Blockchain: Analyzing the Present and Looking into the Future

Over the past year, the value of one Bitcoin jumped from $3,717 at the beginning of 2019 ending the year with a peak of  $7,580 in December. Remarkably, blockchain technology has come so far from the early Bitcoin mining days. In fact, Forbes recently released its fifth annual Fintech 50 list, highlighting some of the most innovative companies. Many of the companies making the list this year are involved with cryptocurrency and blockchain technology.

Blockchain Background

A blockchain is an encrypted, electronically distributed list of records. By design, a blockchain ledger is intended to be permanent, since you cannot easily modify individual blocks on the sequential chain. Blockchain benefits include transparency, improved data sharing for partnerships across organizations, and increased identity protection. Keep in mind though that it’s essential to safeguard your private key if you use a blockchain since anyone with access to your key can transact and/or access your data. 

Please note that cryptocurrency is only one of many potential blockchain applications. For instance, software developers, artists, and others who hold intellectual property can digitally sign their work and create a hash. The hash, stored on a blockchain ledger, creates a transparent record of the date and time the work was created. Another example is the use of blockchain to maintain health records, since access to healthcare data needs to be carefully monitored and controlled.

Despite the promise of the blockchain, it’s important to keep in mind that core business processes and systems might need modification in order to take advantage of the new technology. Such changes can be risky for a business's operations. Therefore, as reported by ZDNet, research firm Gartner predicted that a decade or more would come to pass for the Blockchain to "become significant in business transactions."

Blockchain and Crypto Tech Make the Fintech 50 2020 List

New to the Forbes Fintech 50 list this year is New York-based decentralized finance platform MakerDAO, earning $10 million USD in interest from loans that utilized cryptocurrency as collateral. Another newcomer is Everledger, a London-based blockchain startup tracking 900,000 carats worth of diamonds.

One returning project from last year is New York-based Trade Information Warehouse by Axoni. The firm's new equity swaps platform boasts Citigroup and Goldman Sachs as early adopters. Also back on the list is Ripple, a San Francisco-based payments firm whose XRP cryptocurrency is now utilized in 10% of Moneygram transactions from the U.S. to Mexico. San Francisco-based Coinbase, another repeat company holding $8 billion USD for 200 institutions, runs a crypto exchange that complies with government regulation and offers new currencies.

Finally, Chainalysis, a New York-based firm with tools to investigate crimes and regulatory breaches on the blockchain, earned $8 million USD in revenue and became the first cryptocurrency company to make it onto the Forbes Next Billion-Dollar Startups list. The company is back on this year’s Fintech 50 list after being off of it for a while.

Big Names Invest in the Future of the Blockchain 

Entrepreneur, futurist, and prolific author Joel Comm wrote about the blockchain’s future for Forbes Coaches Council. The article pointed out that Google, Deloitte, Goldman Sachs, and Visa are all investing in the technology, along with Sequoia Capital, Peter Thiel, and Andreessen Horowitz. As for specific projects, Spotify is looking into blockchain-based copyright management tools, IBM is developing a blockchain-based tracking tool for retailers and shippers, and Eastman Kodak is putting stock photo repositories on the blockchain. In the financial sector is JPMorgan’s blockchain program, along with Barclays’ Accelerator, which funds and houses several blockchain-based fintech companies.

Blockchain Predictions

As reported by ZDNet, IDC's Worldwide Semiannual Blockchain Spending Guide forecasted 2019 blockchain spending to be $2.7 billion USD, an 80% increase over 2018 spending. By 2023, IDC anticipates $15.9 billion USD in blockchain spending. Furthermore, IDC predicted that the banking sector would spend the most on blockchain technology worldwide from 2018-2023, followed by discrete and process manufacturing.

Raising Money for a Blockchain Startup

Blockchain startups and other capital raisers must follow certain government regulations. For example, issuers seeking an exemption from the Securities and Exchange Commission (SEC) registration requirements can utilize Rule 506(c) of Regulation D of the Securities Act. Although this rule allows general solicitation by issuers, it restricts all sales to accredited investors only. Using VerifyInvestor.com, a third-party investor verification service provider, issuers are able to “take reasonable steps” to verify accredited investors, as required by Rule 506(c).

Updated 6/19/2023

Blockchain technology has made significant inroads in the finance industry and is being embraced by banks, insurance companies, and other financial institutions. The technology is increasingly being used to streamline processes and reduce costs, while also increasing transparency and security. One of the most significant applications of blockchain technology in finance is in payment systems, where it enables real-time transactions that are secure, transparent, and traceable. This has the potential to revolutionize the payment industry by reducing settlement times, lowering transaction fees, and improving the overall efficiency of the payment ecosystem. Blockchain technology is also being used to create digital identities, which can be used to verify and authenticate transactions, thus increasing security and reducing fraud.

Another area where blockchain technology is making significant strides is in trade finance. The technology is being used to automate the trade finance process, from the issuance of letters of credit to the final settlement of transactions. This has the potential to reduce the time and cost involved in the trade finance process, while also increasing transparency and reducing the risk of fraud. Furthermore, blockchain technology is being used to create decentralized marketplaces, where buyers and sellers can transact without the need for intermediaries, thus reducing transaction costs and increasing efficiency. Indeed many blockchain-oriented companies prefer private equity and utilize exemptions such as Rule 506(c) and Rule 506(b) to stay compliant with government regulations. This is especially important as the government increases its oversight of crypto after some of the controversies of 2022 such as FTX.

One example of company that has utilized blockchain effectively in the finance space is  tZERO, itself a portfolio company of Intercontinental Exchange (who owns the NYSE). tZERO provides primary issuance and secondary trading technology and broker-dealer services. Overall, blockchain technology has the potential to transform the finance industry by increasing efficiency, reducing costs, and improving transparency and security.