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Blockchain Generates Financial Paradigm Shift, Helps Globally Unbanked Gain Control of Finances, Identities, Records

On Friday 10th of April, I “attended” Coinstructors’ “Mind the Gap” cryptocurrency and blockchain tech virtual conference. It was 9:40 pm on Hong Kong’s Friday night, and I thought I’d burned out quickly.

Nonetheless, the event offered a content-rich schedule of 12 presentations. The most compeling presentations were held early on – one from Wall Street veteran Brian Kelly and another involving Kelly and a panel that included representatives from 44Phones, Manx Telecom, and crypto sector consultancy Coinstructors.

Blockchain Tech Brings Paradigm Shift

Brian Kelly is a 20 year Wall Street veteran who is an excellent proponent for the cryptocurrency space. He was articulate, concise, and clear in his presentation.

Kelly discussed the financial sector paradigm shift that blockchain technology brings with it and the digital currency space investment opportunities in the next 12 to 18 months.

First off, Kelly described how the coming of the Internet boom when he first got to Wall Street in the 1990’s was similar to the current revolution going on with cryptocurrency and blockchain technology.

This type of cryptocurrency digital currency boom on Wall Street for me is just a fantastic opportunity. This year – 2015 – is really the year of big opportunity for investing… if you want to be some of the first people in on the investment field.

However, Kelly believes it is now time to stop talking about currency and instead how the blockchain technology is a revolution.

The one thing that people do – it is all of us in the digital currency community – it is one thing I am trying to change… We are talking about a currency. And when it comes to Wall Street folks and when it comes to financial folks… they get scared. They get a little uncomfortable that you are talking about a currency because that has lots of government implications. As it shifts from currency to digital asset to digital token, that’s when Wall Street is going start seeing what is going on. It’s just the beginning.

 The Blockchain is one of the most important innovations in the history of finance. Removing the middleman will transform how we transact, finance projects, and distribute capital.

Kelly’s view is that the blockchain is going revolutionize the entire financial landscape by changing the way people transact and the way ventures raise money.

This is how I am describing the blockchain and this revolutionary technology… It is going to transform the way we transact. We now know that transacting is now free. It’s going to transform the way we finance projects.

As an example, Kelly refered to how Factom, the blockchain based data application platform, has been raising money through a software crowdsale. The project has raised over $3 million since it started the crowdsale on the 31st of March. This was done with probably little to no money, without an investment bank, accountant, lawyers, or the huge investment that a venture needs to make to raise venture capital or list on a stock exchange.

Before you had to have an auditor, you had to have an accountant come in. You had to have all these people in place to make sure the audit trail was correct. Well with something like Factom you can do that virtually for free

It was pretty frictionless. For me that’s very very fascinating. That is how we are going to finance projects in the future.

Kelly said that the key to understanding the paradigm shift of the blockchain tech is to look beyond the currency.

In terms of investing, there is a real informational advantage if you can get your mind beyond the currency.

You and I and everybody who understands that have a real advantage over the rest of the world as they are just getting up to speed for what this is… and they will have that aha moment that this is more than a currency.

By looking beyond the currency, investors can thus see the potential updside in both the blockchain tech infrastructure and disruptive applications.

bk fund overview

Beyond just investing in the tokens, there is also an opportunity to invest in a great deal of the blockchain tech infrastructure, as Kelly notes. In 2014, there was more than US$330 million invested in infrastructure ventures. The cryptocurrency space has had its share of shutdowns, like most recently Buttercoin, but to Kelly this is just part of the weeding out process.

There is only so much capacity that is needed at this point and time. And you will see some of these companies be weeded out. Which actually opens the door for investors to get it on series A and series B investments that are vetted, that are already producing positive returns, already producing cashflow. That are the foundation of the new financial system. You have the opportunity over the next year to get involved in the next JP Morgan, to get involved in the next Bank of America… or the next New York Stock Exchange.

With tokenization, there is also going to be a great opportunity to invest in the coming killer apps of blockchain technology. Kelly believes that the use cases of killer apps will bring a log of capital and investment into the sector in the next 12 to 18 momths.

For a couple years, there an almost one to one relationship. That says that everyone was on boarding into bitcoin. That of course broke down and we have this fall in the price of bitcoin. I would suspect that as new use cases come on that correlation comes back together again.

But more importantly take this idea and put that to some of the new tokens that are coming out. As people are on boarding, getting into the system, there is a huge opportunity for investors to ride that wave. In terms of digitized tokens, that’s the real opportunity over the next 12-18 months.

Kelly explained that it will take 12-18 months because it takes time for the tokens to be development, vetted and put into a crowdsale.

Kelly is upbeat about the cryptocurrency sector and about the paradigm shift it will generate that he wrote a book called “The Bitcoin Big Bang”.

Brian Kelly’s Presentation

Blockchain-Based Mobile Money Systems and Asset Tokenisation

The panel discussed how blockchain technology will become important in emerging markets, particularly Africa, as a means to bring mobile money systems to unbanked populaces and to utilize asset tokenization to monetize untapped mineral resources.

Nick Grove of 44 Phones began by explaining how traditional mobile networks combined with blockchain technology will help bring such money systems to the large rural populations in the developing world, who currently cannot get banking services.

Grove said:

The traditional mobile networks have the greater reach. In the UK and the States, we are very lucky in terms of the connectivity we have…. If you look at where mobile money has the greatest traction, it is in those growing economies.

It’s in those emerging economies where there are a lot of unbanked, there is a lot of rural areas, and they don’t have access to maybe Internet or smartphones or applications. Therefore, there is a need to breach that gap lets say… in terms of being able to bring mobile money services which can connect everybody globally. I think that is one of the big benefits of digital currency, of blockchain revolution, and where the opportunities lie going forward.

In developing markets, the significant problems with the financial sectors is dealing with the corruption and the fact that so people in rural areas do not have communications or Internet connectivity.

Coinstructors’ co-founder and experienced Africa-hand Lee Grant noted:

There’s actually very big populations that don’t have any services. But when you come into the corruption side with the governments there is not traceability even in the actual banks within Africa.

Grant indicated how even the World Bank loses enormous amounts of money in Africa because of the corruption and the lack of traceability.

The African Development Bank will fund a local bank. That local bank is going to fund a construction company, which has a few thousand workers. And those few thousands workers can go on strike because they have not been paid or there being shortly paid. There is no way to actually check the whole loop. Because when it goes from one bank a piece get missing. When it goes to the next bank it gets missing. So when it gets to the company, money gets missing. And because these people are unbanked, it is just a little signature on a piece of paper with cash handed in. So there is no way to trace if they’re being paid.

The solution that Coinstructors recommended and 44Phones is offering is to take the blockchain and merge with mobile money service over traditional mobile networks. This links a digital currency wallet ID to a phone number. Grant explained:

By using the telcos, you actually able to connect to a digital currency wallet, its ID, the phone nnumber, do their KYC AML… you do it correctly on the setup like we did it for 44 Phones, even if you take the SIM card out of the phone and you stick it into a different handset, it sends up a red flag.

So it means that your whole account, your communications, your identity,  your public records, it is all stored and hashed onto the blockchain. …It is actually creating more than one solution. So, you are creating a financial solution, you are mitigating fraud, and your enabling people to be paid directly.

Such a system will give more control over finances, salary and information of millions. They use AML [anti-money laundering] and KYC [Know Your Customer] capabilities of existing financial systems to mitigate against fraud. Moreover, nobody has to own bitcoin or some other cryptocurrency.

Grant noted:

It does not have to be a cryptocurrency, a bitcoin, NXT…. They can actually use the blockchain, create a colored coin which is one dollar – they are backing the money in their bank, but they now have the traceability to make sure it is getting to that end-user. That end-user has most probably has a phone number. The one thing most people do have is a phone number.

Asset Tokenization
The panel also discussed Tokenization of assets or asset-backed tokens. In panel discussion, the participants mostly discussed how this could be useful in the developing world, which they believe could be more useful than basing a currency on “vaporware” which is the case of most cryptocurrencies. Most intriguing, they discussed how tokens could be backed by assets that were still in the ground, such as unmined minerals.

Nick Grove indicated that an asset used in tokenization would have to be something with intrinsic value.

Lee Grant is apparently already involved in consulting countries on tokenization of unmined assets. Brian Kelly, the moderator, asked him how people are given assurances that the coin that they buy is backed by an asset in the ground and how it can be monetized.

Grant responded that Coinstructors has been advising several countries on this issue.

That is one of the reasons we did the contribution to the UK Treasury on behalf of 44 Phones because it is the same thing as a central bank issuing its own currency. So, when it comes down to minerals in the ground, you’ve got the same argument with gold meant to being in a bullion reserve. So, if we look at Fort Knox, nobody actually knows how much gold is in Fort Knox. You’re having to trust what they say.

With modern satellite technology, governments and those with mineral rights can get accurate geological reports on the amounts of mineral reserves that are still under the ground and unmined. These reserves can be used to back tokens.

According to Grant, Coinstructors is working with one country, at the central bank and vice president level, that they are advising tokenization of one of the largest platinum reserves.

They aren’t mining it. They are sitting with it and not doing anything. I went through the process with these guys that own the rights to that mine, and explained to them.. well you don’t have to mine it. We just tokenize a percentage, that percentage you then do development above the ground by creating jobs. But now we need to go to the Central Bank to get them to recognize it as a currency to be as tender locally.

Apparently, the central bank and the government have to agree to the tokenization of the platinum reserve and, if so, legally codify any development of the mine in the future.

Panel Video on Hybrid Mobile Money and Asset Tokenisation

Look out for Part 2 of coverage of the “Mind the Gap” virtual conference on cryptocurrency and blockchain technology.

Journalist, policy analyst, and evangelist of new, disruptive technologies including big data analytics, Internet of Things, and cryptocurrencies. Internet industry veteran with regional c-suite experience, and journalist credentials earned at, Internet World magazine, and Mecklermedia Corporation.
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