Blockchain technology – a decentralized digital transactions ledger – sounds boring next to the trendy products grabbing the attention and wallets of the crowdfunding folks. It’s high intrigue sub-theme as the platform for cryptocurrencies that aim to disintermediate the global monetary system sounds more exciting, but the duller accounting function is now the main event. As a sign of Blockchain’s growing acceptance, mainstream blue chip banks are now signing up to develop, finance and use the ultra-secure digital ledger system in the delivery of financial services.
The backing of the big banks as both users and investors has raised blockchain’s profile from a scrappy startup industry to a major investment theme. Crypto-developers and hackers who have relished their mystique are now surfacing from their murky world for the backing of the mainstream financial industry – in hard currency. Cryptocurrencies led by Bitcoin and blockchain technology have raised over 1 billion dollars in private equity capital so far. Non-traditional investors led by crowdfunders love the cryptic play. But crowdfunding is also going mainstream. It is now the largest private equity asset class, representing 21 percent of all equity investments in the UK in 2016, according to Beauhurts’ Deal 2016 report.
Crowdfunders have sunk more money into blockchain technology than any other sector in their universe. As blockchain technology matures, more investment opportunities are arising in all stages of startup funding – from crowdfunding through to an IPO. Increasingly these opportunities are available on platforms leveraging blockchain technology to support decentralized investing, including democratic investment perks such as performing crowd due diligence and making stock recommendations with your peers. And, yes, soon there will be an app for that.
1. The Blockchain
Ethereum based in Switzerland is a blockchain leader and cryptocurrency developer now seeking some greenback to expand its platform. Vitalik Buterin incubated his ideas leading to his crypto-currency ether and its platform at Canada’s University of Waterloo – incidentally, not far from the world class Perimeter Institute where real world physics including Nobel laureate Stephen Hawking study the effect of a different kind of ether on galactic stars.
Ethereum has the distinction of raising the biggest crowdfunding round in history for its open source blockchain technology, rounding up a dizzying $6 million through crowdfunding in two months in the summer of 2014.
The essence of blockchains is they allow transactions to be processed on a network of computers rather than one centralized computer. With ironclad security, many virtual business functions can be performed more efficiently and cheaply. Ethereum’s elegant solution was to add Turing complete scripts. Named after famed World War II codebreaker Alan Turing, these scripts prevent attacks by using infinite loop transactions. Crucially, they allow the blockchain to host multiple assets such as smart contracts, opening the door to the use of financial and other instruments. Smart contracts use computer protocols to facilitate and authenticate virtual contracts, making transaction management quicker and more efficient.
How more efficient? Hyperledger, a digital ledger system being supported by banks, says it can do thousands of transactions a second. The Australian securities exchange ASX says it can execute securities trades in milliseconds over the blockchain. Moreover, with blockchain supporting front-to-back office operations, traders could conceivably go to the bank a few seconds after completing a trade and withdraw their trading gains from an ATM.
2. Financial Services Disintermediation
In addition to smart contracts and crypto currencies, the more Turing secure distributed computing platform can host many other virtual services.
This ironclad security is allowing some serious disintermediation to traditional financial services to take place. Crowdfunded opportunities include community consensus derived credit ratings developed by Ofyz. The use of blockchain tech to sell insurance is expected to be a future growth market. France’s inSpeer, an innovative platform crowdfunding insurance policies for electric cars, provides a peek into the future.
The ambitious blockchain is going after the big banking business, too. Crypto wealth management platforms such as eStakeX could one day replace wealth advisors. The blockchain is already moving into investment banking. Overstock.com is the first company to do an initial public offering over blockchain technology. 126,000 shares were distributed over the Bitcoin blockchain in December 2016. Regulation has not yet caught up with blockchain technology, however. To comply with financial regulation, Overstock.com had to funnel its transactions through brokers and other traditional middlemen.
ICONOMI, another cryptocurrency has…