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Will Blockchain Alter the Future of Finance?

Will Blockchain Alter the Future of Finance?

Some recent upheavals in Ethereum, Bitcoin’s younger, wilder sibling, had partially rekindled the media frenzy over cryptocurrencies. The interest in cryptocurrencies had gradually swelled alongside Bitcoin’s value, which reached an all time high in late 2013. Yet, even when Bitcoin was basking in the limelight, the blockchain, the underlying technology that powers it, kept to the shadows.

But as the excitement subsided and normalized, pundits and developers increasingly turned their attention over to the blockchain. I recently had a chance to sit with Clément Francomme, the founder of UtoCat and Blockchainiz, who was invited by venture capital firm Leap Ventures to give a talk in Beirut.

Francomme’s endeavors represent a microcosm of this evolution. His first company, UtoCat, sought to enable Bitcoin owners to spend their digital coins in everyday, brick and mortar stores. But a mere twelve months after its founding, UtoCat was pivoted into Blockchainiz, a software as a service company that allows users to access the Blockchain technology using their own Application Program Interface (API) – a set of routines, protocols, and tools to build software applications.

Francomme first became aware of Bitcoin in February of 2013. In an attempt to curb a severe monetary crisis, authorities in Cyprus had decided to levy punishing tax rates on bank deposits. As expected, the depositors rushed to protect their assets; a considerable part of the monies got stashed in Bitcoin; the price of a Bitcoin nearly tripled. The inevitable burst followed of course – having reached over $250, the price of a Bitcoin dropped to $30 a couple of months later.

Some proclaimed it dead – often due to an inherent proclivity, as we find out later. Francomme however was intrigued. He decided to dabble in bitcoin mining. Using only software, he made the equivalent of 50 cents in his first week. Later, in the summer of that same year, he would be making around 500 euros a day using a dedicated rig. More importantly though, those experiments cemented his belief in the potential of Bitcoin.

Utocat was founded in October of 2014 in France. Its purpose was to make Bitcoins usable in ordinary shops: the service could convert a shopper’s Bitcoins into Euros in real time. UtoCat was shortlived. Twelve months after its launch, the founders decided to halt the business. “The amount of people that had bitcoin and were willing to spend it was not enough and would not be for another 5 years,” explained Francomme.

Too soon for Bitcoin

Bitcoin has been reproached for a number of vices, especially volatility. Francomme was quick to dismiss my suggestion that this behaviour would justify any government meddling. He believes that since the money pot of Bitcoin is still small, its price remains highly sensitized to sudden surges or drops in demand. But Francommes estimates that the price of a unit will become difficult to impact effectively should the market cap for Bitcoin mount up to a tenth of the value of US dollars currently in circulation.

There are about 12,000 billions US dollars – in coins and in paper currency – currently in circulation. The current market cap for Bitcoin is approximately 10 billion dollars. Optimally, it would have to increase over 100 times, making a Bitcoin worth $64,000 – right now it is worth $640. But Francomme surmises that even $10,000 for a Bitcoin could be enough for a marked improvement.

When I pressed him again on the idea of a central authority, he did confess that he entertains the idea of a regulating entity, perhaps a decentralized bank, or a fintech that would buy and sell Bitcoins to regulate its price he presumed.

And who gets to vote? The miners, “as they are the ones that invest in the sector.” Francomme also reasons that other actors should be involved as well, such as investment firms that have stakes in Bitcoin related ventures.

A critical issue that such a committee would have to address is the question of raising the limit. One of the tenets of Bitcoin is preservation of value. Bitcoin was conceived with the idea of reproducing the behavior of gold. Once the limit is reached, it becomes impossible to devalue units in circulation with the issuance of new ones. Francomme concedes that there are legitimate reasons to bend that rule. Bitcoins have been, and will be lost. Bitcoin owners pass away, keys are lost, so perhaps it would be wise to regularly issue a small sum that would compensate this routine depletion. He is not personally in favor of such a change however. “I’m not sure i’m ready to change that and have a different system that will have a different behavior.”

Make no mistake, Bitcoin is growing, by about 200,000 transactions a day. The cost of sending Bitcoin is going down too. Right now it costs between 4 to 7 percent of the value, not as high as money wires such as Western Union, which charges 12 percent, but still considerably costlier than the 1 percent of the modern banking system.

The pivot

Seeing as it was too early for a sustainable Bitcoin endeavor, Francomme and his partner Laurent Koscyczek decided to suspend the service indefinitely and launch Blockchainiz. The pair were joined by Alexis Mévellec in March 2016.

Blockchainiz offers smart contracts – “a type of contract that we can use specifically in the blockchain environment” – which are suited for high value transactions he added.

The benefits of smart contracts are twofold. They are more efficient: transfer of funds or ownership typically takes about four days to conclude; using smart contract the same transfer can be finalized within an hour explains Francomme. Smart contracts are also more secure, which makes them an excellent medium for transactions that typically require trust and where the information is spread across multiple systems. Francomme claims that Blockchainiz would enable banks and insurance companies to reduce their compliance and back office costs by up to 60 percent.

They are also particularly relevant when transactions involve oversea entities. Eighty percent of transactions are private explains Francomme, this means that more often than not there is a high risk of fraud.

Blockchainiz’s service taps into the ethereum network to certify and guarantee that a transaction is non repudiable, non reversible, and can be easily verified. A contract will be guaranteed by every computer on the network. The consensus ensures that bad transaction are excluded.

Similar to what an IPS does, Blockchainiz works as a medium between clients and the network. Its API allows clients’ system to plug into the network. Blockchainiz is also responsible for buying tokens to pay the network fees and making sure that the information is propagated.

Blockchainiz has already two clients onboard with a third expected to join soon. But what Francomme is most excited about is an upcoming piece of legislation in France that, if passed, will mean that any transaction that is approved using a blockchain network become legally proven.

The post Will Blockchain Alter the Future of Finance? appeared first on MIT Technology Review.

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