From left to right: Vinod Nair, Director of Payments and Product Management, CHANGE HEALTHCARE Arijit Das, Senior Vice President, NORTHERN TRUST Sushil Prabhu, CEO and Founder. OPENCROWD Danny Aranda, Senior Director, Xpring, RIPPLE
Numerous crypto-curious institutional banks gathered for Synchronize 2019, a crypto and blockchain technology-focused conference, last Wednesday in downtown Manhattan. The main topic of discussion concerned the question of when the institutional banking industry will embrace mass adoption of blockchain technology and crypto.
The Sentiment from OpenCrowd:
“I felt there was good, solid traction in moving towards real-world use cases in production environments. Audience members were asking for help with specific technology challenges across multiple platforms.” - Sushil Prabhu, Founder and CEO
“There was healthy skepticism among many participants, but after a lot of questions, they began to appreciate the advantages and integrity of products like Diamond Standard coins and bars.” - Shawn Traynor, Head of Solutions
“A lot of people realize they need help with implementing decentralized solutions because they have insufficient internal skills. Many people now understand that applying blockchain to core processes that they have invested in automating is not likely to succeed; additionally, they are getting better at identifying greenfield opportunities and broken processes where blockchain can be used” - Rajiv Sohal, Chief Architect
“It was encouraging to see so many folks from enterprise businesses, specifically financial services. Some were curious to learn how others are applying the technology. Some were interested in the disruption in the payment industry with the announcement of JPM Coin, as well as the rumored FaceBook Coin in the making. We felt there was a good mix of skeptics and believers who were looking for ways to improve internal biz process and create new businesses” - Brad Buck, VP of Strategy and Development Solutions
The biggest challenge facing farmers worldwide is not global warming, or the threat of crop failure, but the poor quality of capital available to them. Farmers face sustained financial pressure from poor capital terms, and the potential loss of livelihood has caused many to take their own lives. Now farmer suicide is a global crisis that is not limited to developing economies, and can be seen even in developed countries such as Australia, France, and the US.
The US farmer suicide crisis echoes a much larger farmer suicide crisis happening globally: “An Australian farmer dies by suicide every four days; in the UK, one farmer a week takes his or her own life; in France, one farmer dies by suicide every two days; in India, more than 270,000 farmers have died by suicide since 1995” - The Guardian
Governments must improve capital availability for the agricultural sector to address this crisis and to safeguard food production for a rapidly growing global population. But this has been difficult to achieve given the risks, inefficiencies, corruption, and politicization of the agricultural sector. Blockchain technology can address these challenges and enable decentralized capital models to give farmers access to fair and transparent capital.
Quality of Current Capital is Poor
Modern farming is capital intensive. Beyond the capital investment in farm machinery and equipment, farmers require working capital for each crop to procure consumables (such as seeds, fertilizers, and pesticides), and for irrigation. But given the high perceived risk, the quality of capital available to farmers is poor.
Farmers are often forced to borrow from unregulated money lenders on very poor terms. Interest rates can be as high as 40% and can drive farmers into perpetual debt traps. Even farmers that have access to capital from regulated lending institutions are required to provide personal guarantees and collateral. In either case, they often end up losing their farms.
It Has Been Difficult to Improve Capital Availability
Agricultural lending is different from lending in other sectors where risks and rewards are balanced. The risks in the agricultural sector are high, and often due to factors outside of human control. Price controls and market conditions limit any potential upside. And then there is the politics that drives short-term populist solutions such as loan waivers and subsidies.
Resources available to governments are limited and direct measures taken by them are not sustainable. Government efforts to rope in the private sector via bank mandates and public investment bonds have not had much success.
- Established lending institutions are reluctant participants given the inherent risks and politicization
- Speculative investors are dissuaded by the lack of any significant upside to counter the high risk
- Government-backed loans and schemes are inefficient, prone to corruption, and unsustainable
To improve capital availability in the agricultural sector, governments must look beyond traditional sources and attract new investors.
Is Decentralized Capital the Solution?
Blockchain offers transparency, fairness and verifiable accountability. Coupled with distributed ledger technology (DLT), it has proven to be very effective at raising decentralized capital via token offerings. This capital is highly efficient and inherently liquid. Investors are attracted by the liquidity and the transparency with which the underlying assets operate.
To enable decentralized capital for the agricultural sector, transparent processes and controls need to be put in place. While transparency will weed out fraud and corruption, the availability of accurate and verifiable performance data will help investors understand and manage risk.
Let’s re-imagine agricultural financing:
- Capital will be available to farmers not as loans, but as investments in their crop, funded from geography and crop-specific tokenized funds operating on public distributed ledgers
- Investment decisions will be based primarily on prior performance of the farm/farmer and crop projections; all performance data will be recorded on the blockchain and will inform future investment decisions
- The crop will be monitored regularly using ground sensors and drone-based imaging, with all data recorded immutably on the blockchain; this is a critical element as it will verify farmer performance, reduce risk by identifying problems early (underwatering, disease, …), and help mitigate fraud
- Availability of attested performance data and monitoring frameworkwill enable insurers to access risk effectively and make insurance readily available to farmers
- The transparency, reach, and liquidity of decentralized investments will attract new capital to the agricultural sector
Distributed-ledger based Capital Model for Agriculture
With irrefutable blockchain-based monitoring and reporting, it is possible to reduce risks and make agricultural investments lucrative. Structured as tokenized funds, they can attract a vast pool of new investors that are active in the decentralized economy thus improving capital availability to farmers.
“A fair financing model for the agricultural sector must account for the fact that most risks are beyond human control. By treating farm capital as investments instead of loans, the pressure on farmers is greatly reduced. This allows them to focus on maximizing production and safeguards their long-term livelihood.” -Raman Saluja, Founder@Gramco.in
A More Sustainable Capital Model
In most countries around the world, agricultural financing requires government support. This support can come in the form of subsidies, loan guarantees or direct assistance.
But government support is not sustainable. Financial resources are limited, and burdened with inefficiencies and corruption. Furthermore, the agricultural sector urgently requires additional capital to brace against global warming as well as to increase output for a rapidly growing population.
A decentralized capital model can attract fresh investment to the agricultural sector, make capital support more efficient, and reduce the burden on governments.
As Blockchain continues its rise to widespread mainstream adoption, new use cases will continue to arise and spark innovative development. As a Blockchain solutions firm, we get asked almost daily if Blockchain can be used as a regular data store similar to SQL and other common relational database management systems. Almost always our response comes down to the following description of what Blockchain has to offer and how it should be leveraged for specific use cases. As time goes on and increases are made to the scale and transaction speed at which the Blockchain can operate, the use cases for Blockchain will expand into many new fields and scenarios.
“Blockchain” is a general term used to describe a set of capabilities offered by platforms that promote the concept of decentralization. Typically, SQL, No-SQL, in-memory database, and other similar systems are based on the concept of providing a reliable and single central repository of information. These are data stores where the end users have complete trust in the authority that manages the central system. Alternatively, Blockchain is built to offer digital trust across different entities in order to facilitate trustless transactions across these entities.
Blockchain consists of data that is automatically replicated across a network of nodes (in some cases thousands of nodes). The data is stored across the nodes in such a fashion that it is tamper-proof by design. Data is structured cryptographically so that tampering with data in any node invalidates the node while maintaining integrity of data across the network. These platforms also ensure that data is stored in sequence after consensus was reached across different nodes, thus making it an ideal distributed ledger across various parties. Some blockchains even ensure that data is stored in the exact sequence it was received, enabling some very interesting timestamp-sensitive use cases (more on this in our next blog). Each transaction is validated using public-private keys to ensure that the data was sent and received by the right parties. Additionally, these platforms offer the ability to execute code, called smart contracts, on each node based on the occurrence of specific external events or data triggers. Properties such as immutability, reliable replication, secure data sequencing, and smart contracts ensure digital trust across trustless parties.
Blockchain-based data storage is ideal in scenarios where multiple firms or third parties are collectively engaged in transactions and want to conduct business without a intermediary. Some example scenarios where this technology can be utilized include supply chain systems keeping track of goods across different suppliers in the chain, settlement across different entities in a real estate transaction, and trade financing. In these networks, a digital token is often used as compensation for participants to incentivize or reward them, as well as to discourage poor performance or behavior. Within enterprises, the inherent audit trail capabilities of these platforms make them a good candidate to solve compliance issues involving keeping track of document flow across different groups, as well as reconciliation of data across various internal and external parties.
At this point, initiatives around the world are in progress to store human identity, enable micropayments, digitize illiquid assets, and fulfill numerous other use cases utilizing Blockchain. These large scale deployments could potentially make Blockchain-based applications more mainstream in the next few years. However, it is important to keep in mind that even when Blockchain reaches a high level of adoption, decentralization should be one of the core requirements of the use case in question.
Given the state of the current crypto winter, many of us have seen and heard about a large amount of negative sentiments regarding blockchain and its potential to be a truly game-changing technology.
1. New guidelines from the SEC and other regulatory bodies will assist the growth & adoption of both blockchain and crypto asset trading.
The SEC has become increasingly more vocal across the community on expressing their point of view. Multiple companies continue to lobby the SEC for a bitcoin exchange-traded fund (ETF) with serious backing from industry powerhouses like the NYSE.
2. There will be a substantial increase in the blockchain transaction speed, which will inspire the development of real life, end-user applications aimed for daily use.
Transaction speed, cost, and scale have all been major hurdles in both enterprise and general mass scale adoption of this technology. The tech community has been working on several platforms, including Hedera Hashgraph, EOS, and others to solve these issues. We expect the capabilities of these platforms to be extremely helpful for building real world applications in 2019.
3. The security token market will gain traction, with tokens being traded on the market for accredited investors that will eventually provide enhanced liquidity.
A lot was written and discussed on security tokens and liquidity in 2018. As platforms like Securrency and Polymath launch ready-to-use capabilities like KYC, token creation, integration to exchanges, and more, the concept of security token and its benefits will finally be realized. We see 2019 as the year of the STO.
4. The need for inter-ledger communication will reach a critical stage, forcing many to build access standards across ledgers.
As a blockchain development firm, more of our applications (DAPPs) now have a need to have a presence in multiple ledgers. Teams are creating quick solutions to solve this issue. This need is becoming common enough for more interledger communication utilities and products to be launched.
5. The usage of compute-heavy proof of work-based logic will continue to be the consensus protocol of the past.
Almost every new blockchain or distributed ledger platform either has some combination of proof of stake and other consensus logic to build consensus. For example, the alternative blockchain Hedera Hashgraph utilizes an innovative gossip protocol to build consensus. We expect Proof-of-work protocol to be primarily used in Bitcoin as it has in the past.
