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Blockchain / Breaking News

Tendencies In The Implementation Of Blockchain Based Projects PT.1.: Blockchain

ABSTRACT: The popularity of blockchain-based technology is rapidly growing these days with more companies, startups and governmental organizations turning their attention to it with the aim to increase their attractiveness in the eyes of investors or to improve security. However, there is a number of problematic aspects that are not being mentioned in the public discourse. Ivan Alexandrov, the CEO of Memorandum Capital, an investment company focused on ICOs and investing in blockchain-based assets, discusses both sides of the coin of the implementation of blockchain based on his personal experience.

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Every entrepreneur should assess innovations objectively, and blockchain is not an exception: the hype around this technology sometimes stands on the way of realizing that the majority of projects in the world could be implemented without blockchain a.k.a. distributed ledger. Firstly, this way of storing the data is energy consuming, and secondly, in case of security breach the company may suffer from reputational and financial costs. Therefore, in order to implement a decentralized way of data storage, the company needs more qualified professionals (as opposed to the development of standardized platforms), and this will not always be paid off.

Moreover, there could be a scaling problem, as seen in case of Ethereum: when the amount of utility tokens has overwhelmed blockchain, miners with less powerful devises started to face problems with synchronization and storage.

There are other risks too: when financial blockchain platforms are concerned, such factor as irrevocability of proceeded transactions plays a major role. This factor, together with the “double spend” issue, creates opportunities for fraudulent schemes.

Legal complications during the implementation of blockchain are seen as another drawback. However, it should also be mentioned that the process of innovation acceptance is after all slowly improving, for instance, the Chinese court of Hangzhou has recently issued the statement, according to which evidence verified through the use of blockchain was found legitimate. This blockchain-based evidence can become an alternative to conventional notary certifications. Despite that, blockchain cannot be limited to its drawbacks; on contrary, they are outweighed by the benefits.

Hence, the deployment of blockchain technology in judicial proceedings is only possible because it allows creating verified elements of the system, excluding the possibility to falsify the sources and information carriers, as well as to target them with extrajudicial, potestary and brutal methods. These qualities also increase the transparency, creating anonymity for the participants of the system and decreasing bureaucracy and manual data processing.

It should be mentioned that the mere fact of deploying blockchain does not necessarily mean that the company’s platform would automatically become fully decentralized and independent. Blockchain can still be used as a marketing trick to make a startup attractive; however, the important fact is that it creates opportunities for systems of such decentralized nature to exist. There is a direct correlation between viability of blockchain systems and startups and organizational values as transparency, anonymity, security, and accessibility. They, in return, depend on organization’s profile, what can equally be applied to businesses and both governmental and corporate management, as seen on the example of the first blockchain-based election held in Zug, Switzerland, on June 25–July 1.

The Swiss elections set an example of how blockchain technology can be used both in data storage and processing. The software was developed by the Lucerne University of Applied Sciences and Arts. Luxsoft, the company that developed the software, made it available to the public on the open-source platform. Vasiliy Suvorov, managing director of Luxsoft, said that it was unacceptable to allow only one company to possess the access to the software when the public interest was at stake.

Another example is using blockchain-technology in insurance industry. Transnational providers like General Reinsurance Corporation, Hannover Re, as well as national China Re, signed the contract with ZhongAn Technology for the development of blockchain-system.  The system would solve the problem of informational imbalance caused by the lack of synchronized data transmission due to low speed connection and excessive amount of third-party providers. Also, it should improve transparency and effectiveness of the relationship between industry elements. Meanwhile, instant data transmission remains one of the main benefits of blockchain technology.

Blockchain is often used to increase enterprise capitalization, despite the fact that it should be seen as technology that aims at the creation of unique systems for the society in the first place.

Implementation of blockchain technology  can both directly and indirectly affect the financial situation of the organization.

Firstly, tokens issued with the use of such technology could be considered as a financial instrument, allowing to directly increase both the enterprise capitalization and reputation among traditional investors, if the token sale was held successfully. Even in case of unsuccessful placement, the hype could potentially increase enterprise capitalization, as seen on the example of Kodak’s ICO and announcement of KodakOne blockchain-platform that led to the increase of the price of company’s shares on 40 per cent.

Secondly, successful implementation of blockchain as effective technology to provide services and products makes the company more efficient, decreasing transactional costs and ensuring good quality protection of the information. This, in return, increases competitiveness of the business, attracting more investors. Undoubtedly, it can only be observed when benefits from the implementation of blockchain technology outweigh the drawbacks. Mastercard has recently applied for a patent for a system of private blockchain creation. It stores confidential keys linked to participants’ profiles and encrypts and decrypts data before transmitting or discharging it to public blockchain.

Tokens’ emission is only one of the ways to attract investment after implementation of blockchain-technology: capitalization increase should not be limited to token sale; it is crucial to understand that blockchain is much more than an excuse to enter the investment market or a panacea for the increase of enterprise capitalization. It is a fully-fledged phenomenon embedded in all the aspects of social life.


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