December 6, 2017
Guest blog post by Jennifer Baker, reporting from the SWITCH, the largest, open and free ICT and entrepreneurship event in the Baltic region.
Blockchain could make Lithuania the world’s newest fintech hub says MEP Antanas Guoga, but while the potential is there, it won’t happen without great efforts in promoting the technology, education, and some deregulation.
Trust, trust, and more trust!
That’s the solution, hurdle, and potential that blockchain offers.
Experts gathered to discuss blockchain and cryptocurrencies at SWITCH in Kaunas in September. The conference is the largest open ICT and entrepreneurship event in the Baltic region and was taking place for the third year. SWITCH was founded by MEP Antanas Guoga and brings together experience and knowledge from Lithuania, the Baltics and Europe as a whole.
Society leaders, start-up creators, business and political representatives as well as students gathered to tackle many topics, but in particular Fintech and its possibilities. The consensus that emerged was that blockchain is truly revolutionary, particularly in terms of trust, that the financial sector is not the only one affected and that other technologies will play a big part in realising blockchain’s potential.
First, the solution.
What is blockchain and what does it do? Marius Jurgilas, Member of the Board of the Bank of Lithuania and former economist for the Bank of England explained that blockchain is a “trust-building mechanism.”
“If I trust you, we don’t need to settle. There’s no role for money, there’s no role for banking, and there’s no real finance. We trust each other. I’ll pay you later. You take that promise and give it to someone else. So, maybe we trust each other, but our trust is not transferable. Blockchain allows to do that, to transfer the trust,” he explained.
But what exactly makes blockchain so trustworthy? Jeff McDonald, Vice President of NEM.io Foundation, a nonprofit that works to promote the work of the NEM platform, a blockchain network explained: “Blockchain trusts that we can trust math, science, and computer code. And it is these things that tell us who is right and who is wrong.”
“It’s not exactly what the blockchain can do that makes it powerful. It’s what it cannot do. It solves a problem we call double spending. This has been a problem in the digital world. If I have a digital picture of me, I can send it to my friend and then I can send it again to another friend. I can send copies of digital files to as many people as I want. But, the blockchain has changed that. If you have money on the blockchain you can only send it to one person. It is a piece of digital information that only one person at a time can own and hold. That’s what makes it revolutionary.”
“It’s a database, but it is a database everyone can access,” continued McDonald. “Whenever you use your bank, they have a database for keeping track of the transaction. But you can’t access your bank’s database, because it’s not for you, it’s only for them. The blockchain is a database that everyone can access. I can see that my friend Alice sent money to Bob. You can see that Alice sent money to Bob. Bob can see that Alice sent money to him and so on. They can see that we can see. We can see that they can see. And we all agree. It is a social agreement.”
“Because it has an accurate history of everything that has ever happened, it solves the problem of trust,” he concluded.
The second ‘trust’ is a stumbling block to be overcome.
The majority of people have a knee-jerk reaction to distrust technology – particularly when it comes to something as fundamental as money. The cryptology behind the blockchain was developed 20 years ago, but it is only now that fintech startups are gaining traction. Partly this is because the public is learning to trust new systems, partly because regulators and lawmakers are taking an interest, but also because of the efficiency and flexibility cryptocurrencies can offer.
“Because the new technology was embraced and is able to provide financial services without borders,” argues Jurgilas. “All of a sudden you can be located in China and you can onboard customers in Europe. That’s eating into our market. It’s about competition, about competitive edge. We don’t want to lose jobs. We don’t want to lose competitive edge. For me FinTech is an opportunity and edge.”
“The application of this technology can empower citizens to enjoy transparent, secure, smart and much faster governance because of technology’s properties like decentralisation, consensus without any central authorities and the third parties. Blockchain is changing the core of coding, storing data, and financial systems,” agrees Guoga.
We often think that technology is unsafe, but very often it is the human element that is the weakest link in the chain. Technologies like blockchain can compensate from people’s weaknesses or untrustworthiness.
And finally the opportunities? Well they are endless.
It’s the confluence of technologies coming together at a certain moment of maturity. Gediminas Misevi?ius, IT department manager at Swedbank explained: “It’s about infrastructure change. Blockchain is one of the biggest game changers. Another is artificial intelligence. Blockchain is actually kind of data on network. Artificial intelligence is intended, not to replace server rooms like blockchain, but to replace or augment human and process transactions.”
Because blockchain is an open and auditable ledger, we can use it to secure trust in just about anything – in financing, holding assets, healthcare records, smart certificates, verification of products – so no more fake handbags – and even election and voting records.
“This technology challenges some of the main modern state functions offering new ways for person’s identification and issuing money,” adds Guoga. “We should address both challenges and threats of the technology. I support the European Commission’s intention not to stop the development of the innovations by over-regulating it and to focus on enablement of the technology by supporting distributed ledger-based projects, setting up cooperation frameworks, piloting initiatives, and educating. Currently the biggest value I see, is in applying blockchain into traditional banking services. It’s a huge leap forward and a huge opportunity.”Guest contributor