Paul Schulte, founder of Schulte Research, shares with us the reflections on how the blockchain will revolutionize all the main sectors of the financial system
Paul Schulte will be a keynote speaker at the next Global Payment Summit (GPS), an international event designed to provide professionals and payment consultants and transactions from all over the world with a unique, networked and educational experience. Delegates will learn directly from industry experts and peers on the latest reflections and developments in the "transaction space".
"The unstoppable strength of the blockchain is enveloping the consolidated, regulated and ossified infrastructure of modern finance, and their collision will shape the financial landscape for decades to come".
– Don Tapscott, Blockchain Revolution
Tsunamis are moved by earthquakes. And the tsunami that is blockchain was certainly caused by a tremendous earthquake: the GFC. The tremor of the GFC has revealed massive fraud, collusion and misdeeds throughout the Western financial system: banks, brokers, rating agencies and regulators. And nobody went to jail. So, it is not surprising that bitcoin was born on November 4, 2008, at the crescendo of the market crash. Since then, the practical manifestation of the blockchain – which is bitcoin – has gone from a value exactly equal to zero to 120 billion dollars today, even after a spectacular fall from grace. Then we have ethereum, bloc.one, Telegram and over 4,000 ICO worth tens of billions. This evolution was really a big bang born from the big financial focus that was the GFC.
Think of bitcoins as we do with email. It is a new vital invention. And it has a value. It's hard to really put your finger on the precise value of each ICO. The really important part of this phenomenon, however, is the underlying delivery system of the blockchain. We think of blockchain as HTTP, the ubiquitous protocol that drives all email traffic. It is the new application of a teenage technology that is making rapid progress in all the major sectors of the financial system.
One development fintech after another continues to descend at a surprising speed and I always hear the same things: "Why did it take so long to develop it?" "Because it took so long to make us account that the couples make their banking operations at night when the banks are closed? "" Because we should not be able to stop a taxi on a smartphone without having to wait 10 minutes for a taxi dispatcher to find a taxi and wait for a taxi? "" Why did it take so long before banks got rid of paper? "And so on. I believe that blockchain will make these questions ubiquitous throughout the financial system in a few years. Let's take a few examples.
The chart above shows what the blockchain is and how it threatens all forms of funding as we know them. I call it BlockClock. The hours 12 to 3 concern the accountants. In a few years, we will ask: "Why did we spend 4 months on a controlled report to understand the health of a company?" Blockchain will make an audit a "live" event. It will be the responsibility of the board of directors. It will be immutable, so there is a very public record of decisions – marked by time. It will be a live track record for everyone to see in real life: traceable, alive, immutable. What will be the role of the accountant if the community carries out these activities on their behalf? Accounting companies are trying to keep control of their fiefdom when they should find ways to make the blockchain as large as possible in order to include as many people as possible and earn from a huge community. Nothing will come from trying to have a "private" blockchain for every accounting firm. It's like getting on the second story of a building when there's a 30-foot tsunami along the way. It could provide a bit of psychological relief, but it is actually self-delusion. Advice? The blockchain is a LIVING AUDIT. Accounting companies are currently conducting an audit that is DOA. Think a lot bigger.
In our clock above, the hours 3 to 6 are about the area of u200b u200bthe innovation. Blockchain has the ability to set standards and offer precedents. In this process, it can act to digitize physical resources. It is the fundamental element for the digitization of physical resources in electronic marketable units. In essence, it offers identity and origin to physical goods. And this combination transforms these resources into negotiable guarantees. (This exchangeable guarantee is a token of tradable value, which should not be confused with the tokens of any doubt Tom, Dick and Harry ICO). This is true digital banking. It can be done without a bank and without all the burdensome identity documents that banks force us to endure. Finally, from this emerges something that is vital and that changes the game world. Nodes (tokens) that are a concerted representation of physical assets (and thus transform the ID and provenance into insured property) are a "third" part of the budget. These nodes represent both the physical representation of the assets (stocks) and the financial representations of the assets (loans) and can therefore be considered a triple entry dynamic. This has profound implications for banks, since any blockchain entity can theoretically withdraw the working capital from a bank. And it can also do a much better job on quantifying risks when it comes to securing physical resources. Accustomed to triple the registration of entries.
This brings us to the bottom of the now with our block. The hours from 6 to 9 concern insurance. Basically, this speaks of the question of openness. Blockchain can connect a whole set of physical resources that were structurally disconnected up to now. Examples of this range range from a series of test results to a person, which lie everywhere on a range of hospitals with disconnected data sources. Zhong An and Ping An are pioneers in this attempt to use the blockchain to integrate hospitals, clinics and pharmacies into the healing path of every individual, from the clinic to the postoperative. Blockchain is also promising to improve the integrity of health information systems, which is a hot topic given the increase in the hacking of national databases. Finally, the world of blockchain is very useful in the insurance of physical resources because we will soon have an explosion of sensor data (the price of sensors has collapsed) on the physical activity to which it is necessary to give a representation digital so they can be sorted and understood Only a small amount of physical data has a sensor and only a small portion of this sensor data is analyzed. Insurance companies must get on with this program ready. This physical data includes our biometrics, oil platforms, factories, ships, cars and more.
Finally, the period from 9 to 12 on this watch is for the characteristic of the blockchain that offers efficiency. This applies to many historical cartels that have become lazy and inefficient. It speaks of many of the questions we have about legacy systems that have not been updated for decades. "Why does it take another three days to adjust a title?" "And more than 20 days to fully settle the financial transaction around a stock from the beginning to the end?" "Why is the world tied to SWIFT and why is it considered anathema also to ask this question?" "Why do these inefficient entities get a cut on all bond and equity transactions in the custody process?" Brokers are in trouble here while the blockchain it enters and can radically reduce costs and also increase efficiency.
In conclusion, I read the enchanting book Blockchain Revolution (Tapscott) in some sessions and was hypnotized by his theme that the revolution we see before us is a desire to get away from the rooted cartels. I never thought about it, but every part of the financial system in the West is a sign of dubious quality and character. Three companies control ratings. Four banks control the retail and corporate banking system in the United States. Three banks control investment banking. Two banks control settlement and compensation. Five companies control most of the asset management. And the decisions of the few banks that control SWIFT can create or destroy a country overnight. Blockchain is a way to escape high costs, suffocating inefficiency, problematic personal interest, endemic corruption, the elitist loan and the political lining of the current financial system. Since blockchain is practically free, inclusive, standardized, decentralized and offers new forms of provenance and guarantee, I believe that blockchain can only grow and spread. The incumbent must stop fighting a rearguard action to protect the cartels and start looking for ways to integrate the blockchain into their models. There is no third way.
About Paul Schulte
Paul Schulte is the founder of Schulte Research, founded in 2012 in search of financial institutions and financial technology. He spent 3 decades in financial research. He has worked for all three branches of the US government, including the NCI at the White House. He currently teaches in 3 universities, has written 3 books and written hundreds of articles. He has worked for the number 1 investment bank in the United States, United Kingdom, Japan, China and Switzerland since 1990. He has taught on 4 continents. Its goal is technological change in banks and insurance companies. He was a source for WSJ, NYT, Bloomberg, Nikkei, FT, Economist, Barron and Forbes. His clients include some of the largest sovereign wealth funds, pensions, mortgages and hedges globally.