Just like any new kid on the block, Blockchain has seen an elevating interest and has surely become a disruptive topic in the FinTech discipline. To continue entrenching our expertise in the ICT industry through tracking technological R&D and providing value-adding insights to our clients, we consulted on the concept that is Blockchain and its complexities.
We sat down for a Q&A interview with Tinashe Ruswa who is a Cloud Technology and Innovation Architect. He has a proven track record of providing clarity and expertise to organizations across various sectors, whilst unlocking and deriving value from Distributed and Emergent Technologies. Tinashe’s key competencies are automation, digital strategy, cloud computing, user experience architecture and Blockchain.
Interview with Tinashe: Talking Blockchain and its stumbling ‘Blocks’.
What is Blockchain and how did it emerge?
In its simplest terms, a Blockchain is a database that is shared across a network of computers. Once a record has been added to the chain it is very difficult to change. It gained prominence as a technology that realized a peer to peer transfer of value network called BITCOIN.
What are the components of the Blockchain ecosystem and on which technology platform do they operate?
Even though Blockchain has been given prominence by Cryptocurrencies, it is composed of four distinct logical components:
Node Application – an internet connected computer that has an ecosystem (Blockchain) specific software running within the ecosystem. The node accesses the service overlay network and processes application specific messages that affect the overall shared state of the network.
Shared Ledger – this is a shared data structure that is managed inside the node application and can be viewed from the node application.
Consensus Algorithm – Implemented as part of the node application, the consensus algorithm provides the rules of the network with regards to how the ecosystem will arrive at a single view of the ledger.
Virtual Machine – the machine (that abstracts a computer) that runs the node application and realized the runtime environment within which all the other blockchain constructs live.
Is Blockchain only applicable to financial transactions? Are there other applications?
Blockchain Technology is applicable to a lot of use cases, it is just unfortunate that the bulk of the cases that have made Blockchain famous are centred around Financial Services and the transfer of value. Below is a list of other applications of Blockchain Technology:
Supply Chain Monitoring – this is already being applied in the tracking and monitoring of the movement of high value goods like diamonds by De Beers.
Retail Loyalty Rewards Programs – By creating a token-based system that rewards consumers, and storing these tokens within a Blockchain, customer incentivization to return to a certain store or chain to do their shopping can be actualized as well as the elimination of fraud and waste commonly associated with paper.
Digital IDs – Microsoft has embarked on creating a Decentralized Blockchain based Digital ID system as part of the Microsoft Authenticator App, which is used currently by hundreds of millions of people.
Data Sharing – Blockchain could be used as a marketplace to share or sell unused data. Since most enterprise data goes unused, Blockchain could act as an intermediary to store and move this data to improve a host of industries.
Copyright and Royalty Protection – copyright laws and digital rights of artists can be put on the Blockchain to ensure that royalties and the such are given to the due artists.
Digital voting – Blockchain technology eliminates the worry of voter fraud by ensuring that all activity is transparent for all to see and for the regulators to view all the voter activity.
Real Estate, Land & Auto Title Deeds – the trustless nature of Blockchain allows for it to be used in the registration of anything that needs to be trustless and that involves a lot of common interest parties.
Immutable Data Backup – As Blockchain in trustless, it can be used to store data backups in a distributed way and allow data to be stored in different locations whilst ensuring that the Data Integrity is maintained.
Record Keeping – this could be for high value items as mentioned above, medical records, weapons tracking, medicinal drugs tracking or otherwise.
Does Blockchain interact with any other financial services? Which ones and how are they affected?
Blockchain can interact with financial services and a major use case has been identified within payment processing and money transfers. As blockchains’ are immutable, a use case for instant fast payments 3 seconds. This will assist Financial Services particularly within the settlement side as well as for Cross Border Payments.
Companies advancing this and using this technology include:
- Santander Bank
- Western Union
- Ripple Technologies
- Given the similarity in Blockchain and SWIFT’s payment systems’ technology, one would expect that the global giant would adopt the former, it however does not seem likely.
What is Cryptocurrency and how does it relate to Blockchain?
Now that I have given an introduction to Blockchain and its applications, allow me to give a more technical description:
Blockchain is the digital, distributed, and decentralized ledger underlying most virtual currencies that’s responsible for logging all transactions without the need for a financial intermediary, such as a bank. In other words, it’s a new means of transmitting funds and/or logging information. The aforementioned virtual currencies that do not need an intermediary, are called cryptocurrencies i.e. what makes a virtual currency a cryptocurrency is the fact that it is not controlled by any central entity but rather by a cryptographic function that are inherent within the transmission protocol.
Therefore, a cryptocurrency is an internet (networked) medium of exchange that used cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency and immutability.
Besides Bitcoin, what other cryptocurrencies are there?
There are plenty of other cryptocurrencies – which in essence are all just different chains (networks) that are looking to solve for particular use cases. Below is the top five according to Coin Market Cap:
- Bitcoin Cash
Role of Blockchain in the Financial Industry
The high rate of cybercrime, such as phishing, may result in reluctance to use Blockchain by potential consumers. How secure and reliable is the encryption imbedded in the platform used for this system?
I think there is a misconception of what blockchain actually allows one to do. By its very design, the blockchain technology has inherent security features built in including 256 Secure Hash Algorithm (SHA) encryption which makes it one of the safest immutable technologies out there. Hashing encryption is creating fixed-size bit string value from a file that is irreversible. It is very reliable and secure, more secure than some of the current measures and controls being offered by our current financial service providers
Bitcoin was said to be the next big wave to take up the financial industry – resulting in instant wealth creation streams for those that managed to jump onto the wagon early enough, however it has since lost its value, abruptly so. With your understanding of the trends, can we anticipate another such an opportunity in the near future?
Speculation is what led to Bitcoin, and its pronounced value as the Digital Gold to go up exponentially within a short space of time in 2017. Also note that that boon was due to cryptocurrency trading in an immature market, with underdeveloped infrastructure (exchanges with little liquidity, no institutional investors, retail investors and the fact that crypto was now becoming mainstream. Just by that alone there was such raised and peak interest.
As a deflationary asset, that is limited only to twenty million coins in circulation with approximately five million lost already, I believe that the real actualized value of Bitcoin will go much higher once we fully start engaging with the internet of value and move away from speculation. That said, just like the dot com bubble of the early 2000’s, the crypto assets that are solving real world problems i.e. those with real world utility will survive and they will become very valuable. Examples to look at include the evolution of Amazon, Tesla, Apple and Microsoft.
The South African economic climate has dampened the savings and investment sentiment, with the December 2019 SARB Quarterly Bulletin reporting that gross saving by households stood at 1.4% of GDP in 2018. Besides investment opportunity, what two functions do you think could benefit SA specifically?
I think investment is the least value add for a country of SA economic dynamics. I believe as a mining dominated country we could use blockchain to track our high value stones and curb smuggling and the selling of blood diamonds for example.
Our national identity system can use some of the characteristics of blockchain i.e. immutability and trust-lessness to solve for the duplicate ID issues.
Are there any Blockchain collaboration and/or adaption trends by mainstream banks globally? Are there any that South African banks can learn from?
JP Morgan and Santander bank are two banks that have gone down the blockchain route and have gone public.
JP Morgan have actually created their own JPMorgan coin that they use internally to settle transactions. Santander is using blockchain for its international payments and remittance application.
Besides the bleak economic growth, what other threats do you foresee that would stall the growth of Blockchain activities?
I actually think the contrary, the high costs of maintaining the current status quo in financial payments and the delay in settling international payments will force the customers to lean towards cheaper blockchain powered solutions. For example, people moved two hundred and thirty million dollars in less than a minute and it cost them twenty dollars. This effectively will cut out payment delays as well as the margin that banks make when they buy or sell foreign currencies.
We have seen that technological development brings about cross-sectoral collaboration. Do you think there are any other sectors that can capitalize on a system such as Blockchain?
Yes, indeed I believe so, for example mining, logistics, financial and insurance sectors can all come together in the mining of, transporting of, auction of, and the subsequent insurance therein of a diamond ring in the UK/US that was mined in South Africa. A blockchain can be used to track the gemstone from when it was mined, when it was transported, who transported it, how was it valued, who created the ring and the final owner of the ring. This can cut the illicit sell of stones, enable the governments to collect all due gemstone fees, whilst giving insurers the ability to value items correctly as well as identify the source of the stone. This is but one example of how a shared blockchain can span multiple sectors and countries.
Future Implications of Blockchain
Do you think the government needs to establish regulations for Blockchain activities and impose tax on the income generated from the system?
I think the government can oversee their own permitted blockchains that they own i.e. A digital ID system – however for non-permitted blockchains i.e. crypto currencies etc. the very reason they were created was to not have a central place/institution of control. I do not think that governments need to regulate crypto because that goes against the very reason why it was created. It is important to always note that there is no central person/entity within a crypto blockchain for that very reason.
There are jobs that exist today but didn’t 10 years ago, do you think we are likely to see educational institutions offer qualifications in Blockchain Mining in the future?
This has already started and we have forward looking institutions already offering blockchain related training.
Since Blockchain is based on a decentralized public ledger, which is the opposite of what mainstream banks use, does this mean the former’s growth might erode the latter’s market share in the long run?
Yes, I see this erosion has already started. I personally keep my funds split between banks and blockchain.
Any key takeaways regarding Blockchain and its prospects for the South African Market?
I believe blockchain will be a key disruptor within the banking and mining sector in South Africa, primarily within Financial services. With a digital ID one can bank the unbanked and people can even use peer to peer value transfer capability i.e. BTC to transfer value and buy things. In other countries people already have Visa Crypto Cards where visa is the payment processor, which means disintermediation has already started, why would you then need a bank?
Pygma Consulting in a Johannesburg-based consulting firm with extensive experience in ICT policy, regulatory and strategy advisory, and compliance across Africa.
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