Blockchain, presented as a true technological revolution, which overturns intermediaries and wants to create a “peer-to-peer” society, is also attracting criticism.
Crypto-currency offers a number of benefits that can revolutionize the financial world. First of all, crypto currency is essentially a medium of exchange that is secure and anonymous. Due to its decentralized nature, it is difficult to control by traditional financial institutions.
The blockchain also offers increased security to users, which means they don’t have to worry about the safety of their funds. In addition, crypto-currency is not subject to the same rules and regulations as other currencies. This means that transactions can be made faster and cheaper. In addition, crypto currency can be traded at more competitive rates, making it an attractive option for traders and investors.
Applications of blockchain
One of the main advantages that blockchain offers us is economic. The blockchain, based on peer-to-peer exchanges, eliminates all intermediaries during transactions. This technology constitutes a totally decentralized and digital system.
Intermediaries in off-blockchain exchanges, such as banks or other platforms like Uber for transport and Booking or Airbnb for accommodation, receive remuneration in the form of commissions. The existence of intermediaries thus increases the total price paid in fine by the consumer of these services and goods.
Blockchain has thus enabled the creation of several alternative platforms to these platforms receiving commissions. We can give the example of the blockchain start-up Slock.it (bought in 2019 by Blockchains) which developed a competitor to Airbnb, or Open bazaar (the Ebay of blockchain), which allowed to put in touch the applicants and the suppliers of goods or services without intermediaries, and thus at cheaper rates.
Thus, an interface like Slock.it allows users to sell or rent goods such as apartments, household appliances, etc., through smart contracts signed on the blockchain, hence their slogan “rent, sell or share anything you want”. It is therefore through this concept of connected objects that this interface works, and according to many observers, it is likely to threaten the very existence of online platforms used today such as Airbnb.
To illustrate this process, we can take the example of an apartment rental. The lock of the apartment door, once connected to the blockchain, can be linked to a smart contract. When the contract expires the door locks automatically.
Among the major innovations of the blockchain, smart contracts allow to automatically execute, without human intervention, the conditions and terms of a contract. This innovation was born thanks to the Ethereum blockchain.
Another application of blockchain, still related to its nature as a tool without intermediaries, is the transfer of money.
The blockchain, in particular thanks to the crypto-currency Bitcoin, reaches the banking domain. Indeed, this digital currency, once accepted by the actors involved in the money transfer, is transmitted through the blockchain without going through banking intermediaries and therefore with very low transaction costs or even almost zero, which allows to remunerate the Bitcoin miners.
Could this new currency, which is becoming more and more important in the world, dethrone traditional currencies?
In several African countries, individuals face very high transaction costs when they want to make international money transfers. The first mobile wallet for Bitcoin was created in Kenya in 2013, called Kipochi. This initiative significantly reduced the transaction costs of international transfers. However, following this transaction, users have to find intermediaries to convert the bitcoins received into national currency.
Blockchain is also used in the insurance world. This can consist of offering, via blockchain, insurance that is personalized to the demand in terms of the nature and duration of the insurance. It is through an application using blockchain technology that this process between the insurance provider and the applicant can be realized.
The limits of the blockchain revolution
Despite the number of sectors that could be impacted by this revolutionary technology, there are some limits to the integration of blockchain in our societies.
Blockchain remains a complex technology at first glance, and still doesn’t seem to be democratized enough to truly revolutionize every industry in which it is sought to be integrated. According to a 2019 Deloitte study on the effect of blockchain on the financial services industry, 47 percent of the companies surveyed are still learning about it or have not yet begun to embrace it. Adapting the company to this revolutionary new feature could take time.
Finally, another limitation of blockchain concerns one of its applications, which is the transfer of money via Bitcoin. Indeed, this digital currency, which is based on the blockchain, lacks a legal framework, unlike other traditional currencies. Thus, Bitcoin has no legal tender (a merchant is not obliged to accept it, unlike a legal tender which no one can refuse and which has what is called a “release value”), and is based on the concept of peer-to-peer, i.e. there is no central bank to regulate the quantity of Bitcoin issued in the economy. This creates a high degree of instability in the value of Bitcoin. Because Bitcoin is so volatile, this creates uncertainty about the use of this currency, and thus a lack of trust in the system on which this digital currency is based.
Traditional sectors are starting to use this technology
The blockchain thus seems to threaten traditional sectors that respond by integrating this technique into their practices.
At first glance, blockchain is an enemy for banks. Yet, some of them are ready to integrate it into their own operating systems to facilitate certain processes.
The Banque de France launched the “MADRE” project in 2016 in partnership with French banking groups, which consists of setting up the first operational blockchain in an interbank setting. Using this technology could allow the Banque de France to exchange and share data and information with the different actors involved. For example, the first planned area of use is the sharing of SEPA creditor identifiers (ICS) with a limited group of banks.