Blockchain Can Level The Playing Field for SMEs

Blockchain Can Level The Playing Field for SMEs

Blockchain technology can help U.K. fintech firms capture billion in lost equity, argues Qadre CEO Nick Williamson

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In an exclusive interview with Cointelegraph, Nick Williamson, the chief executive of U.K.-based fintech firm Qadre, argued that blockchain technology can unlock access to capital for small and medium sized enterprises, or SMEs.

“With interest rates near zero for the better part of a decade and no end in sight, capital has been desperately searching for returns, but has always overlooked one of the largest sectors of the economy, small and medium sized enterprises,” he stated.

“One reason for this is that it’s really difficult to invest $10 billion in a diverse portfolio of corner bakeries! It’s currently much easier for a large investor to rely on reporting and governance standards to which large, public companies are held,” Williamson added.

SMEs as new frontier for idle capital

Williamson argued that blockchain can be deployed to offer SMEs access to the same financial tools that are currently only available to large firms.

“Step one on this journey is to deliver certainty to cap tables and corporate actions, aligning investor interest with the interest of the small business owner,” he asserted.

“While SMEs have historically been the largest driving force in GDP growth and job creation, there has been a long term shift to larger companies over the past decades, partially due to the ability for large companies to access capital markets efficiently.”

“The other half of the equation is bringing certainty to investors, allowing them access to a sector of the economy they have previously been shut out of and realigning broader market incentives to support all of the economy, not just the part that is currently driving returns.” Williamson added.

Blockchain and equity management

A report recently published by Qadre argued that blockchain technology can also be deployed to offer $3.17 billion in equity management efficiency savings among U.K. fintech firms each year.

The report surveyed the founders of 59 fintech firms in the United Kingdom, finding that one-third have missed out on funding due to inefficient equity management.

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Blockchain technology can help U.K. fintech firms capture billion in lost equity, argues Qadre CEO Nick Williamson

Argentina’s Banks Set to Use RSK Blockchain Technology for Tracking Payments

Argentina’s Banks Set to Use RSK Blockchain Technology for Tracking Payments

RSK enters the enterprise blockchain field by collaborating with major Argentinian banks

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An Argentinian consortium of banks and technology companies under the patronage of the Central Bank of Argentina is promoting a pilot program implementing blockchain. The system would be used to handle direct account debit claims.

The pilot was announced on April 21 by IOV Labs, the developer of the RSK blockchain. The company is part of the 2019 Financial Innovation Roundtable, which also includes Sabra Group, Banco de la Provincia de Córdoba, BBVA, ICBC, Banco Santander and others.

The group has worked for several months since the end of 2019 to create a system that would track bank account transactions through what IOV claims is a decentralized network.

Specifically, the blockchain system will handle direct debit transactions for customers, where the payment is initiated by the receiver of the funds and not the sender. Through the blockchain, the group is able to trace the claims between different participants like banks, clearinghouses and financial agents. In this pilot, blockchain solves the key problem of inter-entity messaging, creating a decentralized enterprise network.

While the system already exists and is usable, IOV Labs’ goal is to provide a simpler and more efficient alternative to traditional settlement.

The solution is being tested by the banks participating in this initiative. When the pilot ends, they will decide if the network should be enlarged with other participants or additional applications.

RSK is a smart contract sidechain

The RSK network is in many ways an Ethereum competitor, but instead of creating an independent network, it piggybacks on Bitcoin (BTC).

The network’s native token is a wrapped version of BTC, though it also has its own token called RIF. Bitcoin arrives to the network through a “federated” bridge overseen by specific entities. This is similar to many versions of wrapped Bitcoin on Ethereum.

RSK has recently been attempting to catch up to Ethereum in terms of decentralized finance functionality. It hosts two algorithmic stablecoin projects, Money on Chain and the recently launched RIF on Chain.

As Cointelegraph reported in February, RSK also launched a bridge to Ethereum, which allows swapping any token between the two networks.

The collaboration with the Argentinian financial group can be seen as an expansion into enterprise blockchain territory, currently occupied by projects like the Ethereum Enterprise Alliance, Corda and Hyperledger.

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RSK enters the enterprise blockchain field by collaborating with major Argentinian banks

Blockchain Lobbying: Interests Fragmenting as Crypto Field Expands

Blockchain Lobbying: Interests Fragmenting as Crypto Field Expands

There is much more to crypto lobbying than Libra’s attempts to appease regulators

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Over the past few months, Libra, Facebook’s prospective global digital currency, has stolen much of the spotlight across many areas of the cryptosphere. The field of blockchain lobbying was no exception: From Mark Zuckerberg smooth-talking powerful officials into supporting his global initiative to an expansion of the impressive roster of corporate lobbyists summoned to advocate for it, Libra has been dominating the recent coverage of government–crypto industry relationships. 

Related: How Facebook Libra Is Seeking Compliance, but May Not Launch by 2020

Meanwhile, these much-publicized efforts undertaken by the social media giant are only the tip of the iceberg that is blockchain lobbying. Making the industry’s voice heard on the Capitol Hill requires daily, systematic work and immense resources, even though much of it occurs behind closed doors and rarely makes headlines. 

Given that the majority of crypto businesses operate in the highly regulated sphere of finance, as well as being the overall arcane character of the digital asset field, staying in touch with lawmakers is indeed vital. As the blockchain industry matures, so too does its specialized lobbying scene, and compared to just months ago, it has undergone some noticeable changes.

Moving into the second inning

The latest wave of popular interest in blockchain-related lobbying occurred last spring, when the congressional disclosures indicated sizeable growth of both the number of lobbyists and the funds spent on their work in the first quarter of 2019 compared to the last quarter of the previous year. Even mainstream media took notice of the dynamics, with Politico calling it the “blockchain lobbying boomlet.”

At the time, Dina Ellis Rochkind, a prominent lobbyist at the law firm Paul Hastings, told the publication that, “For companies pursuing other uses of blockchain technology [than cryptocurrency], ‘we’re in inning one’ in terms of winning allies on Capitol Hill.”

Speaking to Cointelegraph in October, she noted that, overall, the industry is now past the initial stage of establishing its presence on the Hill. The field is picking up steam, but heightening activity also seems to result in increased fragmentation of interests:

“We’re not in the earliest stages we were 18 or so months ago, however we’re more in the second inning or so. Leaders have emerged, but there are now more groups than ever, many of them with competing interests, which makes it difficult for the industry to move in a unified direction.”

It also appears that the expanding interaction between legislators and blockchain actors is not a one-way street anymore. As the matters of digital finance emerge from obscurity and make their way into mainstream agendas, more lawmakers than ever are taking an interest in — or are acknowledging, at least — regulatory issues surrounding the crypto industry. 

Related: Why Lobbying Growth Is a Sign That Crypto Is Maturing

Admittedly, the wave of publicity stirred by Libra’s arrival was instrumental in raising general crypto awareness among members of Congress. Kristin Smith, director of the Blockchain Association, shared her observations with Cointelegraph:

“Blockchain and crypto technology has become much more mainstream in the past year, reaching a new peak of interest with the launch of Facebook’s Libra project. Due to that rising awareness, members of Congress in particular have had to pay much closer attention to the industry.”

Overall, there is evidence that the crypto industry is stepping up its efforts to influence how policymakers consider crypto regulation. What does this work look like, and who are the main actors in the field?

Key players and issues

Any review of the blockchain lobbying landscape would have to contend with the fact that there is neither a homogeneous set of organizations that advance their interests in a standardized fashion nor an established format of doing such work.

Some industry groups act as direct, registered lobbyists, some hire professional firms to lobby on their behalf, some focus on a broad range of concerns, while others are single-issue operations. For some, influencing specific legislation is a top priority, while others seek to educate legislators on important technical and conceptual distinctions that may help inform more nuanced policies down the line. 

Advocacy groups such as the Chamber of Digital Commerce transcend national borders to champion pro-blockchain regulation globally. Trade groups such as the Wall Street Blockchain Alliance and Government Blockchain Association primarily work to promote networking and cooperation between those involved in the industry.

To complicate matters even further, some entities that are active in crypto-related lobbying are not necessarily crypto industry groups. Rather, many are representatives of adjacent or wider industries whose interests spill over into the realm of crypto. For example, the National Venture Capital Association, which is involved with the Securities and Exchange Commission over the regulation of initial coin offerings, has reportedly spent $60,000 in the first quarter of 2019 on blockchain-related lobbying.

Speaking of “crypto-native” entities, the Blockchain Association, backed by heavy-hitters such as Coinbase, Protocol Labs and Circle, launched in September 2018 to coordinate the industry’s stance on regulation. One of the group’s primary concerns has been the advancement of the Token Taxonomy Act, reintroduced in April by Rep. Warren Davidson and a group of co-sponsors, including Democrat Rep. Tulsi Gabbard, who is running for president in 2020. 

A Washington, D.C.-based nonprofit, Coin Center, is a major policy think tank whose positions on regulatory issues largely align with those of the Blockchain Association. Unlike the direct-action lobbying group, Coin Center focuses on research, advocacy and education. Smith, from the Blockchain Association, told Cointelegraph:

“There are several members of the Blockchain Association that are active in Washington, D.C., and more companies are acknowledging the importance of engaging with Congress and the key regulatory bodies. I think it’s a natural development of a maturing industry and a recognition that we should have a voice in the important legal and regulatory conversations.”

Although the Blockchain Association comprises some of the most prominent names in the trade, it is hardly representative of the entire blockchain sector. Digital assets are far from homogeneous, and it is reasonable to expect that projects dealing with different manifestations of blockchain technology will eventually seek to establish their own outposts in D.C.

Until very recently, the Ripple-led Securing America’s Internet of Value coalition has been an example of such compartmentalization, as it could be seen as an alliance of firms reliant on permissioned distributed ledgers. However, Ripple has recently moved to join the Blockchain Association in addition to establishing an office in the U.S. capital and onboarding a group of big-name experts with regulatory experience. This development illustrates how, in the dynamic field of blockchain–government relations, convergence tendencies exist alongside fragmentation processes.

Related: Pushing for Crypto Self-Regulation Amid Tightening Government Scrutiny

One vivid example of the centrifugal trend is the recent emergence of the Proof of Stake Alliance, conceived as a vehicle for educating regulators on the differences between various consensus protocols while articulating unique legal challenges that proof-of-stake assets present. The move seems justified, given widespread concerns over how proof-of-work systems like Bitcoin are wasteful and unsustainable, but it also adds to the increasingly cacophonous character of blockchain representation on Capitol Hill.

However, rifts exist not only along technological lines: Industry players still diverge in the degree to which they are ready and willing to engage with regulators to advance their interests. As Rochkind pointed out to Cointelegraph:

“There is still a disconnect between D.C. and West Coast where much of the innovation is occurring. Many folks are hoping that an ‘out of sight, out of mind’ approach will work. In my opinion, the best business opportunity is to work with regulators and lawmakers, even if it means added compliance costs in the short term.”

Evidently, such disparities lead to some companies’ voices being amplified in the hallways of power while others are underrepresented.

Looking ahead

Blockchain-related lobbying is indeed a burgeoning field that grows larger and more nuanced with more interests from across the sector entering the arena. Its current shape is still far from definitive as new players emerge and alliances rearrange themselves. 

Late September saw former Sen. Mark Kirk establish a group called U.S. Blockchain Advocacy Partners, which aims to “develop and implement a long-term, comprehensive, and inclusive blockchain technology plan for the U.S. government” and even register a political action committee, or PAC, as a means to that end.

Related: Can PACs Popularize Cryptocurrency Donations in US Politics?

Soon, more groups may be organized around specific technologies, protocols or governance models, seeking to educate regulators on the advantages of their solutions. While it will certainly put a strain on legislators’ attention spans, the influx of crypto-related information could actually lead to increased levels of their awareness of blockchain technology. 

In turn, cooperating and organizing to represent group interests will produce a more interconnected and self-aware industry. However, uneven representation and concentration of lobbying power at the hands of the few are indeed real threats, and the blockchain industry would do well to start thinking of safeguards against them early on.

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There is much more to crypto lobbying than Libra’s attempts to appease regulators

Visa Set to Join the Expanding Field of Blockchain-Based International Payment Providers

Visa Set to Join the Expanding Field of Blockchain-Based International Payment Providers

Visa joins the ranks of mainstream payment giants creating blockchain-powered settlements infrastructure for cross-border transactions among institutional clients

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Visa has launched a payment system for business-to-business (B2B) transactions partially based on blockchain technology. The United States payment behemoth says its platform, called Visa B2B Connect, offers seamless cross-border payment processing for institutional clients without going through the complex web of third-party intermediaries.

In doing so, Visa becomes the latest entrant into the blockchain-based payment processing arena. This move brings the company into direct competition with cryptocurrency startups like Ripple and mainstream players, such as Barclays and BNY Mellon with their Utility Settlement Coin (USC) project under the aegis of the Fnality Consortium.

Visa B2B Connect — three years in the making

Visa first announced plans to build a blockchain-based network for business payments back in 2016. At the time, the credit/debit card payment giant said the service would be developed in partnership with blockchain startup Chain.

According to a statement issued by the former executive president for strategic partnerships and innovation, Jim McCarthy:

“The time has never been better for the global business community to take advantage of new payment technologies and improve some of the most fundamental processes needed to run their businesses. We are developing our new solution to give our financial institution partners an efficient, transparent way for payments to be made across the world.”

Visa’s initial timeline included a pilot launch in 2017, but the company had to navigate a more complicated route than initially envisaged. The company replaced Chain as its partner on the project, electing instead to go with fintech firm FIS, e-payment operator Bottomline Technologies and IBM.

Starting in 2017, the company began to announce job vacancies for crypto and blockchain experts to work on a new payment gateway. In March 2019, the company also published another job listing for specialists in crypto payment solutions.

Three years on, Visa has finally gone ahead with the launch of its payment service, which promises near-real-time settlement for B2B transactions. In a blog post published by Visa on June 11, the company described its platform as the answer to the issues plaguing cross-border transactions for businesses.

An excerpt from the company’s statement reads:

“Visa B2B Connect takes a different approach, turning weeks into one to two days. The non-card-based platform — the first of its kind — removes friction from the process by expediting transactions directly from the origin bank to the beneficiary bank — no intermediaries necessary.”

Simplifying interbank transactions for businesses

According to the company, the newly developed system aims to simplify the process of business payments around the world, eliminating the convoluted transaction flow process involved in interbank settlements for commercial payments.

Kevin Phalen, head of Visa’s Global Business Solutions, hailed the project as one capable of establishing a new paradigm for international business payments. “With Visa B2B Connect, we are making commercial payments quicker and simpler, while enhancing transparency and consistency of data,” Phalen declared.

Transaction Flow Process

In the June 11 launch announcement, the company revealed that the Visa B2B Connect platform is now available in 30 markets across the globe. Visa has plans to triple the reach of the service, making the platform operational in 90 markets around the world before the end of 2019.

From a technology standpoint, the platform isn’t a fully realized blockchain network. Rather, Visa B2B Connect takes certain elements of distributed ledger technology (DLT) to create an interbank network for business transaction settlement. The development team utilized the open-source Hyperledger blockchain base layer, created by the Linux Foundation.

Details released by Visa show that the platform is a non-card-based network made up of companies and participating banks. It allows businesses to transact directly with one another across the globe via their banks, with the Visa B2B Connect acting as the single connection between all transacting entities.

In a phone interview with Cointelegrah, Marta Piekarska, director of Hyperledger ecosystem at the Linux Foundation, explained the role of the company in the project, saying:

“We [Linux Foundation] provide the base layer on top of which developers can build their projects. Visa has integrated with the Hyperledger Fabric 1.0 to create the B2B Connect platform. They [Visa] partnered with IBM to implement the payment technology infrastructure.”

In legacy interbank transactions, there can be as many as three third-party intermediaries, each with their own fees and contribution to the throughput time of the process. Rather than a settlement occurring in 24 to 48 hours, interbank payments for business can take much longer.

A typical flow process for a payment transaction from Company A in Country Y to Company B in Country Z would look like the image below.

Legacy Banking Infrastructure Vs. Visa B2B

First, the funds move from Company A’s bank to a domestic correspondent bank (the first link in the intermediary chain). The next “handshake” involves a transfer to the main transaction authenticator (the second link in the intermediary chain) — which is most likely a regional clearing house — before arriving at the account held by the foreign correspondent bank in Country Z. Finally, the funds will move to the Company B’s bank account.

The Visa B2B Connect platform eliminates unnecessary handshake procedures and replaces them with a centralized service that connects companies and their banks across the world. Aside from reducing cost and throughput time for interbank payments, Visa says its platform solves the problem of inconsistencies in the flow of data.

By employing elements of DLT, the payments giant believes Visa B2B Connect creates an infrastructure with immutable record-keeping capabilities. If this proves true, participating businesses can utilize the predictable cost matrix inherent in the system to improve upon the accuracy of their cost and budgeting documentation. Furthermore, the system will have all the fee calculations indicated before the commencement of each transaction.

According to Visa, the new service even provides far greater payment flexibility for “one-to-many” business transactions. In such instances, Company A would wish to transfer funds to multiple businesses around the world at the same time. With so many participants involved, the usual flow process would become even more convoluted with a geometric increase in the number of intermediaries and handshakes involved.

However, with the Visa B2B Connect system, the company would need only interface with a centralized platform that handles the disbursement of payments to the receiving entities in the different banks across the globe. Participants will also be able to track the progress of the transactions in real-time, which could vastly improve the transparency of international business payments.

Blockchain technology in cross-border payments

Visa is the latest mainstream actor in the payment processing arena to announce a product that utilizes DLT in its settlement infrastructure. At the start of the year, JPMorgan Chase (JPM) unveiled the launch of its blockchain-based platform for institutional payment settlements.

As reported by Cointelegraph at the time, the U.S. banking giant also plans to launch its own cryptocurrency, dubbed “JPM Coin,” which will serve as a stablecoin facilitator of transactions between major corporations. Reports also indicate that the early iterations of the project will involve internal settlements between JPM clients.

The decision by the Wall Street behemoth struck a chord across the industry, given the sentiments previously espoused by its CEO, Jamie Dimon. Back in 2017, Dimon infamously characterized bitcoin as a fraud.

Apart from JPM, banking giants from Japan, Europe and the U.S. recently launched the Fnality Consortium with a $63 million Series A funding round. Fnality will utilize a system of USCs to facilitate cross-border payments involving many of the major fiat currencies in the world today.

Related: Bank to Basics: USC Project Seeks to Disrupt Traditional Wholesale Banking

The USC project extends even beyond payment settlement, as it aims to establish a network of blockchain-powered distributed Financial Market Infrastructures (dFMIs). These dFMIs will allow for full-spectrum value exchange transactions.

Much like Visa B2B Connect, the USC project has been four years in the making, and reports indicate that the system will be up and running by mid-2020. Some of the major banks involved in the project include some big companies, as seen below.

Fnality Stakeholders

However, not everyone believes that decentralized technology can disrupt the global payments arena. Tweeting on June 14, Henry Blodget, the CEO of Business Insider, maintained that the legacy digital payment systems worked fine and do not need to be replaced with cryptocurrency and blockchain technology. For Blodget, decentralized technology could find some application in cross-border payments, but beyond that, the mainstream avenues were still the more superior technology.

Serious competition for Ripple?

Given the target markets of these newly emerging payment networks, there is a question of whether these projects might constitute serious competition for cryptocurrency startup Ripple. Since it began operations, Ripple has consistently reiterated its intention of becoming the de facto global standard for international payment processing.

Ripple continues to sign partnerships with banks across the globe, encouraging the use of not only its ledger and payment products, but also the XRP cryptocurrency — in so, boosting its utility. With Wall Street banks and major corporations entering the blockchain-based payments arena, Ripple could face increasing competition for relevance in the evolving digital payments arena. It is, however, too soon to say which company will establish dominance when the landscape becomes fully realized.

The question could ultimately be decided by the strength of the technology offered by these different projects. Settlement layers that offer faster, cheaper, more efficient and more secure payment environments should see increased patronage, irrespective of the pedigree of the companies offering the technology.

For example, the Visa B2B Connect platform promises transaction settlement in 24 to 48 hours. This throughput time is significantly slower than that being offered by SWIFT’s Global Payment Initiative (GPI), which settles payments within an average of 24 hours.

Still, even SWIFT, the international payment network, has its sights set on blockchain technology adoption to further improve the operational capabilities of its GPI. In January, SWIFT announced a partnership with R3 to develop a blockchain-powered upgrade to its GPI technology in the hopes of further reducing the throughput time for international payments.

On the Ripple ledger, the average settlement time is around four seconds, and it can handle close to 1,500 on-chain transactions per second. Ripple also charges significantly lower fees — even when compared to other blockchain networks — with a median transaction cost of about $0.0004.

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Visa joins the ranks of mainstream payment giants creating blockchain-powered settlements infrastructure for cross-border transactions among institutional clients