Since 2018, VeChain has partnered with the Mathematical Institute at Oxford University to carry out research and provide independent scientific advice. As of August 11, it appears this collaboration is beginning to pay dividends.
Yesterday, the VeChain Foundation tweeted,
“with the purpose of supporting the #blockchain industry, #VeChain and the University of Oxford releases AlphaBlock – our joint research paper on blockchain consensus”.
In a blog post, VeChain went on to detail the need for its proposed AlfaBlock framework,
“considering the pivotal role of consensus protocols in blockchain systems, the University of Oxford and the VeResearch team jointly published a technical paper which proposes a framework for assessing blockchain consensus protocols.”
The Blockchain Space is Littered With Consensus Designs
While the security of these designs can be analyzed theoretically, there is no recognized way to assess the actual performance of a particular consensus design objectively. According to Vechain,
“this causes a significant problem in the adoption efforts for the blockchain industry.”
The Alphablock framework is a solution in that it allows researchers to compare the overall performance of Byzantine Fault Tolerant (BFT) consensus, Nakamoto Consensus (NC), and other protocols.
Critically, it enables blockchain developers to test their consensus designs under different network conditions without actually implementing them.
Previously there was no model that let researchers gauge the effectiveness of a blockchain protocol without actually building it. The proposed framework could be a powerful tool for both academia and developers working on “real-world” use.
VeChain Continues to Make Progress
Founded in 2015, Vechain is an ambitious, enterprise-focused project striving to connect blockchain technology to the real world. VeChain describes itself as “an enabler to drive technology implementation that would bring tangible business value for enterprises.”
As such, the VeChain Foundation has long been committed to strengthening the consensus of the VeChainThor blockchain. In terms of the underlying crypto, VET was last seen treading water before awaiting the next big move.
Per the VeChain post, the work with Oxford University is “just one example of our leadership in the industry.” Plans are in place to extend the scope of Alphablock and further collaborate on other topics like DeFi and blockchain economic models.
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How Blockchain technology is revolutionising Fintech in 2020
Two decades down under, and the 21st century doesn’t fail to amaze you with its innovation. In fact, the pace of it is so fast, that you inevitably put your hands up and give up keeping track of what is the latest in technology. This phenomenon, in its own ubiquity, manifests itself in Finance, probably more so than anywhere else. One hand to god, let’s admit it, we don’t even refer to Finance as Finance anymore but Fintech (more on that below). While that thought maybe a tad too stretched, Fintech itself is at the cusp of the renovation as if there was a need (Yes Sir)! That flux of change is coming from the headwinds of Blockchain flapping its wings, which happens to be the topic of discussion today:
Blockchain Technology Powering Fintech Revolution
Unless you possess an understanding, be it shallow, of what Fintech is, broadening your viewpoint on the Blockchain (or its implications) would be playing hardball. We’ll limit our definition of the subject so it meets the ends of this blog post.
What is Fintech?
The term that is pushed around, and marketed interchangeably with the now fast-fading term Finance, is a 21 century-incarnate of the latter. Finance, as we all understand, is a domain that deals with the details of money management, more or less. The services revolving around money management are Financial services. Conventional Finance rested on paper bookkeeping until digital transformation hadn’t forced businesses against the wall to modernize legacy systems. When unhindered technological change introduced a way to put legacy systems on fast track mode, that was when Fintech was born.
Finance + Technology = Fintech
In simpler words, when technology finds a way to optimize a traditionally resource-consuming, finance-related task, that comes under the territory of Fintech. We already have a whirlwind of Fintech development that is reshaping Consumer to Business (C2B) interaction and vice versa. The global Fintech microcosm is projected to grow with a CAGR of 24.8%. That estimate cap-sizes the industry’s valuation at $309.98 Billion by 2022.
Blockchain-enabled growth among its service sectors is expected to play a major role in this transformation. If you’re new to the concept of Blockchain, you’ll find our in-depth guide on the topic helpful. For this post, its a touch and go for a Blockchain overview.
What is Blockchain?
Blockchain is an ever-growing list of records run on a network. Its system architecture is no different from a database. The records are called blocks cryptographically linked to one another forming a chain. The credibility of the chain is maintained in that the mathematical hash of the last block will be found in the subsequent block. The blocks are added to the network, depending upon the consensus mechanisms deployed by the Blockchain developers. Further properties attributable to the Blockchain include:
- Decentral – No central authority enforces the rules of engagement, placing the trust in the hands of the participating nodes that run the network.
- Permissionless – Anyone can join the network with the requisite computational (mining) power in validating transactions and earning rewards as cryptocurrencies/tokens.
- Data Tampering – Data once recorded using the blockchain technology is unchangeable, at least in theory. The blocks are immutable and near impossible to impose new data on.
Contemporaneous developments in the Blockchain Technology make it a multi-functional concept, one that the Fintech technology can take justified advantage of. Here’s how its service sectors could harness that power:
1. Payments – Instant Cross-Border transfers
Cross-border payments are a chronic pain-point for Banks who’re parallyzed by a lethargic and snail-paced process. In some cases, cross border payments take up to a week to be realized. The middlemen have a crucial foothold on transfer fees charging anywhere in the region of 5-20%. Similarly peer-to-peer fintech applications in the market limit transfers within restricted geography taking their respective slice of transfer fees.
There has to be a better way to stay devoted to regulatory obligations and processing payment transfers faster. Is there?
Financial institutions are analysing the prospect with a Permissioned-style template of the Blockchain technology. They’ll act as the central authority propagating the rules for remittance over the blockchain. As per Deloitte, blockchain based payments from business-to-business and peer-to-peer results in 40% – 80% reduced transaction costs. They’re also settled within seconds. Yes, it would be a paradigm shift but as per a projection by Mckinsey & Co. blockchain could drive $50 – $60 Billion in transcontinental B2B and $3 – $5 Billion in P2P payments respectively.
Westpac and Australian Bank partnered with Ripple, an Enterprise Blockchain company for cross border payments. Wirex is another Fintech company integrating blockchain into its workflow. Its a standalone vendor allowing instant international remittances. Users can avail of the mobile application for purchase orders selecting from 12 (total) fiat and cryptocurrencies. Wirex designed a 2-way Bitcoin debit card with a Visa debit card soon to be released easing point of sale transactions.
2. Stock Exchanges – Real-Time Settlements
There is a lot of conjecture around eliminating third parties from this space but truth be told, Stock markets wouldn’t move a dime without them. An atypical scenario – you sell shares today, but the ownership certificate is not merited until T+2 days, where ‘T’ is the day when you sold the shares. The lag is owing to a few operational bottlenecks such as regulatory approvals, and mandatory clearances. Not to mention the cost of the brokerage eventually levied on the customer in commission fees.
The Fintech Blockchain marriage could wipeout such intermediaries with decentralization where the dystopian exchange runs on nodes dispersed around the globe. They would earn DEX tokens for keeping the network up and running.
The Blockchain technology would assume its pure potential if interoperability is achieved. Once that happens, retail or daily traders with small orders could be stashed in local groups, by partitioning the blockchain into smaller ‘shards’. Order calls will be recorded entirely on the sidechains, running parallelly while only the transfer of certificate will be recorded onto the main blockchain. The result – increased transactional volume and low network redundancy.
DEX, Decentral Cryptocurrency Exchanges like Changhero, Waves Dex and OpenLedger Dex are powering this subset of the Fintech revolution forward. Their algorithms effectuate peer-to-peer trading. Being non-custodial in nature, funds are transferred directly to the users’ wallet, reducing the risk of online heists. The barrier to entry is low for retail customers due to lack of background checks, however, decentralized crypto exchanges often face liquidity issues for pairs with low trading volume.
3. Trading – Automated with Smart Contracts
Like we said in the beginning, conventional Finance is chained to paperwork, perhaps irrevocably. Shipping, for instance, requires client-side formalities like lading bills, invoices, and the letter of credit. The industry has so far leveraged software as a service for internet-enabled settlements, yet the entire process gasps for breath and could be put on Fintech Blockchain Technology steroids.
Smart contracts seem to be the last piece of the puzzle here. They are programmable codes that automate the transfer of tokens (cryptocurrencies) over a blockchain and will ensure the funds move from B2B only when coded preconditions are satisfied. Paperwork could be reduced exponentially, probably to the extent of no use at all, reducing carbon footprints. This requires large scale enterprise migration onto and agreed upon Blockchain protocols the signs of which look promising.
IBM & Maersk collaboration for a global trade platform to find scalable solutions of Blockchain in Fintech. Moreover, Forbes released its report of Top 50 Billion-Dollar companies who’re exploring the scope of implementing blockchain solutions. Over half of them are consulting Ethereum. The Ethereum Virtual Machine (EVM) executes peer-to-peer smart contracts with the networks’ de facto cryptocurrency namesake, Ethereum. Developers can also create decentralized applications over the protocol.
4. Crowdfunding – Regulated Token Purchase For All
Fintech ushered in a new age for raising funds, but Blockchain in Fintech took it a notch up.
Fintech savvy people need no reminding of the Initial Coin Offering bubble. They proved a drooling prospect because investors could buy into a venture purchasing tokens instead of shares, non-taxed.
The tokens were not categorized as securities and hence circumvented regulatory oversight. The tokens, tradeable through crypto-exchanges, had utility underpinned as their USP. As with any security, speculation influenced their prices, which soared after a pump of marketing gimmicks. The same tokens were then dumped, by the investor who’d sell on a high or the founders who’d often go absconding. Apparently, 80% of the projects turned out scam.
The market has evolved since. The new-age Fintech Blockchain avatar has rebranded itself as Security Token Coins. They’re every bit the ICOs were in an operational sense, plus the veneer of regulation by the United States Securities & Exchange Commission. STOs will allow fractional ownership of shares, cross-border investment opportunities, and purchase of securities all approved by the government.
Blockchain Capital ran an STO campaign in accordance with the US SEC and raised $10 million. Those buying into the offering will reap dividends just like any other investor, without staking more than their allowance threshold. Were there no STOs, you’d have to be an accredited investor with an annual salary of $200,000 to participate in the fund.
5. Syndicated Lending – Seamless Data Verification
A syndicate is the coming together of companies for a common cause, which in this case is lending capital to individuals. Consider a bank which can take up to weeks if not months, disbursing loans. While the evaluation approach may be multi-pronged and lengthy, all financial institutions are ordained by the government to authenticate identity backgrounds. This begins with a Know Your Customer verification often summing up with the customers complying to Anti Money Laundering guidelines.
Perhaps, we’ve already been through the agony of performing this mechanically repetitive process at one Bank after the other.
Fintech and blockchain could work hand in hand. There could be a standard Blockchain protocol that the syndicate partners, banks, have assented to join. This protocol would store user credentials such as those required by its partners. Upon the completion of a background check by one Bank, others need not follow suit i.e., if the same customer wants to avail a service. Time consumption will be reduced by a factor of the multitude.
Fusion LenderComm is a platform for syndicated loans that’ll run on R3’s open-source Corda Blockchain. They focus on increasing lenders real-time access to information, helping them process loans faster. Syndicate partners get account access to Finastra’s Fusion Loan IQ that shares crucial data points like the position information, credit agreements and accrual balances real time. This simplified agent-to-lender communication will introduce transparency and efficient loan disbursement frequency.
6. Accountancy – Blockchain as an ‘Electronic Notary’
Auditing hinges on time consumption as reconciliation requires both expert manpower input and abides by uncompromisable regulatory protocols. Consider double entry bookkeeping for a moment. For every debit entry made in one register, there ought to be credit in a second register. From record entry to tallying, imagine the hours it would take annual billings to be fact checked and rectified. But how will Blockchain help?
A blockchain is more than just a database. Its architecture and block validation prohibits double spending. Instead of multiple records for every transaction receipt, we can have an integrated trail on a Blockchain, with entries segregated into categories. They’ll have the added protection from cryptography. Auditors could look at a combined array of financial statements whose authenticity can be verified by electronic signatures.
PwC Blockchain Validation Solution. It would be a software that would act as a single node on the Blockchain protocol of the client. Users could customize the same to validate transactions automatically and flag the ones that need further review. Stakeholders with access to the system can build reports from dashboards.
It’s not a question of choosing between Fintech and Blockchain. We know one complements the other. In addition to that, the conversation from yesteryears has switched from whether Blockchains are reliable to integrating them with business legacy systems. Enterprises have a visible interest in the field application of this technology, but the Fintech Blockchain duo has proximity towards startups pioneering innovation in the field. This macro trend unfolding before us testifies to the fact that early adopters will be the greatest beneficiaries in a market that is still in its formative stages.
Ethereum: Is the HODLing in yet?
When it comes to the altcoin market, the past few months have shown how important a cryptocurrency Ethereum is. With DeFi growing substantially in 2020, the gains have been felt by ETH in many ways. While ETH has miles to go before it can challenge the market cap and dominance of Bitcoin, its remarkable growth thanks to DeFi and the proposed ETH 2.0 shift cannot be overlooked. With Ethereum’s use cases diversifying, users and investors within the ecosystem are reaping its benefits too.
According to recent network data provided by Glassnode, Ethereum balances on centralized exchanges have fallen substantially over the past few weeks. In fact, the aforementioned data showed a drop from over 18,750K to around 16,750K, resulting in Etherum balances on exchanges falling to their lowest level for the year 2020, at the time of writing.
While this drop may seem alarming to some, it also illustrates a silver lining of sorts for the cryptocurrency. A fewer number of users are now holding their Ethereum on exchanges. Instead, they are moving them to cold storage or cold wallets – a sign commonly associated with increased hodling sentiment. As more users hold on to their Ethereum, the price of the cryptocurrency is also likely to be positively impacted.
One of the reasons why many users are feeling inclined to do so can be due to its recent performance, as well as its ability to derive growth from a booming DeFi ecosystem that is based on its platform.
In fact, it is also interesting to note that over the same timeframe, Ethereum addresses with greater than 10 ETH have also seen a significant rise. According to network data provider Glassnode, such addresses have risen from 275K to 283K in the last three months alone.
One of the key reasons behind the aforementioned drop in Ethereum stored on exchanges ties back to increased hodling sentiment within the Ethereum community, as highlighted above. This, coupled with a rise in Ethereum locked in smart contracts (Since investors are looking to generate greater returns at a time when Etherum’s price is consolidating on the charts), bodes well for the cryptocurrency’s ecosystem.
Brace for it – Bitcoin Futures may be nearing a tipping point
What’s the tipping point for Bitcoin Futures on top derivatives exchanges like the CME, an exchange that has recorded a daily trading volume of over $300M and Open Interest of over $400M, consistently, for the past 3 months.
Well, a small shift in Open Interest or trading volume can have a cascading effect on Bitcoin Futures’ performance in the next 180 days. Such a shift will be influenced by several factors, and it begins at the tipping point. Three factors, to be more specific.
In the current phase of Bitcoin’s market cycle, these factors are more relevant for traders on derivative exchanges. This becomes more evident when the Liquidations chart for BitMEX is observed. Over the past 3 months, sell liquidations have paid for buy liquidations. However, over the last few days, this trend has been reversed, and buy liquidations have covered for sell liquidations on BitMEX.
The point here is to detect the source of the domino effect before the dominoes start falling. In the case of Bitcoin Futures, the tipping point may be closer than anticipated.
One of the top factors influencing the tipping point is the Law of the Few.
The Law of the Few states that “the success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.”
In the case of Bitcoin, institutional investors, derivatives traders, and whales fit the bill. The success of Bitcoin Futures in the global trading community heavily relies on institutional investors trading on CME. In fact, the daily trade volume and Open Interest on CME influence the trading sentiment across spot exchanges as well.
The last time a cascading effect was witnessed was when BTC Futures’ Daily Trading Volume hit $445M on CME and there was a rally all the way up to $614M. At the time of writing, the Daily Trading Volume was up 63.3%, when compared to the figures 6 months ago, and it has the potential to hit $614M with one move in the right direction.
This effect heavily relies on another key factor – The Stickiness Factor.
Back in 2017, when Google search results for “Bitcoin” and “Crypto” broke the record, the trading community witnessed a historic Bitcoin bull run and altcoin rally. Institutional interest and growth of Bitcoin derivative products ensued. A similar event transpired when Bitcoin Futures’ aggregated daily volume hit $184B on 27 July 2020. This event was a unique occurrence, and it made Bitcoin Futures stick in the portfolio of the average institutional investor and the derivatives trader.
The aggregate trade volume hasn’t dropped to pre-July 2020 levels since then. Despite drops in Bitcoin’s price on spot exchanges, Futures contracts continue to trade at a premium and there is more optimism. Volume is not directly impacted by Bitcoin’s price and when the spot market is riddled with bearish sentiment, long contracts continue feeding shorts on BitMEX. This stickiness is a driver of the aforementioned tipping point.
Inching closer to the tipping point, the powerful context is the rise of stablecoins and their instrumental role in lowering the barrier to entry on spot and fiat-crypto exchanges.
Over the past three months, stablecoins like USDT have added $100M in volume every day and their market capitalization and dominance have risen tremendously. In fact, Tether has also crossed a market capitalization of $15B.
This directly influences the tipping point for Bitcoin Futures as it makes Futures trading more accessible to traders. Bitcoin held on exchanges has nearly doubled over the past month, corresponding to an increase in Tether’s market capitalization and circulation. This resonates with derivatives traders who opt for physically-settled Bitcoin Futures contracts on exchanges like Bakkt. In fact, on Bakkt, the daily trade volume was upwards of $80M for the past week, while the Open Interest has been consistently above $10M.
All of these factors are highlighting a shift in derivatives traders’ strategy, while also underlining increased activity on derivatives exchanges. The race to the tipping point has begun – An increase in aggregate trading volume on physically-settled Futures contracts or CME may trigger the much-awaited domino effect.
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