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How Blockchain Will Change International Finance

 5 min read / 

Earlier this month the Securities and Exchange Commission (SEC) issued its hotly anticipated decision regarding the creation of an exchange-traded fund (ETF) for bitcoin. The regulators determined that the possibility of fraud and manipulation of such a system was too great to justify its creation, sinking the hopes of investors Cameron and Tyler Winklevoss. Shortly after the edict came down from on high, the financial market throttled bitcoin, bleeding fifteen percent of its value in a single day.

 

The Unexpected Effects

Though the gash inflicted upon bitcoin after the ruling was easily predicted, what was not anticipated was the corresponding feast investors had at the tables of other cryptocurrencies. In the four days after the ruling, ethereum shot up by sixty percent, dash spiked by a similar amount, and monero gained another forty percent.

What was also unexpected is that the damage inflicted to bitcoin was a mere flesh wound – bitcoin recovered fully over that same time period, then went on to gain another thirteen percent in value in that span as well. The lesson here is clear: while cryptocurrencies are one the most popular application of blockchain, investors are chomping at the bit at the opportunity to invest in distributed ledger-based technologies.

Apps Pushing the Market

Indeed, bitcoin is just one facet of blockchain, and the growing valuation of cryptocurrencies can be attributed to many market-facing applications based on the distributed ledger.  Blockchain has already been used to conduct trade-finance deals and to digitise bills of lading for international shipments.

In both instances the technology has vastly improved the process by eliminating the use of stacks upon stacks of paper, significantly reducing the time devoured by the task, and introduced a level of transparency in the transaction that would make fraud in the process effectively impossible. Though there are few processes in today’s world that wouldn’t benefit from such improvements, the process that cries out the loudest for such improvements is that of international payments.

Banks Lagging Behind

To say that the international bank transfer system is horribly outdated is an understatement. International transfers are conducted via a network known as The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is a messaging network through which banks all over the world exchange sensitive information about financial transfers of all kinds.

It links over 11,000 financial institutions around the world and transmits over fifteen million messages each day. It also uses outdated technology, charges steep commissions, and is quite slow. But those problems pale in comparison with the significant security holes that are exploited by hackers on a regular basis.

More Security Needed

While bitcoin’s security concerns invoked by the SEC are real, US regulators would be better off taking aim at SWIFT’s notoriously porous security system. In 2016, it was seriously compromised when it suffered a series of high-profile attacks. Within the space of a few weeks, the central bank of Bangladesh was bilked out of $81m (which could have been substantially more had the hackers been better spellers), an Ecuadorian bank was robbed of $12m, and attempts were made on banks in the Philippines.

In addition to these known attacks, there could very well be many such attacks that have yet to come to light – the discovery of the attack made against the unnamed Filipino bank also uncovered evidence of other possible attacks that may have occurred up to a year prior. The culprits of these attacks are very likely state-funded hackers in North Korea, and US federal prosecutors are already building a case against the Hermit Kingdom on this basis.

Baby Steps

Despite the glaring security flaws and the manifest willingness shown by hackers to take full advantage of such flaws, SWIFT’s leadership has shown precious little willingness to patch the massive holes. Initially more than happy to take a page from Baghdad Bob’s playbook and deny the painfully obvious, SWIFT finally got around to instituting badly-needed security measures. In addition, SWIFT began a pilot program with twelve of the world’s biggest banks that promises to streamline business-to-business transactions with plans to further streamline cross-border transactions in the future.

In other words, SWIFT is taking a few steps down a path upon which blockchain technology has already travelled miles. Several blockchain-based money transfer systems are already in existence and have been transferring money for small consumer transactions for several years.

Such companies have made inroads in underserved or underbanked communities, serving a market that is often shut out of the standard bank transfer regime due to prohibitively high fees. These companies are hardly small operations these days, either – Align Commerce, for example, has over $20m in funding to bring to the table.

Conclusion

It is becoming more and more apparent that blockchain technology is more than capable of bringing the equivalent of a warp drive into a financial sphere that has been dominated for far too long by the horse and buggy. As financial institutions large and small continue to get robbed of millions in ever-increasing attacks by highly sophisticated and well-heeled hackers, a radical change in the system is all but guaranteed.

The distributed ledger is an almost tailor-made solution for the problem, and the global banking system cannot afford to fail in adopting it. While the SEC’s ruling on the Winklevoss ETF was a step back for those hoping for a regulatory nod toward the transparency and legitimacy of bitcoin markets, the ever increasing number and value of blockchain-enabled assets reminds us that the real value in all of this may well be in the underlying technology itself.

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Companies

H&M to Shut Stores as Quarterly Results Plunge

 2 min read / 

H&M Results

Fashion retailer H&M announced today that it will be shutting down more stores after it experienced its biggest drop in quarterly sales in at least a decade.

Although group sales rose by 4% over the year, fourth quarter sales shrank by 4% year-on-year, to 50.4bn kronor ($6bn), as fewer customers visited its stores. This was far below the retailer’s expectations. Shares in H&M have now hit their lowest level in eight years.

H&M plans to adapt to changes in the market by closing more stores and selling the brand through Chinese online platform Tmall. It aims to integrate its physical and digital stores more, and will give more details on their strategy changes at a meeting with investors on February 14.

The company said:

“The quarter was weak for the H&M brand’s physical stores, which were negatively affected by a continued challenging market situation with reduced footfall to stores due to the ongoing shift in the industry[…] In addition, there have been imbalances in parts of the H&M brand’s assortment composition.”

The company’s rival, Inditex, the owner of high street brand Zara, as well as Massimo Dutti, Bershka and Pull&Bear, has continually outperformed H&M, as it expands more into e-commerce. However, this week, the Spanish giant also reported a slowdown in sales in its third quarter but said sales improved again in November given the colder weather.

Keep reading |  2 min read

Companies

Snap Opens Online Studio

Snapchat Online Studio

The studio will enable brands to build adverts that individuals users can include in their own snaps.

Snapchat is adding another trick to its repertoire by allowing users to add branded animations to the existing arsenal of augmented reality lenses. This is not a wholly new innovation as advertisers can already sponsor lenses, although there is a hefty minimum spend of $300,000 and a current need to work closely with Snap’s design team. However, the new studio will enable advertisers to create their own adverts, which will then need to be accepted by Snap before they are given the green light. The move is part of Snap’s wider efforts to diversify their revenue streams.

Keep reading |  1 min read

Asia

Japan Is Behind Bitcoin’s Rise

Japan Bitcoin

Deutsche Bank released a research note saying that Japanese investors account for bitcoin’s meteoric rise.

Deutsche Bank analysts have said they believe that individual Japanese foreign-exchange (FX) traders are instead moving towards leveraged cryptocurrency trading in the search for astronomical returns. Already, Japan makes up 50% of the world’s leveraged FX trading and Nikkei recently said that 40% of cryptocurrency trading was denominated in yen throughout October and November. Evidently, the Japanese are growing tired of years of ultra-low interest rates and are turning to the blockchain to boost their savings.

Keep reading |  1 min read

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