Author: dthomas

In a recent Harvard Business Review article titled – “The Blockchain Will Do to the Financial System What the Internet Did to Media” (Ito, Narula, & Ali, 2017), the authors present an excellent article identifying several similarities they see occurring with this new Fintech to the conditions that were present during the birth of the Internet. At first read, it appears their arguments do not support their assessment, but after a deeper analysis, I think they’ve nailed it. The Internet took decades, and we are still below the 10-year mark for Bitcoin and Blockchain, so it’s still maturing. With the Internet, there was a strong desire to network and communicate. With Blockchain, mainly Bitcoin, it is deregulation, decentralization, and security as the driving factors. Email brought the masses to the internet, and Bitcoin did the same for Blockchain.

The major differences between the two, which could be viewed as a hindrance, is that the Internet was born out of defense funding and major university research and development, whereas Blockchain is tied too closely to commercial development and profit-driven business models. This, as the authors point out, is stifling the development of the necessary interoperability protocols and standards. I agree this is problematic, but big name contributors like Google, IBM, Microsoft, Big 4 Accounting Firms, and the global appetite for de-regulation and security are filling the gap and will drive the necessary governance over the long term. We still have a decade to go!

 Ito, J., Narula, H., & Ali, R. (2017, March 8). The Blockchain Will Do to the Financial System What the Internet Did to Media. Retrieved from Harvard Business Review: https://hbr.org/2017/03/the-blockchain-will-do-to-banks-and-law-firms-what-the-internet-did-to-media

Here comes one of the big guys  – a tech giant by the name of Google, that is spinning the Blockchain FinTech in a new direction. In summary, Googles’s DeepMind artificial intelligence (AI) lab is utilizing Blockchain like cryptography, namely Merkle Trees, not in the legacy fashion of using a decentralized network of computers to prove the authenticity of transactions, but instead is creating a new way to authenticate and track changes made to the data without the external networking overhead. The DeepMind project is operating in the healthcare sector and needed a way to comfort the medical industry that any use of private patient data that was being used in their AI research was accurately tracked. This Blockchain like technology of Merkle hash trees could be the answer for Google.

Cade Metz, in writing for wired.com, describes DeepMind’s endeavor as an “Auditing system for healthcare data” (Metz, 2017). I agree with Metz in his analysis of how Google’s effort is unique, and that other players continue to push the traditional use of blockchain technology and digital ledger transaction. I also think Google’s approach is smart, as they truly understand the potential of cryptography in maintaining sensitive data, and have the deep pockets to know that it may just be that the underpinnings of the blockchain are the key, and pulling that technology out, repackaging it and finding other uses for it is the recipe for success. Stay tuned.

 Metz, C. (2017, March 11). Google DeepMind’s Untrendy Play to Make the Blockchain Actually Useful. Retrieved from www.wired.com: https://www.wired.com/2017/03/google-deepminds-untrendy-blockchain-play-make-actually-useful/

This week’s piece by Chris DeRose on the future of Blockchain (DeRose, 2017), as it applies to the Finance sector, paints a dark picture with respect to where it’s headed. DeRose feels that the aggressive growth business models of Silicon Valley startups combined with the slow risk adverse stalwarts of the Financial Institution market are just not made for each other. He feels the venture capitalist (VC’s) will eventually abandon these companies as they fail to produce in the normal profit horizon for these startups. His reasoning points to the fact that the Blockchain buzz, after originally starting its run in 2015, fizzled out, but now in 2017 is trying a makeover with the ‘DLT’ (Distributed Ledger Technology) moniker, but the underlying technology in this space just lacks value.

I’m not blind to the reality of the divergent business models, but instead am looking at the big players that are experimenting with the technology – the IBM’s, Oracles, Big 4 Consulting Firms, Microsoft, and see a different angle over the long-term. Maybe it’s not necessarily going to take off in the Finance sector, but it’s the other applications for Blockchain that I think will advance – namely Health, Consumer, and government. Once these big players, using their deep R&D budgets, can agree on standards, I think we’ll see a turnaround, and the VC’s will come running back to get behind the startups. Stay tuned.

 DeRose, C. (2017, March 5). The Trouble With Fintech (Or Why “Now’ is the Time for DLT). Retrieved from www.coindesk.com: http://www.coindesk.com/the-trouble-with-fintech-and-why-now-is-the-time-for-dlt/

In my last blog, I went out on a limb to predict that a bitcoin resurgence was on the horizon, and this week the digital currency hit an all time high on the Bitcoin Price Index (BPI), closing out at $1,172.09.

Amidst all of the bitcoin hype, Rebecca Ungarino, with CNBC, penned an article titled “Bitcoin is surging – but that might not mean what you think” (Ungarino, 2017).

Ungarino gives credit to Bitcoins increasing presence in the mainstream, even pointing out big name players such as Microsoft, Subway, WordPress, and JP Morgan, with the latter also advancing the related Blockchain FinTech, but she doesn’t seem convinced that it will truly become a mainstream currency. She attributes much of the growth to just the recent highs in the equities market.

I’m not ready to take a victory lap, but I do believe that in this unstable global political environment, Bitcoin will continue its march towards mainstream acceptance. I agree that the volatility will remain, but the underlying trend of increased participation by more and more reputable companies will give this technology the support it needs, and deserves. Stay tuned.

Ungarino, R. (2017, February 23). Bitcoin is surging – but that might not mean what you think. Retrieved from www.yahoo.com/news: https://www.yahoo.com/news/bitcoin-surging-might-not-mean-174606526.html

This time, the legal community is weighing-in on the future of blockchain and bitcoin technology growth under US President Trump. David Brill, a business lawyer, wrote an interesting piece titled “Bitcoin, Blockchain and Trump: Where do we go from here?” (Brill, 2017), detailing his recent discussions at an American Bar Association (ABA) conference between private sector lawyers, senior government counsel, and various other high level attendees connected to Securities and Exchange Commission (SEC) and Futures trading disciplines.

Brill appears to hinge his predictions by on the one hand, expecting a decrease in resources for the bitcoin FinTech in the US market, but on the other hand, foreseeing potential growth for blockchain in both the US and UK space, with the latter attributed to the Brexit related split from the EU.

I’m going to go out on a limb and disagree with Brill on his bitcoin predictions, and instead assume that the US political environment, i.e. uncertainty with President Trump’s agenda, will actually ignite resurgence in bitcoin and digital currency investments, both at home and abroad. This, in tune, will also keep the separate blockchain innovations coming on strong as they have done in the past few years.

 Brill, D. (2017, February 10). Bitcoin, Blockchain and Trump: Where Do We Go From Here? Retrieved from www.coindesk.com: http://www.coindesk.com/bitcoin-blockchain-trump-go/

Forbes contributor Chris Myers recently published an article (Myers, 2017) that outlined 3 reasons he felt FinTech is failing – 1) There is a fundamental strategic contradiction between tech and finance, 2) Market realities encourage short-term thinking, and 3) Incumbents in the market are powerful and resistant to change.

While I agree with Myers that the tech and finance industries have different timelines for success in the marketplace, I disagree that the three reasons cited are the only or even main factors that will determine the longevity of the FinTech market. I believe the major underlying factor in FinTech is deeply rooted in other societal factors. For instance, I believe the online lending market is fueled by the consumers desire to have a more streamlined loan selection, acceptance and closing process, as opposed to physically having to personally visit multiple financial institutions. For FinTech industries like digital wallets, the attractiveness to the consumer is once again the convenience, and not having to carry multiple forms of payment.  These consumer conveniences are not diminishing and I feel will continue to advance the FinTech market, thus offsetting any temporary declines most probably attributable to normal up and down business fluctuations.

 The uncertainty I have is more about how the change of the guard in the U.S. White House, along with the Republican majorities in congress, and the latest talk of relaxation of regulations will affect the FinTech industry – a topic I will save for a later date.

 Myers, C. (2017, February 7). 3 Reasons Fintech is Failing. Retrieved from www.forbes.com: http://www.forbes.com/sites/chrismyers/2017/02/07/3-reasons-why-fintech-is-failing/#639f869d7b6b

Dodd-Frank legislation, originally signed into law in 2010 by the Obama administrations, was a series of legislative compliance rules targeted to the financial service industry in response to the industry’s 2008 major crisis.  With the recent announcement by the new Trump administration, the question remains as to what effect, if any, will their actions have on the financial technology industry? 

The predictions in 2011, following the announcement of the original legislation, was that business would be forced to put more money into IT solutions to satisfy compliance, and as a side-effect, this additional funding to the back office systems, would spur new innovation with data management as a whole. For the business, the idea of a more comprehensive understanding of its data, would lead to competitive advantages. I think when we look back over the last six years, the SAP solution to the integrated systems, and the current trends, such as the Blockchain distributed ledger, we can conclude that IT has seen growth due to Dodd-Frank.

 I believe that with the advantages that businesses have realized by concentrating on solutions to data management, along with the focus on integration across its sectors, this area will continue to grow for Information Technology, despite any attempt at the proposed reforms to the current legislation.

 https://www.nytimes.com/2017/02/03/business/dealbook/trump-congress-financial-regulations.html?_r=0

NY Times Dealbook – Trump Moves to Roll Back Obama-Era Financial Regulations

 http://www.institutionalinvestor.com/blogarticle/3547273/how-blockchain-can-aid-dodd-frank-compliance/banking-and-capital-markets-trading-and-technology.html#/.WJgk0RsrK01

Institutional Investor – How Blockchain Can Aid Dodd-Frank Compliance

 http://www.wallstreetandtech.com/regulatory-compliance/dodd-franks-impact-on-it/229200184?pgno=3

Wall Street & Technology – Business Innovation Powered by Technology

Over the past several weeks, an uncertainty has existed in the United States, and even the world, as to how the new US President – Donald Trump, will affect the tech industry and Silicon Valley. In a recent Newsweek article (Maney, 2017), Kevin Maney keyed in on five major sectors targeted by the Trump Campaign rhetoric, that if followed through on by the new administration, could stifle growth and innovation. The  areas discussed included “Humle the Technology Industry”, “Dismiss Alternative Energy”, “Derail Health Care”, “Ignore Russian Hacking”, and “Shift resources from Cities to small Towns and Rural areas”.

I see the next four years in two views. The first will be in alignment with the negative actions described by Maney as to the effects of Trump’s promised policies, but I also envision a second outlook, not mentioned by Maney. This overlooked  observation would include an uprising, powered by immigrants and the same technology that Trump’s action is predicted to suppress, that would overcome his actions, and in the end, keep the Valley on track producing some of the most innovative tech companies in the world.

 Maney, K. (2017, January 27). DIGITAL DIVID AND CONQUER- Trump has a brilliant plan to turn Silicon Valley into a desert. Newsweek, pp. 46-47.

A recent Bloomberg article titled “Threat of Blockchain Prompts New Strategy for Germany’s SAP” (Ricadela & Kharif, 2016) would lead you to believe that the 85$ Billion dollar enterprise application software solution provider was somehow in danger of obsolescence by this new blockchain trend. Quite the contrary, as SAP, through its’ Innovation Center Network (ICN), is well ahead of the game, and has been so for several years. The authors approach to the story is that SAP is perhaps threatened and is nervously developing new strategies, but SAP is actually embracing the new technology and doing what any other successful company does – continuously innovate and adapt with the market. IBM, Microsoft, Deloitte, JP Morgan Chase, and Toyota, just to name a few, are all heavily involved in utilizing blockchain technology. SAP is working with its banking, farming, medical, energy, and its media markets to integrate this technology with its existing products, and in new offerings.  Despite its centralized ledger of transactions that forms the basis of SAP financial applications, there is unlimited potential for integration of the decentralized blockchain technology in the areas of e-ledgers, security, and other efficiencies, resulting in lower operating costs to its users.

Ricadela, A., & Kharif, O. (2016, July 29). Threat of Blockchain Prompts New Strategy for Germany’s SAP. Retrieved from www.bloomberg.com: https://www.bloomberg.com/news/articles/2016-07-29/threat-of-blockchain-prompts-new-strategy-for-germany-s-sap

theirnetworth.com: http://www.theirnetworth.com/Businesses/SAP/

Gross, R. (2015, November 23). Will you recognize innovation when you see it? Retrieved from blogs.sap.com: https://blogs.sap.com/2015/11/23/will-you-recognize-innovation-when-you-see-it/

Krompholz, A. (2015, December 3). The blockchain voyage – from the Bitcoin network to Blockchain-as-a-Service. Retrieved from blogs.sap.com: https://blogs.sap.com/2015/12/03/the-blockchain-voyage-from-the-bitcoin-network-to-blockchain-as-a-service/

I stumbled across an interesting article titled “Beyond Bitcoin: How The Blockchain Could Disrupt Our Financial System” (Forbes/SAP Business Trends, Dan Wellers, SAP, August 11, 2015). Reflecting on how Professor Schermann had included a short discussion on Bitcoins and the Blockchain in our opening lecture, I decided it was worth reviewing. Dan starts out right away in the article dispelling any fears that the Bitcoin would ever replace any of the worlds existing currencies, and then shifts focus to his main topic of discussion – the Blockchain, or the underlying technology of the currency itself. The Blockchain, utilizing cryptography coupled with a distributed management architecture, has the potential to serve as a powerful electronic historical ledger that doesn’t rely on a centralized legacy financial institution. The power lies in decentralization and the incentives involved in verification of transactions. This, combined with current computing technologies, has created a new mechanism to operate more securely in todays and tomorrows increaeingly digital environment. I feel Dan has nailed it, and anyone that is dismissing the Bitcoin, is failing to realize the true economic value – the underlying Blockchain and its potential impact and implications on a larger scale. Stay tuned!