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“Blockchain, blockchain, blockchain. Blockchain? Blockchain, blokchain, blokchin bokchn, bkcn, bk-bk, ch.” — That was conversation, basically, in parts of the world in 2017, when an iced-tea company rebranded as a blockchain company, grandparents talked up Bitcoin, and CryptoKitties pollinated the digital landscape.
X Since the new year began, Eastman Kodak (KODK), Moviepass parent Helios and Matheson (HMNY) and Chanticleer Holdings (BURG), which operates Hooters and burger restaurants, have joined or may join Long Blockchain (LBCC) and Riot Blockchain (RIOT) on the bandwagon. Autonomous Research thinks we’ll see at least 100 “blockchain pretenders” this year.
While the current frenzy might obscure blockchain’s actual potential, most people agree that the record-keeping technology behind Bitcoin that allows anyone involved in a transaction to see it and agree on it before clearing it is sound enough to outlast today’s crypto-hellride. But if 2017 was a year of talk about blockchain, 2018 might be a year of more action, with a possible focus on trading, payments and architecture.
“I think in 2018 you’re going to see a lot of these new projects that have been promoting themselves and raising money (in 2017), many of them are going to see their first real releases of software, official releases of their platform, happening in 2018,” said Matthew Spoke, CEO of blockchain startup Nuco Networks.
Going After Goldman Sachs
Analysts have long said blockchain has the ability to make trading in stocks and other securities quicker, cheaper and more transparent, and 2018 will offer more of a look into whether investors actually want to trade on a distributed-ledger platform.
Online retailer Overstock (OSTK), which is rapidly morphing into a blockchain company, has opened up a blockchain-based trading system it majority-owns, tZero, to more investors.
TZero, along with Siebert Financial (SIEB) and Overstock, have said they intended to partner to “offer deeply discounted online trading” in the first quarter of 2018 — charging $2.99 per trade and, eventually, $1.99 for members of a new, “elite” segment of its Club O rewards program. The company also hopes to make it a bigger alternative trading system for tokens and initial coin offerings.
And the tZero platform can settle trades on the same day, potentially offering brokers a way to shorten the time between when an investor’s order is executed and when money and securities are actually exchanged. While investors will still be able to make trades in milliseconds, brokers could lower their risk of seeing a trading counterparty defaulting. Today, the SEC requires that trades must be settled within two days.
For now, the platform is largely being used as an outlet for short-selling. In particular, Overstock CEO Patrick Byrne hopes the platform’s blockchain technology will address what he has long considered abusive short-selling practices by prime brokerages — particularly surrounding rules for locating shares that short-sellers borrow to make trades. Byrne, a vocal Bitcoin and blockchain evangelist, said in November that he intended to use tZero to go after a huge chunk of Goldman Sachs’ (GS) revenue.
“Arguably,” D.A. Davidson analyst Tom Forte said, “they’re disrupting or working to disrupt three things — one being short-selling, two being settlement, three being issuance, if you think about what they’re doing with their initial coin offering.”
In November, Byrne said the platform had $80 billion to $120 billion worth of lendable securities.
Meanwhile, Nuco is working with the TMX Group, the parent of the Toronto Stock Exchange, to build a blockchain platform for the NGX natural gas exchange, which is owned by TMX, said Nuco’s Spoke.
IBD’S TAKE: It is crucial for investors to understand the difference between cryptocurrencies, like Bitcoin, and the blockchain software programs that enable them. It is also important to get a feel for just how speculative digital monies like Bitcoin are right now before investing directly in the currencies or through related exchange traded funds or stocks.
Remittances Eyed As MoneyGram Tests Ripple
James Wester, research director for worldwide payment strategies at IDC, said he’ll continue to keep his eye on blockchain’s potential to make remittances — or money people living outside their home country send back to it — less expensive and more efficient this year.
More than $400 billion in remittances were transferred around the world in 2016, with transaction fees hovering around 7%. An array of blockchain remittance startups — such as Abra, TransferWise and Circle, a company backed by Goldman Sachs — are working to cut the cost of transaction fees — and render wire transfers and Western Union (WU) irrelevant.
“It also looks like a use case that could be on the point of really taking off in ways that I don’t think other use cases are,” Wester said.
To be sure, crypto transactions carry their own fees, and scaling up can be an issue. But some cross-border remittance fees are high, and companies can also use the underlying blockchain technology for transfers rather than a certain digital coin.
But Wester also notes much of the technology that exists, at least within payments, already works pretty well.
“Not to poke fun at anybody, but when the biggest news of 2017 is CryptoKitties trading on top of Ethereum,” Spoke said, referring to a game where people breed digital cats, “we have a long way to go before this really starts to change the fundamental infrastructure of the world.”
Connecting Different Blockchains
Other things to watch for next year? Actually getting all the world’s private blockchain networks to operate with some degree of coherence.
A project by Toronto-based Nuco, called Aion, aims to develop a platform that enables the scores of blockchain networks with different protocols — public, private, region- or industry specific — to connect to one another.
“Let’s say I write a transaction on blockchain A, but I want that transaction’s logic to be triggered autonomously as the result of a transaction on blockchain B. You can’t do that autonomously today,” Spoke said. “You need somebody to kind of sit in the middle of that process.”
The Long View: ‘Creative Destruction’
The coming year may be a white-knuckle ride for blockchain believers as more comparisons are drawn to the dotcom bubble 20 years ago.
But here’s some perspective: the valuation of the dotcoms reached into the trillions before imploding, while the value of the entire crypto space, for now, is still about three to five times smaller, said Lex Sokolin, global director of fintech strategy at Autonomous Research.
“So most projects here will fail, but that is the required creative destruction to get to the next stage of the economy,” Sokolin said.
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