`Before me, everything was done manually` says the `Blockchain` Figure muppet

Screen Shot 2020-02-24 at 08.04.36Meet the new mascot “Blockchain,” a puppet that Figure Technologies has created for their video ads aiming at the masses who should consider the benefits of HELOCs on the Blockchain.

View the video ad campaign here.

Figure Technologies is a 2year old San Francisco-based startup that is well funded and focused on changing the entire life-cycle of Loans and beyond. From loan origination to servicing, and securitization. They started servicing the needs of homeowners who have most of their wealth locked in their homes with the so-called HELOCs (Home Equity Line Credit).

The technology they have built is slowly and methodically, being piloted and used in different use cases.

Figure Technologies is eating its own dogfood. Crunchbase reports an eye-popping total funding amount of $1.2billion. This includes a credit facility of $1billion from investment bank Jefferies and WSFS Financial Corporation, the parent of WSFS Bank. This financing facility (May 2019) is custodied and serviced on the in-house Blockchain that Figure Technologies has developed, called Provenance Blockchain.

In the summer of 2019, Figure Technologies launched its $20 million Reg D security token offering, the HASH token, also using the Provenance Blockchain.

Figure Technologies is cofounded by Mike Cagney, the founder, and ex-CEO of Sofi, with his wife June Ou (ex- CTO at Sofi). Undoubtedly, Figure Technologies is targeting the same market that Sofi targeted (refinancing debt). It can be seen as the Blockchain competitor or it can be seen as the technology company that will make it easy for Sofi to migrate to a blockchain infrastructure when the time is right.

Current product offering of Figure Technologies

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

You get 3 free articles on Daily Fintech. Get all our fresh content and our archives and participate in our forum, by becoming a member for just US$143 a year.

On the other hand, the target market is huge and maybe the two companies stay separate as Sofi grows its platform beyond refinancing loans and into wealth management.

Figure Technologies presents a huge global opportunity in private markets. They estimate savings via their Provenance blockchain (Provenance benefit figure) and revenues on the Provenance blockchain (Provenance Opportunity figure)

Screen Shot 2020-02-24 at 10.09.07

Provenance Blockchain

The in house blockchain is public but permissioned. The participants are: The members that transact on the Provenance blockchain (which include the HASH token holders), the Node hosts, the administrator, and the omnibus banks that take care of the fiat bridges to the Provenance blockchain.

The consensus model is from Hyperledger. More details in the Provenance white paper.

HASH token

A great example of a hybrid token that would not be possible in the current financial infrastructure. HASH has equity like attributes and voting rights.

HASH token holders receive directly (digitally) fees from the members that transact on the Provenance blockchain (are you salivating while looking at the Provenance Opportunity figures?).

They also vote for the administrator.

Also HASH has staking functionality for the nodes. Each node has to put up a stake of HASH on which they will earn the return for their services.

Details regarding the allocations and the economics are found the Provenance white paper.

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Pulling back the curtain to shine light on ‘scary’ insurance phrases

triggershock_lions-and-tigers-and-bears

Reinsurance/ILS, Blockchain, and insurance financials.  Not quite lions, tigers, and bears, but for many who follow insurance the three concepts are as daunting and pose discomfort in understanding. Why then the mention?  Because in an earlier social media post I noted that the three words do not generate a lot of media content traffic, and if there is a related posting, not much response.  A wise connection dropped the key hint to that puzzle- the words need to be discussed in context that makes sense to the reader.  A cool idea, Modern Accelerator .

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.  Image

Let’s dive into the three concepts with a full recognition that this blog will serve merely as an overview and whetter of appetites causing the readers to want to consume more. Fair warning- even keeping the topics brief- TL:DR may apply.  That’s OK.

Insurance Financials

There is plenty of government oversight for accounting that dovetails with plenty of regulation, we can’t touch on all the respective countries’ agencies and regulators but in essence they all serve the key roles of making uniform 1) how insurers account financially for their business, and 2) how insurers account for how solid they are in being able to serve their policyholders relative to the agreed scope and cost of risk.

It’s an alphabet soup of government orgs or standards: GAAP, FASB, SAP, IRDAI, NYDFS, SEC, IFRS, FCA, FSDC, SUSEP, NAICOM, ICLG, ASIC, APRA, etc. (almost) ad infinitum.

Fundamentally there are three accounting principles (of the many) with which insurers must comply, just in a slightly different manner from most business organizations :

  • Revenue Recognition Principle
  • Matching Principle
  • Historical Cost Principle

Without complicating things too much, insurance companies have financial stability burden to prove continuously- a carrier’s ability to fund the risk costs that it has agreed to.  All those policyholders have an expectation of indemnity or payment if a loss or occurrence to which their policy agrees to cover /pay comes to fruition.

The three principles noted above are part of the key differences between insurance companies and others, primarily because what insureds receive for premiums is a risk agreement that elapses over time.  Receive $1000 for an insurance contract today for twelve months’ cover.  Money in the bank for a promise over time.  So in respect to compliance with the Matching Principle, premiums are deemed  ‘written’ only until an increment of the policy’s time is expired, wherein the portion of the premium that matches the period is booked as ‘earned’.  One month’s policy duration allows 8 ½% of the written premium to become earned, six months’ earns 50%, and so on.

So you can see how a carrier with a ton of cash on hand might not be as liquid as one thinks if there are an according ton of policies on the books whose expiration extends over twelve months or more.  Written and earned- key concepts.

Here’s an example of a P&L statement showing the written and earned premiums, from German insurer, DFV_AG or Deutsche Familienversichurung:

DFV Inc

The sharp eye will note in addition to written and earned premiums there are lines showing the ‘Share of reinsurers’; that will be touched on in the Reinsurance portion of our discussion.

Traditionally the written and earned difference followed a solid calendar pattern due to typical annual expiration of polices.  But what of on demand or ‘gig’ policies?  The covered period may be a few hours or days, so there is little lag between written and earned status.  Knowing a carrier’s business model has become more important than ever since a heavily funded entrant’s cash may be more restricted if it’s a traditional style insurer in comparison with an on-demand player.

Carrying the discussion to the Matching Principle (matching costs to the period in which the costs were incurred) suggests a few important financial factors:

  • Costs of policy acquisition is matched to immediate written policy premiums, e.g., agency/brokerage commissions, marketing, admin office costs, digital format costs, etc., but
  • Costs of policy administration, e.g., adjusting expense, loss costs paid, etc., may be charged to earned premiums in a different incurred cost period.

As for the Historical Cost Principle, regulators want to know concretely what amount a carrier assigns to portfolio assets.  Insurers need to be liquid in their asset portfolio so assets can easily be converted to cash if loss payment volume so demands.  For example, bonds might fluctuate in value over time due to variances in interest rates, but carriers need to maintain a historic cost to keep regulators content for solvency calculations.

Quite a rabbit hole are financials, so the conversation will conclude with THE common comparative measures for P&C carriers-  loss ratio, expense ratio, and combined ratio.  These measures will give the reader a clear idea if earned premiums (revenue) exceed or are exceeded by expenses and loss cost.

So,

loss ratio = claim payments + adjustment expense/earned premiums, expressed as a %

expense ratio = expenses other than adjustment expenses/earned premium. Expressed as a %

combined ratio is a sum of the LR and CR.

Ideally CR is < 100%, meaning earned premiums exceed costs and underwriting activity is profitable.

What must be remembered as carriers are compared- the maturity of a carrier in terms of time in business, how aggressive is growth relative to existing book, the nature of the carrier’s business and how that affects reserves (immediate draw on profits.)  Entrants may have LR that are in the hundreds of %; consider trends or peer comparisons before your lose your mind.

Reinsurance

Reinsurance is insurance for insurance companies.  There, that was easy.

Rei was once an easier financial concept to grab- carriers would sign treaties with reinsurance companies to help protect the primary insurer from loss outcomes that exceeded typical loss expectations.  Primary carriers do not plan (or price) for an entire region to be affected at the same time, but sometimes things happen that require excess over planned loss payments, e.g., wind storms, wildfires, tornadoes, earthquakes, etc.  Primary carriers will purchase reinsurance that for a specific period, and in an amount that is triggered once a carrier’s loss payments for the treaty peril or perils is incurred.  Pretty direct and expected by regulators, and part of claim solvency calculations.

What has occurred over years is that reinsurers have evolved into other types of excess risk partners, covering more than just catastrophe losses, and becoming excess risk options.  If you again review DFV_AG’s income statement and consider the premium and loss cost portion of the carrier’s P&L shared with reinsurers, you’ll understand the firm has ceded premium and costs to backers to help smooth growth and provide backstop to the firm’s ability to pay claims and serve its customers.  This has become a common methodology for startups and existing carriers, allows more product variety for reinsurers and spread of risk.

Another evolution over the past years beyond reinsurance is the advent of Insurance Linked Securities (ILS), capital vehicles that are designed solely as alternative risk financing.  Insurance-linked securities (ILS) are derivative or securities instruments linked to insurance risks; ILS value is influenced by an insured loss event underlying the security.  What’s that?  ILS are capital vehicles that simply are designed to pay on an outcome of a risk, e.g., hurricane, earthquake, etc., sold to investors looking for diversified returns in the capital markets.  A hedge against a risk for insurers, an option for better than normal market returns for the holders.  Often referred to as Cat bonds, these bonds serve an important role in the risk markets, and are an opportunity for holders for income.  Often ILS are sliced and diced into tranches of varying risk bonds to smooth the outcome of a linked event.  Don’t be surprised if ILS become a more accepted means of financing more common, less severity risk within the industry, or in use in unique new risk applications, an example being pursued by Rahul Mathur and colleagues.

Blockchain

So much promise, so much confusion, overreach and failure to launch.  Or maybe Blockchain’s connection with the perceived wild west of value transfer, crypto currency, has colored the insurance world’s relative arm’s length view of the concept.

A quick search of definitions produces many references to bitcoin and other crypto currency (I’ll leave those to my knowledgeable Daily Fintech colleagues), but we simply want a definition that maybe doesn’t sound simple (Wikipedia):

“By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority. Although blockchain records are not unalterable, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance. “

Open. Distributed. Peer-to-peer. Decentralized. Immutable. Cool for generating crypto, but not so much for the wild data sharing needs of insurance.

So why is Blockchain not taking hold for insurance?  The use case is tough for carriers- unstructured data (of which carriers have a ton) do not play well in a Blockchain (Blkcn) environment, many changing players in an insurance claim, and so on.  Blkcn holds data securely, but doesn’t guarantee cyber security outside the ledger. Blkcn can be more cumbersome for data retrieval across consortia-based ledgers.  Multiple writers to the ledger, multiple efficiency issues to overcome.

But what of uses for reading data once placed in the ledger? Can be very cool. Anthem is a US health insurance provider serving millions of subscribers nationally, the company recently initiated a Blkcn pilot wherein the company is making ledger access an option for the test participants, with patient records stored in the ledger, and individual subscribers given the option to give providers access to health records via use of a QR code that has an expiration date.  Subscribers have the power over their records and access is given for read only permission.  There are many potential benefits to health insurance Blkcn but the options must dovetail with data security.

Another positive scenario for Blkcn application- crop insurance in previously under-served markets.  OKO Insurance provides micro crop insurance policies in Africa, backing by reinsurance but administered in part by distributed ledger, each farmer’s information residing in the ledger, and access provided to underwriting and reinsurance.  And- if payment is made a partnership with digital payment systems to facilitate settlement.  An active Blockchain as a service company, BanQu, is expert at facilitating these frameworks and has a portfolio of projects around the globe where ‘first mile’ and ‘last mile’ data are administered within a ledger for the respective customer and its affiliates/suppliers.  Permissioned but not written by multiple players, QR codes to allow involved sources access to a supply chain.  And the sponsor of the ledger has a clear data record of each step in a supply or value chain.  Speaking with the firm’s business development executive, Brady Bizal, we discussed how a Blkcn ledger such as BanQu provides could serve as an ecosystem initiative for regions, including the details of insurance for a farmer, payment records, link to in country digital payment systems, risk mitigation firms, and as warranted, the transaction/finance data can be accessed by permissioned bankers at the customer’s choice- the magic of QR codes.  It’s an entrée to a trust system that may otherwise not exist.  Opportunity.  Maybe not the original thinking for Blkcn and insurance, but sit for a few minutes and you will think of many similar possibilities for blockchain use in health insurance alone.

Sorry, there is so much that could be written about the three concepts and I’m hopeful the article answered some questions about finances, blockchain and reinsurance/ILS.  It’s certain readers and experts will advise me of missing sections, and that will be the foundation for a next article on the subjects.

You get three free articles on Daily Fintech; after that you will need to become a member for just US $143 per year ($0.39 per day) and get all our fresh content and archives and participate in our forum.

 

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Speaking of Blockchain, what of its place in insurance?

blockchain

I’ve felt as an orphan child within the Daily Fintech family, at the end of the common table but the uncomfortable ‘outsider’ because the content I produced for publication was not Fintech or Blockchain oriented.  The Insurtech content has always been embraced as an integral part of the blog, but like the student who does not quite know how to affix the sash on the uniform I have been feeling a little insecure.

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

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Hard to believe that lede?  Should be, and is.  My DF colleagues are experts in what they write of- finance, crypto, and by extension, Blockchain, and collegially embrace the InsurTech discussions.  So not under any pressure to do so but having an intellectual and industry curiosity I figure it’s time to discuss insurance and Blockchain- unmixed oil and water, or tasty salad dressing?  Blind dates or maybe life partners?

I am privileged to have insurance connections/colleagues who understand Blockchain and are willing to share perspectives, so I reached out to several for background and explanation.  See, while I am no expert at Blockchain (BKCN), crypto, distributed ledgers, etc., I do understand the basics, and have yet to find a ‘tipping point’ application of the principle for insurance.  One might figure if there was, a 5 trillion USD industry would have integrated the idea already.  Instead, there are rumblings of the benefits of BCKCN but few projects at scale.

Consider some projects with traction (thanks, Walid al Saqqaf, Insureblocks founder; readers can find these ideas and many others at his podcast, https://www.insureblocks.com/):

  • Addenda, an insurance subrogation solution founded by CEO Walid Daniel Dib, and located in the U.A.E. Addenda has developed a BKCN alternative to what has always been a manual process fraught with delays and errors, subrogation of claim payments.  The decentralized, trusted nature of BKCN lifts much of the existing barriers to efficient subrogation settlement through placement of immutable records of the loss that the parties can mutually access.  With sufficient subscription by companies, is it possible the volume of liability arbitration would be reduced in other markets?
  • B3i– a Property Catastrophe Excess of Loss Reinsurance application, with John Carolin at the helm as CEO. B3i is a vanguard of what might be commonplace for the insurance BKCN future- a Distributed Ledger Technology (DLT) that is owned by 18 insurance market participants, with active involvement by 40 insurance companies, shareholders, etc.  As such the question of who supports the ledger financially is answered, who has participation rights, and how is the common ‘language’ or protocol of data insertion determined.  As John states, placing reinsurance has traditionally been a very analog process, with the height of innovations being email communication of terms and bids.  BKCN through B3i ‘democratizes’ the data, and access to the players, and encourages use of smart contracts with their basis being the set terms within the ledger.  Can this democratization and sharing of costs be expanded to include other types of insurance, and a far broader community of permitted companies?
  • Blockclaim, a BKCN innovator founded by Niels Thonéthat has an aim of clarifying what is now fifty shades of gray (not that one!) that are generated by the many participants involved with insurance claims, and the volume of data that claims generate. Changing a cumbersome multi-lateral, manual/digital approach of claim handling to a permissioned ledger allows concurrent access to immutable claim facts for all involved parties, leading to less cumbersome (read as more prompt) claim handling.  Can this principle also be broadened to include underwriting characteristics for insured property?  One might think so with sufficient mutual ledger support across a spectrum of companies.
  • Ryskex, a “blockchain based ecosystem for alternative risk transfers”, championed by CEO and co-founder, Dr. Marcus Schmalbach. Ryskex stands for ‘risk exchange’, focusing on new forms of identified risk, and/or previously non-insurable risk in a B2B environment.  The firm’s principle- if these unique risks are typically outside an indemnity risk prediction form, applying parametric principles to these risks, in conjunction with AI methods for determining indices and with trigger forms/indices stored within a ledger for transparency and ease of payment, BKCN can facilitate risk vehicles in less insurance traditional forms that capital markets are more apt to adopt.  Can insurance evolve into a capital risk model and less of a peril/indemnity model?  Dr. Marcus makes a case for it.  In parallel with the risk model changes Marcus is supporting a soon to be released book with John Donald, “Heartbeat in the fog – Parametric Insurance for Intangible Assets”.  While this second book of John’s has a focus on newer risks, e.g., cyber, its principles lend well to parametric and BKCN.  And who am I to question its utility, as Dr. Marcus cites John as the “master mind” and “one of the smartest guys I ever met.”   We won’t let Dr. Marcus kid us about being a smart person in the room; his upcoming journal publication that focuses on insurance of 2030 has a fascinating excerpt speaking of an insurer of the future:

if you have sufficient capital at your disposal, you can be an insurer.  Capitalism meets Anarchism- an ecosystem based on transparency and security of blockchain technology…because of a risk trading ecosystem instead of industrial insurance.”

An additional recent insurance blockchain success deserves mention- insurance startup Etherisc’s quasi-parametric project conducted with partner firms Aon and Oxfam- micro-policies for crop failures for Sri Lankan farmers.  Not a direct parametric solution but a transparent form where the policy data and payment expectations resided within a blockchain ledger, and automatically triggered.  Progress.

And are there firms working in the background to facilitate organizations’ migration to blockchain environments?  Yes, of course.  Global consulting firms are actively pursuing blockchain programs as are startups and independents.  A US-based firm, Fluree, is actively developing data platforms for what they refer to as the ‘Fourth Industrial Revolution.’  In discussion with Kevin Doubleday, Marketing Communications Lead at the firm, Fluree (as do many companies) recognizes the traditional database structure of data, middleware, and now APIs is being overwhelmed by the volume and form of data and business processes driven by same.  Many suggest that blockchain is not the ideal option for use in insurance claims processes due to the varied forms of and demands on data (thanks, Mica Cooper and Chris Frankland for that discussion), but as Kevin and I discussed perhaps considering eating the elephant one bite at a time by choosing insurance processes that would have narrow but meaningful applications, e.g., subrogation (as noted above), transparency and immutability that would facilitate anti-fraud efforts, or deed and title data repositories.  Fluree is also focused on having a universal access format that will accommodate all users.  Current users of Fluree’s services includes life insurance solution startup, Benekiva, whose co-founder and all-around smart tech person, Bobbie Shrivastav  introduced me to Fluree.  Quite a bilateral endorsement.

So, Blockchain and insurance, dating but not yet in a committed relationship.  Seems we might be wise to plan a formal ceremony a few years from now when the relationship ‘learnings’ have been resolved.

And, perhaps now I can have a seat at the big blockchain table at DF.  😀

You get three free articles on Daily Fintech; after that you will need to become a member for just US $143 per year ($0.39 per day) and get all our fresh content and archives and participate in our forum.

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Blockchain Thematic ETFs from the West to the East

blockchain ETFs

Listing on exchanges continues to dominate. Whether listing on regulated or unregulated Centralized exchanges (CEX) or Decentralized exchanges (DEX) of any sort; this has not changed at all for assets.

Brain Armstrong, the CEO of Coinbase, in his New Year medium post, foresees that we will be moving from a predominantly trading & speculation phase of cryptocurrencies and Tokens of all sorts, to a phase of actually Using Tokens.

In the meantime, however, incumbents and startups continue building all the necessary infrastructure to issue, custody, settle and clear, trade and invest of all sorts of digital assets.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

You get 3 free articles on Daily Fintech. Get all our fresh content and our archives and participate in our forum, by becoming a member for just US$143 a year.

Blockchain exposure a la ancienne

Investing via listed equities will never die. In fact, I foresee Blockchain will enable it grow exponentially. More listed equities, across more jurisdictions, better information, fractional ownership.

For now, the traditional way to participate in the growth of the Blockchain sector is to buy publicly traded stocks. For example, mining companies, companies building enterprise software, or hardware.

Hut 8 which is the largest publicly listed bitcoin-mining company worldwide. Listed on the Toronto stock exchange Hut 8 Mining (TSXV:HUT) has a market cap close to $100million. Most pure blockchain companies, have small capitalization (less than even $10mill). As a result, the market sees more potential to capture the upside in Blockchain by investing in publicly traded tech companies with significant strategic exposure to the sector.

Blockchain Stocks that lists and tracks such stocks, shows companies like Accenture, MasterCard or funds investing in the sector; as their picks in the List of Blockchain stocks and their list of Large cap Blockchain Stocks.

Traditional investors can otherwise consider public equity exposure to the Blockchain sector through thematic ETFs. In the US, there are 8 Blockchain thematic ETFs that have accumulated $240million?

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Source

Only 4 of them have managed to accumulate more than $10million and none of them have surpassed the $100million mark.

The top holdings of the two largest Blockchain ETFs are companies like the Japanese IT providers – GMO Internet and Digital Garage.

GMO is the company preparing for the launch of the first Yen backed stablecoin – GYEN. It is also expected to launch a new Bitcin mining device with low cost and electricity consumption, the B2 miner.

Digital Garage another Japanese company (4819-TYO) with and an ADR. They teamed up with Blockstream last year to serve institutional needs in the sector in Japan.

BLOK ETF has more than half a dozen Japanese companies in its top holdings, like LINE, KAKAO, SBI Holdings, and Korean Rakuten.

BLCN is more diverse with some Asian companies, like JD, Baidu, and LINE.

All Blockchain ETFs contain Bigtech companies, like Alphabet, SAP, or Nvidia.

In Europe, there is the Invesco Elwood Global Blockchain UCITS ETF listed on the LSE (BCHN:LN) with $38 million AUM since its launch last March.

Top holdings are similar to the US ETFs

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In China, the Shenzhen Stock Exchange just launched a Blockchain 50 Index that includes listed companies on its exchange in the Blockchain sector.

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Source

The top holdings are Ping An Bank, Midea Group – electricity company, East Money Information.

The Shenzhen Stock Exchange, has applied to the China Securities Regulatory Commission for permission to list a blockchain exchange-traded fund (ETF) benchmarked off its index.

All these investment wrappers, are essentially offering tech exposure with a Blockchain tilt.

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Not another Crypto Exchange; by BondEvalue & Northern Trust

  We like We foresee adoption of Blockchain not Bitcoin Digital Currencies not Cryptocurrencies Stable Coins not CBDCs Blockchain not Bitcoin LIBRA not Cryptocurrencies CBDCs from China & the BRICs not the US These are picks of business media talk from the past and the present. As Ajit Tripathi, said to me in a conversation […]

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Corda powered SWIFT GPI Link could be a game-changer in global trade finance

In September, SWIFT – the inter-bank messaging firm, announced the successful proof of concept (PoC) of the “GPI Link” platform in collaboration with R3. The SWIFT Global Payments Innovation (GPI) platform has previously trialled Hyperledger without much luck.  However, with R3’s growing network of corporates, the pilot seems to have gone better. The pilot also […]

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Two live Blockchain use cases in Mutual Funds administration and four pilots

In Blockchain world everybody wants to be `the World`s first`. The term started being a must in white papers, now it is all over social media, with announcements about The World`s first tokenized equity The World`s first STO The World`s first regulated Crypto bank The World`s first Initial Wallet Offering The World`s first Regulated ATS […]

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China’s digital currency could be a response to Libra

Earlier this month, a senior official of the People Bank of China (PBoC) announced that the country was ready to launch its digital currency. The announcement was made at a China Finance 40 (CF40) group discussion and it was revealed that China has been working on this for the past five years. Image Source The […]

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Blockchain for branding, as banks see little benefits – WEF reports

Image Source Is it a Golden bullet? or just a jewel? When I used to be a developer in banks, I used to get this question all the time – “do we have a golden bullet (tech) that can solve all our problems?”. The question used to be from very senior people in the bank […]

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The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity?

It’s an emotional week for Indians – for most of them atleast. It’s a week when India crashed out of the cricket world cup, that they were favourites to win. While I was looking for “India news” to cheer myself and my family up, I spotted an important trend worth talking about.

The rise of Blockchain in India doesn’t come as a surprise to me. It is the third most active innovation ecosystem in the world, next to the US and China. 2018 had $35 Billion of PE/VC investment in the country, and that has risen over the years at a rapid pace. However, with Blockchain, most of the initiatives have a public sector organisation driving it.

Blockchain-India-Infographic

Image Source

Most Indians would admit  that public sector organisations in India are super dysfunctional. So, this is indeed a sign of new times. Perhaps, the state governments are taking inspiration from the centre’s initiatives with payments and other technology innovation. Let us look at the three key trends that we have identified across the states.

  • Land Registry – This is such a critical use case for Blockchain in India. The real estate industry is fraught with corruption, and a system to bring integrity to the value chain is most welcome. Blockchain could add so much value to this space.

 

  • Farm Insurance – I am quite glad that this is a key trend. Less than a year ago, I wrote an article asking for exactly this. A violent storm that hit my home state, affected coconut farms and many farmers lost their 10 years of hard work. A smart contract based insurance mechanism is critical for farmers to protect their livelihoods. In a country that depends on two monsoons for agriculture, a flood or a drought could kill the crops.

 

  • Digital Certificates – There is a saying in India – You can’t go wrong with a food or an “education business”. Education has been commoditized in the country so much that, every year there are 1.5 Million engineers being produced. It is also a market where counterfeit certificates and CVs are not uncommon. Blockchain based digital certificates to maintain the integrity of the education process is yet another useful application.

The map also identifies several other use cases like Organ transplants (as the black market in India is thriving), IP Protection and Cybersecurity. I am surprised that there is no line item for Self Sovereign Identity. India has the world’s largest citizens’ database in Aadhaar. Loading it up on a permissioned Blockchain, and providing citizens the ability to share their data in a controlled fashion would be a major building block.

But that initiative needs to come from the central government. It cannot be a state government driven agenda. Also, despite all these developments, the action from the central government around Blockchain initiatives is missing. The central government needs to intervene to standardise state government based initiatives across the country.

The other elephant in the room is the cryptocurrency ban in the country. I believe, this has pushed India behind its global competition by a few years when it comes to Blockchain innovation. The country has a buzzing startup ecosystem. The centre has taken several steps even in the most recent budget to support innovation.

But when it comes to cryptocurrency, the Reserve Bank of India has taken a very binary approach. I spoke to Lizzie Chapman (CEO of ZestMoney) a few weeks ago on lending fintechs in India. During that conversation, she mentioned that the Indian regulators have been quite collaborative in setting policies for the industry. That approach seems to have been lost somewhere with Cryptos.

The challenge that India has is that of talent. With lack of innovation happening in this space, Blockchain skills will start running out pretty soon. Yes, the big tech consulting firms looking to build Blockchain skills can do so. But that doesn’t necessarily translate to leadership within Blockchain innovation.

The other challenge is global competition. China and other top economies have allocated $ Billions towards emerging technologies such as AI, Quantum computing and Blockchain. China and US fight it out for the top place in the world’s patenting charts across these technologies. India is only in 6th position in the world for the number of Blockchain patents, and without private sector innovation, will soon risk being left behind.

In essence, the centre needs to wake up to this new era in the country. It’s time for leadership at the top, much like they did with payments. They should get initiatives kicked off on Blockchain and its standardisation across states. They should ensure that the regulations are clear for the crypto community.

With just those two steps, the country should be back on the map in a much bigger way with Blockchain. The mistake (crypto ban) could be turned into an opportunity. Onwards and Upwards!! Cheer up India!!


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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The post The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity? appeared first on Daily Fintech.