More than Money: Get the Gist on bitcoins, blockchains, & smart contracts
Forecasts
As described in the Preface, below are auto-summarized lists of auto-extracted Forecasts for cryptocurrencies, blockchains, and smart contracts. They are numbered for easy reference, and each forecast is hyperlinked to its source to access more research.
Cryptocurrencies
- By 2027, 10% of global GDP will be stored on a blockchain network.
- Multiple bitcoin and blockchain companies will raise $100m rounds and reach $1bn valuations next year (2016).
- Several studies indicate that in the next four years the global market for digital transactions will reach $9.5 billion while global blockchain technology investments will reach $300 billion.
- Micropayments are expected to reach $13 billion over the next three years as cryptocurrencies gain greater acceptance.
- Decentralized payments technologies could transform the "business architecture" for money transfers.
- Blockchain could eventually cut costs for financial services such as credit cards, remittances and money transfers.
- Bitcoin technology could potentially be as disruptive as the internet itself.
- A system like this could transform the way people consume media online and enable content creators to receive payment directly on a pay-per-use basis.
- Brand equity in the industry will likely flow from partnerships with others in the ecosystem as banks play catch up with super-consumer brands such as Google and Apple.
- Reliance on third parties for noncore infrastructure and talent will be a common phenomenon as banks become increasingly connected via a complex network or web of vendors and third parties.
- The widespread use of bitcoin technology in finance could end up sucking deposits away from commercial banks and hitting lending in the real economy.
- The settlement technology behind digital currencies could become a parallel form of distributing funds and making financial transactions with the Bank acting as a backstop.
- The Bank of England (BoE) could become the hub of a bitcoin-style digital currency that side-lines high-street banks and cuts the costs of financial transactions.
- African banks could actually become pioneers in developing new financial technologies like the blockchain and bitcoin.
- The Open Banking API Standard could revolutionize how consumers manage their finances.
- Cryptocurrencies distributed through competitive mining involve no investment of money or potential loss of a "purchase" and provide limited opportunity for profit to developers.
- Bringing the option of receiving blockchain payments to Vietnamese merchants will dramatically improve the lack of trust and security which are swirling around legacy payment options like credit cards, PayPal and similar offerings.
- Hundreds of millions of users will be sending money on the internet as easily as they send chats.
Legal Ramifications
- Code will be the new financial law.
- A US court will tackle the issue of the application of the Fifth Amendment to bitcoin private keys in a case that undoubtedly will be closely watched.
- Bitcoin exchanges will have to comply with tougher anti-money laundering (AML) regulations.
- Regulators will benefit from an improved audit trail and will be able to see activity in the market in near real time.
- There seems to be a risk that virtual currencies may be used by terrorist organizations to conceal financial transactions.
- Decentralized cryptocurrencies like Bitcoin do not readily fit the definition of a security and do not present risks generally addressed by securities regulation.
- The IMF is worried about the fact that virtual currencies like bitcoin have potential risks that make money laundering, terrorist financing, tax evasion and fraud easier to execute.
- Users are not guaranteed anonymity and if they want to convert their bitcoins into pounds, dollars or euros then the exchange systems are expected to enforce relevant regulations regarding identity, money laundering and terrorist financing.
- Blockchain will help to nail money launderers and fraudsters through its distributed ledger and the historic traceability of funds.
Blockchain
- Blockchain will evolve from something banks are suspicious of to "the" disruptive technology that will totally transform the banking system.
- Blockchain-related savings could have pushed up the investment banking industry's 2015 return on equity, excluding exceptionals, to 10.4 percent.
- The current interest and investment in blockchain tech among financial firms will reveal its impact in just 12 to 18 months.
- Work on blockchain applications will benefit from an accelerating pace of overall tech adoption that will soon put pressure on existing legacy financial solutions.
- Blockchains could be a universal transaction system on an order never before imagined that could possibly be used to coordinate the whole of human and machine activity.
- Blockchain will do to corporate reporting and financial transactions what the internet did for knowledge.
- Business owners truly dedicated to cost reduction and functionality expansion will be imaginative enough to find ways to implement blockchain technology in their supply chains, payments processing and other processes.
- The use of distributed ledger technology will achieve better data efficiencies and improve transaction processing and settlement.
- Best practices for distributed ledger technology [for record keeping] will certainly emerge and create even more applications of the concept.
- Employee identity management for large multinational corporations or access to patient healthcare records could utilize blockchains to eliminate redundancies and false entries to the data and offer layered information access points to third parties without compromising information security.
- Blockchain could be the most significant social and political innovation to impact Africa in 100 years.
- McKinsey sees great promise in blockchain for capital markets but cautions that market participants, regulators and technology companies will have to cooperate in order to make it work.
Smart Contracts
- A digital will or testament can automatically trigger the contract execution in favor of a primary beneficiary.
- Highly shared smart contracts could be recognized as key infrastructure components and be formally owned and managed by some form of open software foundation (OSF).
- The technology behind the Bitcoin digital currency could usher in an era of 'smart contracts' and enable the creation of a tamper-proof Land Registry database.
- Carriers that are slow to integrate Internet of Things data sources into their underwriting and pricing models risk adverse selection which could put pressure on their margins.
- Expectations are that the new FLEX options will provide insurers with an alternative hedging method in an exchange-traded environment where transparency, price discovery, and centralized clearing are attractive differentiators.
- With increasing automation and faster clearing and settlement cycles, markets will become more efficient, and differentiation hard to find, but the role of human insight and strategic advice will become even more important in serving clients and building algorithms.
Distributed Autonomous Organizations (DAO)
- In financial markets, one clear application of blockchain technology is algorithmic trading and back office operations. High-frequency trading could be taken to the next level implemented in smart contract DACs (decentralized autonomous corporations) and executed by semiautonomous agents with the ability to act more quickly and better crawl information sources for price, news, and sentiment changes. Similarly, whole tiers of back-office operations like clearing currently handled by people-agents could be handled by blockchain-agents.
- Cryptographic ledgers could coordinate spot transactions (cryptocurrency) and t+n interactions with smart contracts and autonomous dapp (decentralized app), DAO, DAC (decentralized autonomous corporations).
- Citizens could make political decisions through transparent digital processes and interfaces set up around a DAO.
- Citizens could actually become shareholders in their local government.
- Autonomous agents, smart programs, and (later) increased levels of artificial intelligence and AI algorithms will provide self-sustainability in operations and value creation at the centers, edges and arteries of an organization.
- The idea of a rigid organization or corporation will evaporate and left will be the true essence of human interaction patterns.
- Markets and marketplaces created or maintained by decentralized autonomous organizations will not readily allow for government intervention. Forcing software developers to introduce a particular feature into the code will only work to the extent that the userbase actually agrees to switch to the new protocol.
Security Concerns (Quantum)
The extent to which the blockchain is secure is still being examined and debated, but nothing can be 100% secure especially when money is involved. One weakness that some researchers foresee is quantum computing.
- Quantum computing could be used in hashing.
- Quantum computing will create issues for cryptocurrency and cryptography in general that will need to be addressed going forward.
- The security of elliptic curve cryptography systems could be jeopardized due to the fact that a quantum computer could deduce the private key of an address if it knows the public key.
Figure 2 Fiat money has no more intrinsic value than virtual currency, and fiat money’s value is all the more abstruse now in the age of digital communications. The internet has distributed information beyond any centralized or decentralized silos such as libraries, and blockchain and related technologies promise to do the same for value. Whether the value refers to currency or votes—as a currency for the public sector—or some other form of value, the blockchain could make that value more transparent and more secure while engendering greater trust for any system or process to which it is applied.
Figure 2 - Text version
At the top, there is a picture of a lake in front of mountains and the text says “Bartering: the exchange of goods or services for other goods or services.”
The second row has text that says “Gold, silver, grain, livestock, shells” and it shows a picture of a cow.
The third row shows a hand holding an old coin with a hole in the middle and the text says “Coins made from varying degrees of valuable metal”.
The fourth row says “Paper and coins backed by gold or other commodities” and the image is that of piles of coloured paper money.
The fifth row shows several coins lines up like dominoes with the first coin toppling into the line. The text reads “Paper and coins with inherent value”.
The sixth row says “Plastic cards which transfer inherent value electronically” and the image is that of a hand holding a credit card.
The seventh row shows money flying in the air and text that says “Non-specific electronic devices which transfer inherent value with plastic card number”.
The eighth row says “Electronic devices that transfer inherent value without plastic cards” and it shows an image of a finger touching a screen like a smart phone.
The last row shows an image of a sparkly hand and text that says “Inherent value is guaranteed and automated, making it even less tangible”.
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