Blockchain: the very name fascinates and bamboozles in equal measure. Although businesses based around the technology are popping up all over Switzerland, many still wonder what exactly it does and how it can improve their lives.
The potential possibilities are myriad, yet many still appear tantalisingly out of reach. After asking readers to pose their questions about blockchain, we’ve answered a selection of them below to try to lift the veil on what’s behind the technology.
We appreciate your frustration. That’s why we put together this simple animation to explain the basic concepts behind Digital Ledger Technology (DLT), such as blockchain:
Ruth: What is blockchain’s value proposition?
To achieve a lot of things in life, we need someone’s help. We ask our bank to transfer funds to someone else’s account. We lean on social media companies to present our personal data.
The blockchain ledger allows groups of people to manage these activities among themselves – even if they are competitors with conflicting interests. The ledger presents the data in such a way that groups of people can decide among themselves if the books balance. And it does this whilst still preserving privacy.
So people can take personal control of their own data and share it with others in an orderly way without wasting time and money asking intermediaries to carry out this function.
You can create your own “bank account” on the bitcoin blockchain, giving you personal possession of your funds. Some people applaud this as they don’t like the idea of a bank being able to block their funds or run out of money if there is a bank run. Others think this is a great tool for criminals.
Many traditional finance players believe that instant payments on blockchain (or other similar Distributed Ledger Technology DLT platforms) is a much more effective channel than the existing system, which can take days to process transactions.
Beyond simple payments, blockchain start-ups can offer interest bearing investments and credit cards, while others are busy creating digital shares and other financial instruments. But it could well take a decade for the entire range of financial services to transfer to DLT. Furthermore, blockchain firms are working hard with regulators to protect clients from abuse.
On the negative side, not everyone will be comfortable keeping their own assets safe. There are services that help with security, but they cost money. We pay banks for their services because we trust them to look after our money. Moving to a new digital system, away from bricks and mortar bank branches and financial advisors we can meet face-to-face, will require a leap of faith.
Oliver Samer Haydar: Is it controlled by anyone?
That depends. The bitcoin blockchain is specifically designed to decentralise the creation and transfer of money, so no-one controls it. Other blockchains are also open source and public but have foundations (many based in Switzerland and with huge assets at their disposal) to update the technology. They have a say on development but can’t alter the ledger or block transactions.
Private blockchains have gatekeepers who control who gets in and uses the system. They are typically companies that we already know. This introduces centralized control and a touchpoint for regulators.
Anonymous: The main value proposition of cryptocurrencies/blockchain is to be censorship-resistant software. Why would any business care about such a feature if doing lawful activities…and if mistakes cannot be reversed?
Blockchain ledgers arrange information in chronological order, which is encrypted to prevent people from altering approved entries. The anonymity feature of blockchains could certainly be attractive for those engaged in unlawful activities. Having said that, having all your money flows indelibly imprinted on a digital ledger might not be so helpful for criminals.
It is possible to go back in time and undo mistakes imprinted on the ledger, but this would require the consent of the people using the system and could prove cumbersome. For some people, it would make more sense to rectify mistakes by creating new transactions that redistribute assets to where they should be.
Anonymous: Which existing companies are blockchain leaders, and does this represent a potential improvement in their stock price valuation?
There are simply far too many companies to mention, but this report on the Swiss scene (which is regularly updated) should give you some clues. The markets define company valuation and generally only reward well-functioning firms, whether blockchain or not.
Some companies have attempted to gain a higher valuation and attract investors simply by putting the word “blockchain” into their name. It does not take long for the market to uncover sham blockchain firms.
Security Token Offerings (STOs) are when companies issue shares or stocks digitally using DLT (the technology behind blockchain). There have been a few examples already in Switzerland, such as Alethena and Tokenestate. Deutsche Börse and Swisscom have proved that tokenized shares can indeed be created and traded.
But there is no standard STO procedure in Switzerland so far. This is partly because the country’s laws are in the process of being changed to accommodate this new type of company capital raising – a process that may take some time to complete.
Any company issuing shares - whether by DLT or traditional means - should be aware of their responsibilities towards shareholders under Swiss law.
Hopefully the entries above will answer the first question. The second part is trickier! The subject of blockchain has moved beyond a small band of radicals trying to change the world. The potential use cases - including supply chain, voting, health records - now extend far beyond digital cash.
Banks, regulators, well-known companies and central banks are all jumping on the bandwagon. This suggests that blockchain - and its impact - will become more visible in future.
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