Research

How can you prepare for tomorrow’s blockchain world? TCS blockchain expert Andreas Freund shares perspective

By 
Minda Zetlin 

September 14, 2017

Blockchain technology will be as revolutionary as the internet, or maybe even the steam engine, predicts Andreas Freund, Ph.D., a senior manager for Tata Consulting Services' blockchain advisory. It’s a bold claim.

But in the first part of our two-part interview, Freund makes a strong case that blockchain technology will, at the very least, change our marketplaces and our enterprises in ways that are hard to imagine right now. Blockchain protocols (best known for enabling cryptocurrencies such as bitcoin or ether) create a distributed ledger in which many nodes on a network each have a record of every transaction that has taken place.

(See our recent story, Blockchain: 3 big implications for your company.)

“To really understand and appreciate the value blockchain can bring, you need to understand why it’s a paradigm shift,” Freund says. “You need to look at human beings. What defines us is our physical strength, our intelligence, and our trust relationships.

The most fundamental shifts occur when these functions become automated and exponentiated.”[ How can you get started with blockchain? See our related story, Blockchain: 4 ways to experiment. ]Consider intelligence, he says. Computer technology has already done a lot to automate and exponentially increase human intelligence.

Artificial intelligence is set to surpass human intelligence within the next 30 years, according to experts. As for our physical strength, that was automated and exponentially increased back in 1765 with the invention of the steam engine, which Freund says is “the most important event in human history if you look at it.”

Rethinking trust and intermediaries

"I can trust the transaction will be executed properly every single time."Why should the invention of blockchain protocols rank with these events? Because it does the same thing to trust relationships, Freund says.

“What automates trust is decentralized consensus that’s economically incentivized,” he notes. “It’s the combination of game theory and cryptography. When we’re interacting through the blockchain, not only as human beings but as things as well, I can trust the transaction will be executed properly every single time.

There’s no chance of tampering or censorship. From a human perspective, I can now trust you without trusting you.”Right now, people who want to transact with strangers must use a trusted intermediary, as people do when they buy and sell items on the Amazon Marketplace, or buy and sell shares on an exchange, or, say, summon an Uber ride. 

In the 1990s, anthropologist Robin Dunbar suggested that each of us can maintain stable relationships with only about 150 other people. “We need to delegate trust to others every single time we gather in groups larger than the Dunbar limit,” Freund says. “That’s why pyramidal hierarchies emerge. That’s why governments emerge.”Does Freund think blockchain technology will replace governments?

He doesn’t go that far, but he does believe it could render some long-standing institutions less necessary than they are today. “When you no longer need these arbiters of trust, we can get together and form a decentralized organization,” he says. “We don’t even need to incorporate as a company.

We can simply offer a service and people will pay us.”You can see how this approach might permeate every transaction we make, he adds. “I don’t need a bank account then. The responsibility of the individual will increase, and people want that.”Accordingly, the finance and insurance industries have become early experimenters with blockchain.

How are they using it? See this related blog post: The future of blockchain — how can financial institutions embrace it and win?

How enterprises can prepare

How can today’s enterprises prepare for tomorrow’s blockchain world? “There are new revenue opportunities that go beyond blockchain’s ability to reduce risk,” Freund says. On the other hand, “There is a significant danger of disruption, particularly for companies that function primarily as trust intermediaries.

”As blockchain becomes mainstream, he adds, “You need to have a mindset shift. That control that you need because you can’t trust anyone else – that needs to be let go. You’re trusting the protocol instead. That’s one of the key things we teach when we introduce corporations to blockchain.”

It’s more important to understand how blockchain will change many common practices than it is to understand the precise technology behind it, Freund notes. “In the end, how the technology works doesn’t matter,” he says.

 “TCP/IP enables the internet, although nobody really knows how it works. Without it, we’d still have the walled gardens of the AOL era.” When it comes to blockchain, he says, “We are still in the AOL era.

We have these walled gardens, with many companies experimenting and many public blockchains, but eventually there will be something equivalent to that moment when TCP/IP broke down those walls.”Back then, most established businesses were caught unprepared...continue reading: 
https://enterprisersproject.com/article/2017/9/blockchain-predictions-what-it-means-you

We’re in the midst of preparing a longer piece on best practices for token sales/ICOs and how the industry can and should move towards a greater degree of self-regulation that might help it stay ahead of a growing worldwide trend of regulatory bodies taking increased interest in ICOs.

That piece will also discuss a number of ideas about best practices and what forms that self-regulation would take. (In this regard we’re actually seeing some mildly surprising and at least partially encouraging developments, but we’ll save our commentary on those for the larger article.)

Today we just want to point out a number of interesting trends we’re seeing in the sorts of projects presenting themselves for inclusion on our Smith + Crown ICO tracker page. By virtue of maintaining this list we see virtually all of the ongoing and upcoming ICOs, and as a result have a strong grasp of different trends as they emerge and evolve.

Lately a few distinct, largely positive patterns have emerged that we wanted to highlight. We mention a few different companies in order to illustrate the trends, but do so merely to provide examples of what we’re seeing in terms of evolving practices in the ICO industry, without any implied endorsement other than to recognize their place within these patterns.





That said, much of what we’re seeing falls within a few identifiable trends:

Fewer and fewer anonymous teams

While at Smith + Crown we have refused to list truly anonymous teams (there are a couple  theoretical exceptions, but they are rarely even appealed to, much less invoked) but the increasingly small number of anonymous proposals that are even submitted to us is a reassuring trend.

It could be that our policies on this are well known and anonymous groups are not even bothering to submit to us, but we suspect that the numbers of such groups are also declining significantly, and we feel this represents a very positive development in the growth and evolution of the sector.

An end to the anonymous presentation of ICOs, whether seeking $10 or $10 million, might even help popular media outlets beginning to be interested in the sector to not feel compelled to include in their articles the obligatory reference to “scam-ridden world of ICOs where anonymous teams can raise XX millions with only a cobbled together white paper.”

Altered vesting structures

While the earliest visions of decentralized organizations tended to assume that founders of a project should retain a small number of tokens as an expression of their desire to see the ecosystem develop and prosper free of the outsized control of a major holder, this has recently begun to change.

Likely influenced by an increasing number of management teams coming from outside the sector itself, the trend we see is of manangement retaining a somewhat larger number of tokens as an incentive aligning their interest in creating a vibrant, prosperous community or project with the interests of token holders and users.


While insiders retaining a large number of shares is obviously a fine line, the general trend appears to be moving from teams holding 6-8% of tokens in 2015-16 to closer to 20-25% today. Arguably more significant is the lengthening vesting schedules for insider token holdings.

Whereas 0-24 months was typical for vesting schedules up through 2016–during which vesting was incredibly rare at all–now vesting schedules are now stretching into the 36-48 month timeframe and are another strong measure of management commitment to a project. Some of the most prominent sales of 2016 (Golem, Waves, Lisk) had no obvious vesting schedules at all.

Creative practices and procedures around the ICO are being explored

One trend is that a growing number of ICOs are fully implementing Know Your Customer (KYC) practices. Not only does this serve to avoid the frenzied rush of many earlier ICOs–environments that lent themselves to hacks, thefts, and whatever other nefarious activities within the chaos of those initial moments–but some of these ICOs have also established contribution limits in an effort to ensure a wider distribution of their tokens, and by extension, interest and participation in their project.

Yes, these can often be circumvented, but when combined with pre-registration and KYC practices, it is increasingly challenging to do so. Civic, Modum.io, Cindicator and cofound.it projects are good examples of these. ICOs are also assigning pre-vetted customers specific windows during which to purchase their tokens during assigned windows.

This further reduces the frenzy of the ICO, increasing security and helping to ensure mistakes are eliminated, if not reduced. Trends in distributing ICO contribution addresses are becoming more sophisticated, again reducing opportunities for nefarious activities while also reducing the chances that a contributor will themselves make a mistake.

It could be argued that some of these trends go against the open, distributed nature of the blockchain and return the advantage to those traditionally able to acquire access to the best early stage opportunities. However, not all projects are barring “retail investors”–rather they are barring anonymous investors.

These developments also signal a certain stage in the maturity of the sector, one in which a greater amount of money is entering the space. An element of the original spirit of the crypto world may be (partially) lost within this process, but the money flowing into the sector will allow a range of new projects to be funded, a fact which should please anyone interested in seeing decentralized projects spread more broadly.

Finally, the sheer quantity of projects appearing lately strongly suggests there will opportunities for most interested parties to acquire the tokens in projects they choose to support, particularly as many of the new opportunities that will appeal to larger blocks of capital are arguably not the same projects appealing to individuals who have long followed the crypto sector.

So far, these are emerging spaces continue to allow a place for anonymous supporters, retail investors, and accredited investors, though how large the opportunity becomes for each of these groups remains to be seen.

Strong industry specific teams

Another clear indication of a maturing industry is that more and more highly experienced individuals with strong industry-specific skillsets are staffing project teams. This represents an obvious change from several years ago, when leadership teams might have been composed exclusively of developers.

The example of Robin Lee, former CFO of the World Gold Council and principal accounting officer of GLD, the exchange-listed gold ETF, entering the sector as the head of HelloGold, clearly illustrates the trend, but he is in merely one a number of highly competent, experienced individuals who could be pointed out in this regard.

Sophisticated business organization and structure

Another trend that appears to be developing is that as groups of individuals bring extensive experience from a particular industry (ticketing, marketing, and payments are a few that come quickly to mind) and seek to apply blockchain technologies and the innovations they promise to a sector they know well they can bring with them an established sense of best practices that help raise the standards within decentralized companies.

While some of these entities might be criticized by some for merely applying a decentralized layer to a traditional centralized industry, such companies nevertheless represent expansions in the areas blockchain companies are focusing their energies, which most would agree is positive for the future growth of the sector.

An example of the type of practices such groups might bring could be a business plan that calls for the scheduled release of quarterly and annual filings informing investors and token holders of the status of the project, rather than just allowing smart contracts to allocate fractionalized dividends or payment holders to token holders at designated moments. (Examples include modum.io and Acuitty.)

Developments such as this will help the ICO space and the companies operating within it to increase their appeal to a larger pool of investors who will feel more comfortable with their ability to understand, analyze, and evaluate the companies operating within it.

Of particular interest, and we’ll discuss this more next week, is that these trends also represent many of the innovations that will likely help the sector establish a more respected place with the world of global securities regulators.

Discover more reports like this on Smith + Crown here: https://www.smithandcrown.com/trends-token-sale-proposals/

The first marketplaces date back to the mid-1500s. Brokers, moneylenders, and citizens would go to a specific physical location — often a city square or centrally known area — to buy or sell goods and deal with business, government, and individual debt issues.

Over time, exchanges evolved into a concept similar to what we know today. One of the first futures and options exchanges began in Chicago in 1884. The traders stood on the octogon-shaped floor and made trades in the pits by negotiating buys and sells.

The bids were placed in local currency (U.S. Dollars), and while the trading was peer-to-peer, the clearing of the trade was handled by the exchange.Eventually, advances in computing made it possible for orders to be stored in a single source of “truth,” famously named an “order book.

” An order book is a list of the bids and offers in a given asset, organized and matched according to a specific algorithm. Currently, order books are both physically and logically centralized. They are physically centralized because they run on a single server, and they are logically centralized because all messages are processed synchronously.

Today, assets trade through centralized exchanges with trusted centralized parties conducting the transactions. The exchange must be in a physical location and jurisdiction, and both parties in the transaction must be in the local jurisdiction — foreign parties are not allowed to buy or sell.

Orders are handled first-in-first-out, and every participant in the market is subject to the same algorithm treatment with respect to order execution.Lawyers, bankers, brokers, clearinghouses, and governments are all part of the trading equation. But do they need to be?

Removing Middlemen

A new paradigm of transaction execution called blockchain could eliminate the need for all of these middlemen.In a blockchain, transactions are verified by distributed nodes, and anyone can join or leave the network as they please without disrupting the network’s ability to form consensus on transactions.

Instead of using a single computer to manage transactions, like we do now, we could leverage a global computer.

Bitcoin was the first example of a blockchain being used to communicate value globally, with trust and without middlemen, and Ethereum extends the power of the blockchain.

The Ethereum platform runs smart contracts, applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference. It allows for decentralization to take hold in a much more meaningful way, as Ethereum users can exchange anything atomically and, most importantly, with trust.

Ethereum tokens are an implementation of a smart contract. They are accessible globally, and a token’s market can flourish without a middleman. Already, they have dramatically changed how software projects are funded by replacing the traditional venture capital/angel investor model.

Instead of individuals having to go through these investors to get their projects funded, they can sell tokens directly to the public. With a simple text string and the click of two buttons, users can participate in these new business models from anywhere in the world.

People have the opportunity to invest in the protocol and not the company directly, and this new way to create and finance business models has been a runaway success.

Decentralized Exchanges

In addition to removing the need for middlemen, blockchain technology enables us to build decentralized exchanges.Decentralized exchanges are global, borderless, frictionless, private, and secure.

They allow users to exchange assets without the interference of a central party or jurisdiction. This is significant because central parties and localization impose a major financial burden on the current system.




With blockchain technology, an exchange mechanism can be codified into the blockchain directly. This new kind of “order book” does not need to be physically centralized because the servers forming consensus are distributed, and no single server has definitive power over the other servers.

 Exchanges do not need to be logically centralized since the code is open-source and free for anyone to audit.

Decentralized exchanges can communicate across borders. They’re not located in one specific location like Hong Kong or New York because they live on the global network, the blockchain. For example, users in Kuala Lumpur can trade directly with users in Berlin or Chicago, while their assets remain local and free of unnecessary intermediaries.

The Future of Trading

By allowing value to be communicated globally and without middlemen, decentralized exchanges will have the same disruptive power that tokens have had over VCs. Instead of a trader going through a centralized exchange to reach another trader, they can trade directly with one another through a decentralized exchange.

The traders can be located anywhere and can trade with anyone in the world, without any intermediaries involved. A globally accessible exchange, without intermediaries, provides new access and liquidity to assets.

The global, frictionless nature of these new blockchain-based exchange models will propel them to succeed at the same scale that tokens have succeeded.

The current exchange system is antiquated and...
continue reading: https://futurism.com/blockchain-will-eliminate-middlemen-and-usher-in-a-new-paradigm/