
That makes a lot of sense since one of the reasons a currency like bitcoin, in my opinion, will never go mainstream is because of the volatility. If one day you can buy one pizza and the next 100 pizzas, then you can’t expect people to use it for normal payments. Then it’s more like a high-risk investment asset. Carl Christian, could you tell us a bit more about your role at ARYZE?
“My role in the company is largely to do with educating our community and the public about the applications of blockchain technology. I host local events in Denmark where we openly discuss challenges and benefits of Distributed Ledger Technology, in addition to offering presentations at European universities relating to stable coins and digital payments.”
This confirms the fact that for most Blockchain is still at the educational stage hence it’s also important to highlight its many potential uses of it. Blockchain is not just used for one thing. You might say there are more than 50 shades of Blockchain that the general business environment needs to understand. Just consider a stable coin for a moment. A virtual currency that can flow freely between companies on a Blockchain-based network without having to suffer the working relationship of a bank or the need to change between currencies across borders. Link that to smart contracts that can auto-execute agreements once certain conditions are met and you completely automate transactions as physical or virtual movements of goods and services have been confirmed. It goes beyond this though as Carl Christian explains when it comes to the potential of Blockchain.
“If true scalability can be achieved for blockchains (which at the moment is not quite optimized), I believe we will witness a fast-track to mainstream adoption. I see blockchain being ideal for storing immutable data – the most exciting application would be to see blockchain being used for election software.”
So, just how far have corporates come in understanding Blockchain?
Use cases, pilots, sector-wide adoption, mass adoption. There’s still some way to go before we reach mass adoption, however, as more and more pilots are run, and businesses are using Blockchain in their day-to-day operations we’ll come closer to this point. To some extent though Blockchain has still stuck on the conceptual level for most executives according to Carl Christian.
“Proper understanding of the technology is vital for this [to further promote and use Blockchain]. Senior executives will never understand the benefits if they focus on the negatives, which are prevalent in mainstream media. It has a lot to do with fear from the “old world players”, whose jobs and expertise may be at risk considering newer technological opportunities. However, at ARYZE, all the executives, advisors, etc. have a strong understanding of the technology.“
And we also need to be realistic. Is Blockchain the way to go for all companies? Probably not and there are risks to say, Carl Christian.
“It may be risky for companies to use blockchains if they are not necessarily relevant, but simply trendy. There are many things that blockchains can do, but there are also areas where they simply increase cost and latency. Another risk is the degree of centralization – 51% attacks [where most of the users on a Blockchain takes over all rights and funds associated with the particular Blockchain at expense of the minority] can be exceptionally harmful if proper consensus governance is not established.”
Companies need to then first understand what Blockchain is, then assess how it could potentially affect their business model and last decide whether to try it out. At least we’ve moved the needle in terms of understanding from what the technology is into how it can be applied in businesses. And for Finance? Here’s some of what you can expect if Carl Christian and others are successful in their ventures.
“I believe that stable coins can increase efficiencies tremendously for payments/collections between vendors and customers, in the sense that digital currencies don’t necessarily have to link up with banks, payment service providers, clearinghouses, etc. Stable coins serve as the binding glue between a traditional, more analog world and a rapidly developing cryptocurrency universe – more likely to increase mainstream adoption of blockchain for transactions, as it’s “bound” to the “real world” (fiat). Furthermore, without having to pay transaction fees to a network of “trust”, and instead relying on cryptography and mathematics for trust, we can eliminate redundancies in a digital world.”