Welcome to Last week in blockchain. My name is Wim Pelgrim, a blockchain realist and with this weekly podcast you’ll stay up to speed about all the major developments on the blockchain. And please leave a review on iTunes so my podcast will get higher in the search results, share it with your friends and if you listen to this podcast for the first time: subscribe using your podcast app.
This week a piece about security tokens, a term you will hear more and more this year. What is it and what differentiates them from ICO’s and Utility Tokens? Kevin Werbach wrote a book about trust and blockchain, about technology and people and big financial institutions SWIFT and R3 are working on a proof-of-concept.
After the ICO, initial coin offerings in late 2017 and early 2018, this year could be the year of the security tokens. I see the term a lot and decided to do a deep dive into the concept today. First a few terms: ICO, Utility Token and Security Token. An ICO is a initial coin offering: you buy a cryptocoin that is part of a new application. The coin is offered at a discount and investors hope they get a return on their investment once the application goes live. The token you buy is either a utility token or a security token. A utility token is a token used in an application. Look at Triffic I talked about in podcast #39. You buy their token that will be used in their application. And so are Bitcoin and Ethereum: tokens you can use in the networks. A security token is somewhat different. They are tokens that pass the Howey Test: they are external tradable assets that are securities. So they are subject to regulations. And ICO’s that aren’t security tokens could be part of a scam and the owners could be punished under law.
So for the next few months you’ll be hearing a lot about security tokens to buy stocks or real estate. For example Dutch Startup Bloqhouse is doing exactly that. You can invest in real estate or art with small amounts of money. Check out their website and a nice Youtube-video about security tokens in the show notes.
Background articles and research
Blockchain has been presented as a trust machine. Trust that originates from code and that doesn’t need trust between people or trust in institutions. But Kevin Wehrbach, professor at the Wharton School, University of Pennsylvania, wrote a book that tells a different story. And that could explain why blockchain isn’t trusted without hesitation. He writes about the human factor: “For the technology to be used widely and wisely, there must be mechanisms to hold the humans accountable, too.” “. It’s not enough to trust the computers – which, after all, are built and programmed by people.”. In his book, The blockchain and the new architecture of trust, he deepens his view on the contradiction between blockchain’s allegedly trust-less technology and its trust-needing users. “Economists often view trust as a cost, because it takes effort to establish. But people actually want to use systems they can trust. They intuitively understand that cultures and companies with strong trust avoid the hidden costs that stem from everyone constantly trying to both cheat the system and avoid being cheated by others.” And anyone who is working on a blockchain application knows this from first hand experience. You have to gather people around a table to talk about the application you’re building, you have to gain the trust from the customer, your partners or others. It’s technology supporting people.
Companies en applications
My third big item this week is SWIFT. SWIFT is the Society for WorldWide Interbank Financial Telecommunication. Over 8000 financial institutions are connected to the SWIFT messaging service. SWIFT is teaming up with R3’s Corda Blockchain. R3 is a DLT company that was founded by nine financial institutions. And this is a major breakthrough for blockchain in finance. Corda was built with the financial system in mind as it handles more complex transactions and restricts access tot transaction data. So what is the Proof-of-Concept these companies are working on?
The SWIFT gpi Link will be connected to the Corda blockchain an corporates using Corda will be able to authorize payments from their banks via gpi Link. Gpi Payments will be settled by the corporates’ bank and the resulting credit confirmations will be reported back to the trade platforms via gpi Link on completion. This creates an interlink for e-commerce and trading platforms with SWIFT gpi. Benefits: end-to-end payment tracking, payer authentication and credit confirmation. If this will be disruption of the financial sector or the incorporation of DLT in an existing field, I don’t know yet. I tend to think the latter. A prototype will be demonstrated at Sibos in London in September 2019, I’ll come back to this topic then.
Governments and law
Oh my god!
And if you want to read more, check out these articles: a Dutch university of applied sciences has a lector in blockchain, the Italian Postal service and several others join the Hyperledger community, Brave browser offers free access to premium cheddar content, Facebook acquires a blockchain startup and major Rail and bus company Go Ahead partners up with blockchain startup Dovu.
And that wraps up this Last week in blockchain. Check my website: www.wimpelgrim.nl for more info on me and my podcast and a full transcript of this episode. Check the links mentioned in this episode in the description: security tokens, trust and blockchains, the SWIFT-R3 proof-of-concept and all the referrals I mentioned a minute ago. And if you like what you’ve heard, share this podcast with your friends and on social media and subscribe to this podcast in your podcast app. See you next week!
Check my website: www.wimpelgrim.nl
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