09-03-2022 | treasuryXL | Treasurer Test | LinkedIn |
How is your Treasury knowledge? Today we investigate your Treasury Expertise and ask you an example question that you might face when taking the Treasurer Test…
01-03-2022 | Patrick Kunz | treasuryXL | LinkedIn |
We are happy to interview treasuryXL expert, Patrick Kunz.
With Patrick’s impressive career within the World of Treasury, you can really say that he lives and breathes Treasury.
Patrick is performance driven. He is an open minded, outgoing, rational person who is comfortable communicating and convincing on all levels of management.
Patrick is owner of Pecunia Treasury & Finance with several independent treasury and finance consultants and founder of treasuryabonnement.nl. Furthermore he owns an online FX trading and payment platform with a connection to a big FX broker.
Patrick has worked with both international corporates from all fields of business as well as national non-profit organisations.
We recommend to visit Patrick’s LinkedIn profile to see his stunning career and activities. But first….
During my study at Maastricht University I knew I wanted to work in the “world of finance” and more specifically trading or investment banking. In my 3rd year of university I got the opportunity to work as an intern for a Swiss Investment bank in Zurich which was a great first experience into wealth management and client exposure with high net worth clients. It also showed me that the client comes first, even though the client was not always right. This made me wonder if it was more fun on “the other side” at the buy side. It slightly frustrated me that a bank would not always provide the best solution.
After graduation I left on a trip around the world backpacking for 1,5 years. Enjoying ultimate freedom and fun before starting a career. When I came back to the Netherlands I applied for treasury roles at multinationals and landed my first job as cash & treasury manager at the German multinational Metro Group (the wholesaler, not the Dutch free newspaper). This was the start of my treasury career which until now I would never leave.
It’s the core of a company. In the end its all about the money. Independent on what products you are selling and how you are selling them. Cash in vs Cash out. Without cash a company has a problem. Cash is king and profit is an opinion so in my opinion managing cash is very important and therefore fun. The more complex the more fun. Managing a multinational company with hundreds of bank accounts in different currencies around the global; finding the optimal treasury setup and solutions is great fun. Lastly, treasury teams are smaller compared to accounting or controlling, which make the lines shorter and the team tighter.
I started in cash management and FX trading which are great basic skills for every treasurer. My first company also had very short treasury lines and I quickly was involved in global treasury solutions, financing solutions and group companies corporate finance. When I moved on to my second role as group treasurer of a regional housing association, I also got exposure to interest rate derivatives and guarantee management. Afterwards when I started my own consultancy and interim management company 8 years ago I got to do the full spectrum of treasury. So without arrogance I can say in treasury I have done it all. The last years I am doing a lot of TMS/Payment hub implementations, which I enjoy doing. After finishing an implementation it is nice to look back and compare the old way of treasury processes and the new and see how it improved after a couple of months. Very rewarding.
Building a treasury from scratch is most rewarding and fun to do. 2 years ago I got the opportunity to build the treasury role at the Dutch born AEX company Takeaway.com. There were treasury processes in place but scattered in different departments. Also some of them were sub-optimal. My role was to bring them together and optimize them. Besides increasing the reporting and importance of treasury to management this also brought significant cash savings on bank and FX costs. A couple of months into the rule, the merger/acquisition of Just Eat was approved and the integration with the existing treasury team in London could start, making the team suddenly 400% bigger. After 5 months my work was far from finished but it was time to hand it over to the existing/new team. Looking back what was done in this short time this was one of my greatest experiences in treasury. And a great company to work for.
Nowadays: Opening a company bank account in a short timeframe without difficult KYC questions, especially for companies with difficult or complex structures. I was with a client last year, a scale-up, that moved fast in several countries in Europe. Treasury processes needed to be implemented from scratch in each country while operations was much further ahead but legal and treasury still needed to start. Working with this fixed go live we had to make sure we could receive payments from day 1 onward. In one country we were actually live on day -1 with no room for error. Stressful but successful.
As a consultant I sometimes face tight deadlines or difficult projects that need to be delivered but are dependent on other stakeholders. That is not always easy but this gives me energy to make it happen.
You can go fast on your own but you go far together. Sounds cliché but it is especially true in treasury as the treasury department is dependent on data from other departments to make it function. You cannot run risk analysis if you have no exposure data. Same for FX. Doing cash flow forecasting? You need data from procurement, AR and FP&A.
Also visibility and transparency is key. Even the other financial departments accounting and controlling sometimes see treasury as this special people that they have no idea what they are exactly doing. Make sure they understand (and vice versa) what each department does and how you can work together and what data can be shared. Also to avoid duplicating work. So leave the ivory tower and go out there and collaborate.
The speed and amount of information has increased and is increasing. Also the complexity of treasury departments. Luckily also the solutions available to manage them has improved. Next to swift solutions we now see advanced TMS solutions or payment hubs that can be implemented within a couple of months giving you full visibility. A treasurer nowadays needs some tech skills to be able to understand the information to implement the TMS or hub. Because the tool will be only be as good as it is being used; garbage in is garbage out. During the many implementations that I have done I have learned a lot about technical connections (sFTP, h2h, API), information exchange formats, XML file types, swift messages etc. This knowledge now helps me a lot in implementations and supporting the IT department determining the information needs and sources.
Instant payments are a big thing in treasury which is cool but will not necessarily bring much added value to the treasury. Instant information processing is more important especially in e-commerce. Clients expects instant service. If they pay online they expect to get the service or goods asap. Treasury can help with this by connecting their PSP’s or bank information to their systems. Not necessarily linking the payment to an invoice which is an accounting reconciliation process. More importantly linking the positive acknowledgment (the customers has paid) to the sales. Customers start demanding this more and more and treasury has to adapt to this instant world. This means more automation.
Clients also demand more payment options, some of them are not available at banks. This means that treasurers will have to move away from the traditional model of banking partners for cash management but to a more hybrid model of cash at bank, cash in transit at PSP’s, virtual credit cards, wallets etc. Maybe even crypto or CBDC deposits/balances. This will all add to the complexity of the cash and risk management.
Isn’t treasury the best department to be in? 😊 I already get excited saying this.
Get in touch with Patrick
Click here for his Expert Profile
Join Patrick and experts from Kyriba and Deloitte at the Panel Discussion: How Can Treasurers Overcome Today’s Security Challenges?
When? March 9
Start: 4.00 pm CET
Thanks for reading!
Kendra Keydeniers
Director Community & Partners, treasuryXL
21-02-2022 | Carlo de Meijer | treasuryXL | LinkedIn |
Blockchain has always been presented as providing speed, efficiency and low costs. But there is also a flipside. Since the crypto industry is booming, including DeFi and NFT, and blockchain technology is going more mainstream the discussion of their negative impact on the environment is heightening.
Blockchain consumes huge amounts of energy and that is growing by the day. This while the combat of the climate crisis has the highest priority all over the world. Especially the electricity usage of Bitcoin and other similar blockchain networks have pulled into a larger conversation around sustainability. To understand this we should go back to the basics of how blockchain works. But above all, are there ways to reduce that and could blockchain also contribute to a positive climate change?
A recent hearing by the US Committee on Energy and Commercial Staff on “Cleaning up the Cryptocurrency: the Energy Impacts of Blockchain “ shows a very dark picture. Many blockchains, amongst which the two largest platforms Bitcoin and Ethereum, still use a so-called Proof-of-Work (PoW) mechanism to support their resp. crypto currencies that require enormous amounts of energy to operate. According to a recent analysis, the energy required for a Bitcoin transaction could power a household for more than 70 days.
On the Bitcoin blockchain platform, the infrastructure is distributed and delegated to so-called ‘miners’ around the network. Each time a transaction is made, consensus must be established all across the distributed database (or at least 51% for Bitcoin, for security reasons). This is done through Proof-of-Work (PoW).
Miners are thereby responsible for processing transactions and adding them to the blockchain. These are super-users who compete for the processing work by attempting to solve highly complex algorithmic problems. Mining for PoW cryptocurrencies requires specialised computers that make trillions of guesses per second. In return for this processing, the winner is awarded new cryptocurrencies i.e. Bitcoin or Ether. This all comes down to the most powerful computer processor exerting the greatest amount of effort. After that other computers on the network quickly verify and a new block containing additional new info is then added to the blockchain. After that the mining process starts over again. A highly energy-intensive process.
As a crypto-miner increases their likelihood of identifying the correct answer by increasing the number of guesses, this process further increases computational power and is creating more energy consumption. Today, PoW miners need a great number of so-called application-specific integrated circuits (ASICS) to have any chance of reliable earnings cryptocurrency rewards on the major cryptocurrency networks. The profitability of mining as well as the increase of the value of PoW currencies requires ever-increasing amounts of energy to power and cool machines.
While there are many hundreds of different cryptocurrencies, Bitcoin and Ethereum are not only the largest ones but are also the most energy-intensive. In the past few years, their environmental impact has increased greatly in terms of both energy consumption and carbon or CO2 emission.
The scale of mining has increased substantially triggered by the increased value of mining. This has resulted in a rapidly increasing energy consumption. According to the Bitcoin/Ethereum Energy Consumption Index that is looking at the environmental impact of a blockchain transaction, Bitcoin is the leading coin with the most energy-intensive mining process.
A single Bitcoin transaction uses as much energy as one US household would over 73.82 days (2.5 months). The annual energy usage of the Bitcoin network last year grew from 78 Tera (trillion) watt-hours (TWH) to almost 198 TWH.
Ethereum, while less energy demanding, still uses This is as much electricity for a single transaction as a US household over 8.32 days. The annual energy usage of the Ethereum network grew from almost 15 TWH to more than 92 TWH.
Bitcoin is also the most polluting cryptocurrency. In total figures and based on 2021 estimations Bitcoin mining edited more than 56.8 million tons of CO2 (or more than 1.000 pounds of CO2 per transaction) to the atmosphere. This would require more than 284 million trees in order to offset the transactions and become carbon neutral. Its total annual energy footprint is similar to Thailand while Bitcoin emits as much CO2 as Kuwait.
ETH mining emitted more than 22 million tons ( or more than 90 pounds per transaction) of CO2. Over the year, that is still as much power as the Netherlands. And as it is projected to emit almost 22 million tons of CO2 by the end of 2021, it would take planting nearly 110 million trees to offset Ehtereum’s contribution to carbon emission.
But taken together, both these blockchains use major economic amounts of energy. These are just ahead of Saudi Arabia and Italy and just behind the United Kingdom. It would be the 12th most consumptive economy on the planet.
To put these figures in perspective global 2021 CO2 emission of Bitcoin and Ethereum mining is equivalent to the emission from more than 15.5 million gasoline-powered cars on the road every year.
Triggered by the chance of having too little energy left for both consumers and the broader industry, a growing number of countries is now banning or is planning to ban crypto mining.
In China, where 70% of miners worldwide were based, authorities last year has forbidden mining. Whereas since a majority of crypto mining has been moved into lower energy price countries, the present high energy prices caused by the Russian – Ukrainian crisis forced countries like Kosovo and Kazakhstan, but also Iran and India to ban crypto mining. Early this year Russia announced such a ban to prevent winter blockheads. Even in the EU an ESMA official suggested also banning crypto mining. And it is expected that other countries will follow.
Ethereum: shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS)
There however are also positive developments within the blockchain world towards climate change. Blockchain technology is still young but is advancing and slowly, but definitely, crypto mining is increasingly driven by more renewable energy. And in the meantime, there is a number of other ground-breaking energy-saving solutions.
A promising one is the change-over from Proof-of-Work (PoW) to Proof-of-Stake (PoS) networks, that do not require miners to compete for energy power for zero-sum awards. This could greatly limit energy consumption and carbon emission, thereby mitigating the negative impact of blockchain on the environment.
Proof-of-stake blockchains are newer generation networks. Instead of miners, PoS use a network of ‘validators’ who will stake their own cryptocurrency in exchange for the ability to validate a transaction in exchange for a reward. Effectively, the resource of energy is replaced by capital.
Ethereum is now moving forward with their transition from Ethereum 1 (Proof-of-Work), to Ethereum 2 (Proof-of-Stake). With this shift Ethereum hopes that it will make its blockchain both safer to use while greatly minimising energy consumption. Other major PoS networks now include names like Polkadot, Cardano, and Tezos among others.
According to UCL (University College London) research, while using far less energy than proof-of-work (PoW) network Bitcoin (relative to the number of transactions the network can perform at any one time), all the proof-of-stake networks use far less energy – two to three orders of magnitude less than Bitcoin. The same research says PoS-based systems can contribute to the challenges posed by climate change and could even undercut the energy needs of traditional central payment systems, raising hopes that blockchain technology can contribute positively to combatting climate change.
Blockchain and environmental projects: green smart contracts
But there is another – and even more positive – side of blockchain-related to the environment and climate change. Blockchain technology could also be linked to various environmental projects by using so-called green smart contracts.
Green smart contracts running on blockchain may unlock new ways to fight climate change and to cope with its impact. At its core, the fight against climate change is going to require a massive shift in global consumption habits. Green smart contracts are an interesting tool for incentivizing participation in global green initiatives. Especially in the areas that ask for large amounts of data collection and verification and rewarding sustainable environmental behaviours, such as regenerative agriculture, carbon offsets, crop insurance etc. Green smart contracts could deliver great promises for environmental issues as these could scale up environmentally conscious blockchain-based solutions. Blockchain could thereby play a great role in stopping or reversing climate change if adopted on a global scale.
The Ethereum platform facilitates the creation of decentralised apps that run on the blockchain. Some of these applications include the management of supply chains, recycling programs, energy systems, environmental treaties, environmental charities, and carbon taxes. These all may help make it more possible to address various environmental issues including air pollution, ocean sustainability, and bio diversity conservation.
This approach relies on networks of so-called oracles, entities that can share data about the world. The development of green smart contracts got a boost as oracles have become production-ready. Today these oracles are broadcasting agricultural data sets onto blockchains, enabling smart contract developers to build applications around crop yields, soil quality, weather reports, carbon offsets etc.
As more and more data sets are fed into blockchains, developers are beginning to produce a wide range of environmentally-conscious smart contracts applications, helping fight against climate change, reduce carbon footprints, sustainable conscious consumption, improve consumption habits etc.
New developments like the firm rise in cryptocurrencies, the spectacular growth of DeFi and the growing market for NFTs have attracted many from the New Generations, especially Millennials and Gen Z. This group is increasingly looking for and experiment with these more attractive digital and crypto-assets. But while many of them also worry about climate change and the consequences, most are not aware of the environmental impact of the crypto world. More delving into the world of blockchain and crypto would not be a bad idea as that could lead to a more climate-conscious approach.
Economist and researcher
08-02-2022 | treasuryXL | LinkedIn |
treasuryXL announces the launch of the Treasurer Test 2.0, the new version of the assessment tool for Corporate Treasurers.
18-01-2022 | Carlo de Meijer | treasuryXL | LinkedIn |
For me it is becoming a sort of tradition. Writing a blog about the upcoming trends in the Blockchain and crypto arena for the next year and beyond.
And unexpected was the upcoming of the DeFi market, as well that of NFT. But also a growing number of traditional banks entering the crypto scene, increasingly believing crypto is here to stay. What may bring this year? This will be described in the following 15 trends.
A first trend we will observe is de-acceleration in the development of new third and fourth-generation solutions aimed at removing the speed and scalability challenges. Third-generation blockchain platforms like Aion, Cardano, and EOS, introduced technology such as sharding to tackle scaling issues in order to cut down on cost and speed of transactions. These platforms also matured the distributed application capabilities of blockchain.
And there are fourth-generation blockchains aimed to resolve prior challenges and enable trust in easy-to-consume ways, accelerating the formation, operation, and reconfiguration of business networks. In addition to greater ease of onboarding, these lower cost, and highly scalable platforms are built to make pragmatic trade-offs such as recognizing that not all transactions are created equal using variable consensus mechanisms. Interesting fourth-generation blockchain platforms like Insolar and Aergo, are enabling business networks to be easier to use through business-oriented interfaces that hide the complexity of the underlying blockchain technology.
Another trend we will see in 2022 is an acceleration in the creation of standards and interoperability possibilities. These should enable multiple blockchains to communicate. The number of blockchain and distributed ledger networks are firmly growing. Most blockchain networks operate on isolated ecosystems as they try to resolve a unique set of needs. Interconnecting these new chains is becoming a necessity as more people continue to take note of the emerging technology and its capabilities.
Standards are an important key to success for any developing technology, and blockchain is no exception. The right standards, set at the right time in a technology’s development, can ensure interoperability, generate trust in and help ensure ease of use of the technology. In this way, they support its development and create a pathway to mass adoption.
The rapid development of blockchain is set to give rise to many different kinds of chains. One such technology that is becoming increasingly evident is cross-chain technology, an emerging technology that seeks to allow the transmission of value and information between different blockchain networks. This technology is increasingly becoming a hot topic of discussion seen as the ultimate solution for enhancing interoperability between blockchains.
BaaS has emerged as a boosting adoption across business companies due to many developments in this atmosphere of blockchain. The demand for Blockchain-as-a-service (BaaS), a third-party creation and management of cloud-based networks for companies in the business of creating blockchain applications, among companies is firmly growing and that will continue in 2022. Main players in this space include Microsoft, Amazon and R3.
BaaS facilitates its clients to leverage the solutions to build hosts, based on the cloud and enable them to operate related functions on the blockchain and their applications, without having to overcome technical difficulties or operational overhead and without the need to invest in more infrastructure developments as well as lack of skills. BaaS operators help the clients to focus only on their core job and blockchain functions
The year 2022 will see a greater demand for blockchain and crypto skills. The potential for growth in the blockchain industry and the increasing dominance of blockchain across various sectors serve as a prominent reason for the increased demand for these skills. The promises of blockchain technology for enterprises in terms of cost efficiency and performance improvement and the booming development of the crypto markets translate directly into the rise in demand for blockchain professionals.
A report by LinkedIn has placed blockchain as one of the most in-demand skills for 2021 and beyond. Enterprises therefore need blockchain professionals with the skills to help them leverage most of blockchain technology for driving their business objectives.
This year we experienced a growing trend of blockchain being integrated with other technologies such as Big Data and Artificial Intelligence amongst others. There is also growing attention of corporates to use blockchain for IoT or Internet of Things applications.
The IoT market is increasing drastically and this is expected to continue in 2022 in an accelerated way triggered by the recent uptake of the 5G network. The expected potential of the 5G IoT market today is however limited by an extremely fragmented IoT ecosystem.
Blockchain technology appears as potentially the most suitable and efficient way to the various 5G IoT challenges. It can potentially help to solve many problems around security as well as scalability due to the automated encrypted and immutable nature of blockchain. It is expected to hear about more pilot projects and initial use cases in this field during 2022.
Blockchain applications in Metaverse are another top blockchain trend in 2002. Metaverse is the emerging universe of the formerly known Facebook where there will be ‘immersive’ experiences with new technologies like blockchain, augmented reality, virtual reality etc. Without blockchain technology the Metaverse would be incomplete because everything would be stored in the centralised network.
Blockchain will enable the upcoming of a new wave of social networks that could be bigger and even better than the existing ones such as the former Facebook, Instagram, Twitter, and YouTube that are now synonymous with the word social media.
Blockchain in 2022 is expected to run multiple platforms on Metaverse with NFTs and cryptocurrencies. Digital assets like NFTs will thereby define ownership on the Metaverse and cryptocurrencies will power the new digital economy. Moreover, also Twitter, with its vast user base of 192 million daily active users, is now planning to integrate cryptocurrencies into the platform with things like Bitcoin tipping for creators.
Governments are also starting to enter the blockchain market. Blockchain provides new ways for governments to organize processes and handle information in a more efficient way. Over the past few years, governments in several countries have been experimenting with the application of this novel technology to a wide variety of functions and services, including land registration, educational credentialing, health care, procurement, food supply chains, and identity management.
What is holding back various governments up till now is the factor of trust. The World Bank therefore proposes a “Three Layer” design and implementation framework, to prevent potential glitches between the technology and its intended application. Their framework comprises the social layer, data layer, and technical layer. The social layer constitutes human actors and social aspects such as incentives and motivation among others.
The data layer is the ledger itself and what it provides in terms of usability, security, authenticity, and reliability. The technical layer comprises DLT protocols, data storage, and consensus mechanisms among others.
With 80% of the world’s central banks now exploring Central Bank Digital Currency (CBDC) projects during 2021, according to the Bank of International Settlement, the year 2022 will see a further breakthrough. Governments worldwide realise that cryptocurrencies are here to stay and the majority of CBDCs are being introduced to ensure their monetary system stays relevant to consumer demands and not necessarily to eradicate the use of Bitcoin and other private cryptocurrencies.
Despite most central banks are still planning their frameworks for what a CBDC might look like, there are already CBDCs that have gone live. These however are limited to a few small countries including the Bahamas, Cambodia, the Eastern Caribbean States and most recently followed by Nigeria.
In terms of developed nations, China and Sweden (e-krona) are the most advanced with extensive pilots having already taken place. China is expecting to further test its CBDC – digital yuan – during the Winter Olympics in early 2022. This will certainly trigger other central banks including those of the UK, the US, Russia, Japan and the European Central Bank, to follow suit.
DeFi, or decentralised finance is quickly emerging as a transparent and permissionless way for users to interact directly with each other. This year the value of assets in DeFi reached more than $180 bn and expectations are that this will further rise in 2022. As there is an increasing need to replicate physical items properties like uniqueness, ownership proof, we will see further uptake of the DeFi market as well as the arrival of more dedicated DeFi applications. Upcoming regulation, as well as the growing acceptance that crypto is here to stay, may in the longer term lead to more convergence between traditional or centralised finance (CeFi) and decentralised finance (DeFi).
The remarkable growth of the NFT market in 2021 is expected to continue in 2022. As almost everything is becoming digital, there is an increasing need to replicate physical items properties like more uniqueness, ownership proof and scarcity. The Metaverse concept that was earlier described will bring plenty of new opportunities for innovative NFT use cases.
Various new use cases including gaming, music, ticketing, post on social media etc. are entering the NFT market attracted by the various benefits and the profits that can be made.
But the risks and challenges this market is confronted with will ask for regulatory intervention. This raises the importance of having an international regulatory body of non-fungible tokens for its better regulation and legalization. The outcome could have a great impact and will be decisive for the future of NTFs. It is however still uncertain how that will proceed.
The attitude of traditional banks, especially the larger ones towards crypto and DeFi is changing. . With central banks around the world beginning to embrace the concept of CDBCs and stablecoins, the principles underlying the DeFi industry will gain more and more acceptance amongst traditional firms. The banking industry is beginning to see DeFi’s potential to overhaul the inflexibility of present processes and are reacting. More and more established banks, pushed by the demands of their clients and shareholders, are now exploring how they might engage with DeFi and the crypto markets. While this year some big names entered the DeFi space in order to meet their customers’ demand for crypto thereby delivering a number of DeFi based applications, this number will further increase in 2022 thereby seeking greater exposure to the DeFi space.
To meet the upcoming governance issues at DeFi organisations we will see the arrival of more decentralised autonomous organisations or DAOs in 2022 and beyond.
The decision-making, or governance, at DeFi organizations (from the fees they charge users to the products they offer) is often meant to be decentralized. In the initial stage of DeFi a single person or a small group of people might be driving a decentralized application at inception. But as the DeFi project gains momentum they often seek to step away, thereby handing over control to the community that uses it.
That transition is expected to be increasingly in the form of a decentralized autonomous organization (DAO). They have their rules and regulations embedded in programming code via smart contracts and may issue governance tokens, which give holders of those coins a say in decisions.
A new trend we will see in the years to come is the rising number of challenger and crypto banks, aimed at meeting the needs of millennials and the Gen Z generation. Both are increasingly looking to new ways money is being managed. This has led to the emergence of challenger banks that are making finance fully digital. But even this is not enough for the 25-year-olds and under, Gen Z. Saving, making money work, and being in control of finances is a key difference between millennials and Gen Z and this is where cryptocurrency starts to enter the discussion. This will intensify the upcoming of crypto banks.
Notwithstanding there is a growing demand for cryptocurrencies not only from consumers but also from institutional investors as well as large financial institutions, 2022 will see the end of the cryptocurrency hype, a further correction in crypto rates and the return to more realistic levels, triggered by the upcoming regulations worldwide (see trend 15).
Notwithstanding the growing importance of the DeFi and NFT markets, the year 2022 may see crypto currencies lose some of their magic. Investors are greatly overestimating the speed with which the related blockchain technology will see a broad-based adoption. This may retrace trading euphoria in a bigger way in the cryptocurrency space.
And finally, but most important, a growing number of regulators around the world – long-time struggling how to deal with the various crypto issues – will intensify their work and come up with regulatory measures, both individually and collectively. Aim is to meet the various risks and challenges of the crypto industry, including cryptocurrencies, crypto assets, stable coins, DeFi, NFT etc. on one hand, but without frustrating or harming technology developments.
While some countries have banned cryptocurrency entirely, there is a growing trend that regulators believe cryptocurrencies are here to stay and try to partially control their flow in the economy. International institutions like BIS, IMF, World Bank and others however are messaging that international regulatory collaboration and a cohesive regulatory framework is urgently needed.
Dear followers. All these trends are based on a number of premisses. Thereby older trends play an important role in making these forecasts. If all these predictions come through, 2022 will be a great year for blockchain and the crypto industry. But as I also concluded in my blog on the trends of 2021: always expect the unexpected. Curious to experience.
Economist and researcher
30-12-2021 | treasuryXL |
Though Blockchain is not yet well understood by many treasury people, and tangible real-world applications for the corporate treasurer’s day-to-day activities are still scarce, this technology is getting increased interest in the treasury world.
Click on the image below to learn more about Blockchain for Corporate Treasurers.
08-12-2021 | Carlo de Meijer | treasuryXL | LinkedIn
Early this year I wrote a blog about the existing technology challenges that were holding back a more massive adoption of blockchain technology and of possible solutions that may tackle these. Though blockchain has many advantages this technology still has a lot of growing pains to go through before it could unlock its full potential.
So I was wondering where we are now. Gartner showed several times, any new technology – and that is blockchain too – has to go through various stages.
And that is not strange. For new technologies, it takes a lot of time to get rid of all the challenges and use it to power the modern world. And these challenges are not only technical. What is the way forward?
Challenges
Blockchain technology has been surrounded by plenty of hypes, which makes many business leaders keenly interested in adopting it. Blockchain however faces different blockchain adoption challenges that make them reluctant. These are not only related to technological inefficiencies, but also to the lack of regulation and limited knowledge/awareness. Most of these challenges still need to be addressed and overcome in order for the technology to reach omnipresence and make blockchain a more acceptable technology for all.
Technological challenges
Although blockchain technology has a lot of benefits, it still has a number of shortcomings in technological ways, that are preventing a much higher adoption. Bitcoin but also other blockchains are well known for their inefficient technological design, leading to low scalability, lack of speed of the network, high energy consumption and as a result high costs of transactions. Besides, there is a lack of standardisation and interoperability, limiting the chance for different blockchains to communicate with each other. Ethereum tried to cover up a number of these defects, but it is still not enough.
Low scalability
First of all there is the scalability issue. Their limited capacity to scale in order to handle large transaction volumes. This so-called ‘scalability trilemma’ is the main reason why many doubt that blockchain systems would ever be capable of operating at scale. It essentially revolves around the difficulties current blockchain platforms experience when trying to find the right balance between scalability, decentralization and security. In reality, blockchains work fine for a small number of users. But what happens when a mass integration will take place? Ethereum and Bitcoin nowadays have the highest number of users on the network, but they are having a hard time dealing with the situation.
Lack of speed
Another important challenge that should be addressed is the need to increase the processing speeds. When the number of users increases, the network tends to slow down taking more time to process any transactions. This may result in huge transaction fees, making the technology less and less attractive. Also, the encryption of the system could make it even slower. Completing a transaction can take up to several hours or sometimes even days. It is thus most suited for making large transactions where time is not a vital element. This blockchain adoption challenge can become a hurdle soon.
High energy consumption
High energy consumption is a blockchain adoption challenge, especially now with the worldwide climate discussion. Most of the blockchain technologies follow Bitcoins infrastructure and use Proof of Work (PoW) as a consensus algorithm, thereby needing massive computational power, which is very energy-intensive.
This not only limits the opportunities for ordinary people to join PoW networks and hinders decentralization by encouraging the formation of large mining pools, but it also raises environmental concerns. At present, miners are using 0.2% of the total electricity. If it keeps increasing, then miners will take more power than the world can provide. Many organizations are trying to avoid blockchain altogether just for this challenge.
Lack of standardization
A fourth issue that is limiting a more massive blockchain adoption is the lack of standardization. Standards are required for any technology to have a scalable adoption across the globe. All networks which will be using blockchain technology need to speak the same language in order to be understood and to complete the transaction. All new technologies however suffer from this at the beginning till the standards slowly build up from experience.
Lack of interoperability
As more organizations begin adopting blockchain, there is a tendency for many to develop their own systems with varying characteristics (governance rules, blockchain technology versions, consensus models, etc.). These separate blockchains mostly do not work together, and there is currently no universal standard to enable different networks to communicate with each other. Blockchain interoperability includes the ability to share, see and access information across different blockchain networks without the need for an intermediary or central authority. This lack of interoperability can make mass adoption an almost impossible task.
Regulatory challenges
Next to these technological challenges, another big obstacle to blockchain adoption is the lack of regulatory clarity. Existing regulatory regimes are unable to keep up with the rapid development happening in blockchain and crypto. There aren’t any specific regulations about it. So, no one follows any specific rules when it comes to the blockchain.
Initial coin offerings, stablecoins and DeFi protocols have in recent years demonstrated the limitations of current rules and regulations when it comes to handling the sector. There are various challenges caused by this lack of regulation, including criminal activities, lack of privacy, and, although blockchain guarantees visibility as one of its benefits, there is still no security.
Criminal connection/activities
There is the anonymous feature of the blockchain technology that may become a great threat. The nature of the blockchain network is decentralized so that no one can know your true identity. Being anonymous is however quite convenient for illegal transactions. This has attracted criminals leading to various cybercrimes/illegal transactions such as crypto exchange hacks, scam projects, market manipulation asking cryptos in exchange as a ransom or using Bitcoin as a currency in the black market and on the dark web.
Lack of privacy
Privacy is another challenge as far as the blockchain is concerned. One of the greatest strengths of blockchain technology, public blockchain networks in particular, is the transparency that comes from having a record of a network’s transaction history that is public and easy to verify. This is however not always seen as a positive, as it also poses threat to privacy of organisations or the public using it. Many companies that work with privacy need to have defined boundaries. Enterprises, which want to protect their trade secrets and other sensitive information, are therefore reluctant to embrace some of the most prominent blockchain protocols.
Security and trust problems
Security is another crucial topic here that may limit blockchain adoption. Every blockchain technology talks about its security as the main advantage. But like any other technology, blockchain also comes with a number of security risks including coding flaws or loopholes. Ethereum allows developers to implement dApps based on their system. And there have been many dApps based on them. However, most of them seem to have a matter of false coding and loopholes. Users can utilize these loopholes and hack into the system quickly. The resulting lack of trust among blockchain users is another major obstacle to widespread implementation.
Educational challenges
Blockchain is still very much an emerging technology, and the skills needed to develop and use it are scarce, while the lack of awareness amongst the large public are challenging the adoption of this technology.
Lack of Adequate Skill Sets
This skills gap is a top challenge. The marketplace for blockchain skills and qualified people to manage blockchain technology is highly competitive. The demand for this qualified staff is enormous but few people have the adequate skills to support such technology, so one has to pay up high salaries.
The expense and difficulty of talent acquisition in this area only adds to the concerns that organizations have about adopting blockchain and integrating it with legacy systems.
Lack of awareness
Though broader awareness of the technology is growing, the majority of organizations are still in the early stages of adoption. Only 12% of participants in a recent survey reported that they are live with either blockchain or blockchain as a service, while 34% of respondents are not even exploring the use of it. But also the majority of the public is still not aware of the existence and potential use of blockchain, while there is lack of proper marketing of this technology.
Blockchain = Bitcoin?
Blockchain is an emerging technology and the distributed ledger technology (DLT) space is still relatively young. And with crypto price volatility dominating the headlines of mainstream media, it is not surprising that the immense utility the technology has is not well understood by the public. Currently, blockchain technology is almost the same meaning as Bitcoin and remains associated with the dark transactions of money laundering, black trade, and other illegal activities. Before a general adoption is possible, the large public must understand the difference between Bitcoins, other cryptocurrencies, and blockchain.
Ways to accelerate blockchain adoption
As I described in my earlier blog, there are a number of ways to solve the various challenges. Challenges such as inefficient technological design, lack of scalability, low speed, lack of standards and interoperability as well as high energy consumption should be tackled by technology innovations.
The privacy, trust and security issues ask for proper regulation without endangering technology innovations. Lack of skills and poor public perception and awareness should be increased by education and broad information and communication.
Technological improvements
The list of blockchain adoption challenges clearly underlines the need for technological improvements. The sector needs to find ways to address the biggest challenges it is currently facing. In my blog of 28 February 2021 “Blockchain Technology Challenges: new third-generation Solutions” I already explained the various solutions in a more detailed way. So, I am not going to repeat that.
The good news is that, as we saw above, the blockchain community is actively working on solving these technological challenges such as speed and power consumption thereby using improved technology.
Refining consensus algorithms
Proof of Work (PoW) has played a crucial role in bringing the blockchain revolution to the world, but its drawbacks in important areas such as scalability, speed and energy consumption suggest that PoW can no longer support the further growth and evolution of blockchain. Blockchain can utilize other more refined consensus methods to validate the transitions. This has forced Ethereum to start a transition to a Proof of Stake (PoS) consensus algorithm that requires fewer energy to process.
Layer 2 solutions
The scalability problem can also be tackled by building so-called Layer 2 or off-chain scaling solutions that refer to approaches that allow transactions to be executed, taking some of the load of the main chain, without overcharging the blockchain. There are a number of interesting off-chain solutions ranging from state channels, accelerated chips, side chains to sharding.
State channels
State channels refer to the process in which users transact with one another directly outside of the blockchain, or ‘off-chain,’ and greatly minimize their use of ‘on-chain’ operations, while accelerated chips could be used to speed up confirmation and transaction time.
Sidechains
Another tool to speed up scalability are so-called side chains. These are aimed to reduce the load on a given blockchain by sending transactions via these connected side chains and putting the end state of the transaction on the main blockchain.
Sharding
And there is sharding, a scaling solution of spreading out the computing and storage workload from a blockchain into single nodes. This technology divides a blockchain into many separate areas, called shards, with each shard assigned a small group of nodes to maintain, thereby limiting the transactional lode. Polkadot is one of those examples built around the idea of sharding.
Multi-layered structure
Another solution to upgrade scale is the use of multi-layered structures, which is the isolation of transaction processing and data storage. Main projects are Cardano and CPCChain.
Zero-knowledge proofs
To solve the privacy challenge several protocols have been developed as alternatives to Bitcoin’s pseudo-anonymity, such as CoinJoin and Ring Signature. An interesting tool is a zero-knowledge proof. This is a class of mathematical instruments that can be used to show that something is true without disclosing the actual data that proves it. The Baseline Protocol, for example, utilizes Zero-Knowledge proofs and other cryptographic techniques and instruments to synchronize private business processes via the Ethereum Mainnet while preserving privacy, confidentiality and data security.
Private blockchains
The privacy issues, especially for enterprises, that come with the transparent nature of public blockchains can also be avoided by using private networks such as Corda, Hyperledger and Quorum. These networks are designed to support a relatively small number of network participants with known identity, thereby providing the capability of executing private transactions between two or more participating nodes. Since participation in such networks requires permission, they are also called permissioned blockchain networks.
Private blockchain protocols can be used to create practical enterprise-grade solutions capable of connecting multiple companies or separate departments within a company. Participants would get limited access, and all sensitive information would stay private as it should. As an example, to build trust among users, TradeLens (a global logistics network created by Maersk and IBM using the IBM Blockchain Platform) uses a permissioned blockchain to offer immutability, privacy and traceability of shipping documents.
Hybrid approach
The power of private and public blockchains can also be combined to achieve optimal results. This so-called hybrid blockchain approach involves using a public blockchain to store encrypted proof for all the work that has been done on a private network thereby connecting a small number of known stakeholders.
Standards and interoperability
Over the past few years we have seen an increasing number of interoperability projects meant to bridge the gap between different blockchains. Many of them are aimed at connecting private networks to each other or to public blockchains. These systems will ultimately be more useful to business leaders than prior approaches that focused on public blockchains and cryptocurrency-related tools.
Next to the more well-known examples of cross-chain communications that are most first- or second-generation, like the Bitcoin Lightning Network, the Ethereum Raid Network and the Ripple Interledger Protocol, there is a growing number of interoperability projects that are exploring third-generation solutions, including Cosmos, Neox and Polkadot. And there is a growing number of projects teaming up in order to allow their blockchains to communicate with each other, aiming at solving the blockchain isolation problem. Main example is the Blockchain Industrial Alliance formed by ICON, AION and Wanchain.
Regulatory frameworks
The rapid evolution of blockchain technology has caught regulators around the world by surprise, leaving them scrambling to react to a rapidly growing and changing industry. Though regulators are now taking more and more steps in a growing number of countries to deal with this situation, there is still a lack of a unified approach when it comes to the regulation of the blockchain sector. This has resulted in a regulatory patchwork, with various jurisdictions across the world and sometimes even different regulatory bodies in a single region coming up with their own rules and regulations for the sector.
This problem could be countered by drawing up regulatory frameworks that afford regulatory consistency across larger regions. An example of such a framework is the European Commission’s propose Markets in Crypto Assets Regulation (MICA), which will introduce an EU-wide regime for crypto tokens. Thereby they are taking a pragmatic approach of regulating the market without harming the technology.
Raising skills quality and awareness
A closer examination of this barrier shows that it is very much connected to an underlying lack of organizational awareness, lack of adequate skills and lack of knowledge and understanding of blockchain technology. As awareness of blockchain technology becomes more widespread, the ability to effectively make a business case for their adoption, might contribute to more massive adoption.
Raising awareness
Considering that distributed ledger technologies are still largely unknown to the public, it is on the blockchain community to inform people about the technology’s design, strengths and utility. Building educational resources, holding webinars and other educational events are some of the ways that blockchain companies can utilize to raise awareness. Initiatives like Coinbase Learn are examples of how some of the world’s leading blockchain companies are working to raise awareness about blockchain technology.
Blockchain-as-a-service
And there is blockchain-as-a-service (BaaS) that has the potential to mitigate the blockchain skills barrier. The use of BaaS enables organizations to reap the benefits of blockchain, without having to invest significantly in the expensive blockchain skills. Users only need to know the basics of the technology (not the technological insides) to take advantage. They will for instance need to understand how to execute smart contracts, but they won’t need specialized knowledge about the complexities of distributed ledgers.
Forward-looking
Blockchains are ecosystems that require broad adoption to work effectively. Without widespread adoption, the effectiveness and scalability of blockchains will remain limited. As described in this blog the adoption of blockchain and DLTs depends on solving the various challenges and will require active support from governments and other public organizations. Organizations are increasingly coming together and forming collaborative blockchain working groups to address common pain points and develop solutions that can benefit everyone without revealing proprietary information. There is already a lot of applications and projects live that is working perfectly. Like any technological innovation, the blockchain will continue to evolve. Yes, there may be challenges, but they should not be seen as obstacles. So, as I have shown, all the problems with blockchain will come with solutions and opportunities. There are this good reasons to be optimistic that the adoption of blockchain will grow.
Economist and researcher
| 30-11-2021 | treasuryXL | Pieter de Kiewit | LinkedIn | Over the last years, Treasurer Search found hundreds of treasurers. Our client contact persons are HR managers & internal recruiters, the CFO, Group Treasurer and sometimes even procurement. There is no standard first contact. Working with more than one often works best. This is what […]
| 29-11-2021 | Carlo de Meijer | treasuryXL | LinkedIn
A new phenomenon in the blockchain world are so-called NFTs or non-fungible tokens. Although NFTs have been around for some years, the market for digital art pieces, commemorative items, and other assets that now reside in blockchain ecosystems has exploded this year.
The NFT market got an enormous boost after Christie’s auction house sold a digital artwork last March titled “Everydays: The First 5,000 Days” made by digital artist Beeple for an astronomic $69,4 million. And there have been more of these exorbitant transactions. This triggered the NFTs market to grow exponentially, thereby gaining profound attention from various players from mainstream companies to retail and institutional investors.
Many are still struggling with the NFT phenomenon. While some see NFTs as a bubble, comparing it with the tulip mania in the 17th century, thereby debating over how long the NFT trend would last, others believe NFTs are here to stay and see it as the next investment theme.
In this blog, I will go into more detail related to the world of NFTs, what they are, where they could be used and what they may bring. But above all what are the risks and challenges associated with this new phenomenon.
NFTs, which stands for non-fungible token, are unique or distinct digital assets that cannot be replaced. Broadly speaking, they’re a one-of-a-kind digital asset. They have distinct properties, and can’t be changed with other assets. They are digital files that can carry any form of digital content (and can even contain access to physical content) from art to video to music.
NFTs rely on blockchain and cryptocurrencies to keep track of digital ownership and create scarcity to ensure they cannot be identically reproduced. NFTs enable to verify the authenticity of a digital artwork.
NFTs are a type of asset which can be bought with cryptocurrencies. Both are tokens that are key elements in the world of blockchain. While both NFTs and cryptocurrencies use the same blockchain technology, they however differ in their attributes.
Cryptocurrencies use fungible tokens, meaning they can be traded or exchanged for one another. They are accessible in various forms and are utilized for various reasons. Every token is exactly the same and equal (represent the same amount of value). Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
A non-fungible token is different from notable cryptocurrencies in terms of fungibility. With NFTs, every token is different and unique. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). If a person were to receive two NFTs, they would not represent the same piece of digital content, even if they were both exact copies of the same digital file.
NFTs are considered beneficial in a wide variety of blockchain use cases They can be literally anything digital such as art, fashion, licenses and certifications, collectibles, sports, etc.
NFTs are nowadays increasingly used in contemporary art auctions, including images, animation or even tweets. Non-fungible tokens also have made their way into real life applications beyond digital art and collectibles, such as music clips, videos, games, or even a ticket to an event, such as a movie or a sport game, that took place at a specific time. But also for domain names, virtual land and real estate.
An upcoming use case for NTFs recently is photography. Photography and prints have been particularly successful in this new online environment. Photographers are increasingly finding a new market for their work with NFTs.
An interesting new use case are political NFTs. In the US a Democrat-backed group, named Front Row, is planning the launch of a political NFT marketplace, that will be exclusively used for Democratic party campaigns and causes.
But how does the NTF market work? How can they be created and traded?
Artists who want to create an NFT of one of their digital artworks will have to use one of the NFT platforms or NFT marketplaces. An NFT is created by ‘minting’ a digital asset (whatever it may be) on a blockchain. For that a digital wallet is needed with cryptocurrencies that allows you to store NFTs and cryptocurrencies.
Though there are more blockchains supporting different cryptocurrencies that can host NFTs, most major digital transactions are taking place on Ethereum. Ethereum’s MetaMask is such a wallet that is mostly used in the NFT market. This wallet can be downloaded from the App Store or via chrome extension.
Artists will need to purchase at least a fractional amount of Ether for so-called ‘gas fees’. This will enable them to cover the costs associated with minting your NFT, which places it on the Ethereum blockchain, and listing it for sale.
When adding an NFT to the Ethereum blockchain, a smart contract is added to the blockchain containing a set of actions and certain conditions to meet. They can be coded to detail the limitations on the use of an NFT. Once the conditions are met, the action takes place (such as providing a digital file to a buyer), and the blockchain is updated with this transaction.
Subsequently, the NFT creator has the privilege of putting up the NFT for sale on a marketplace. At the same time, NFT creators could associate the NFTs with a royalty agreement to receive added compensation with every sale.
NFTs can be sold or bought in the digital market via NFT market places.
In order to connect with NFT marketplaces and authenticate their identity, to access these market, they are required to have a digital wallet to streamline this process. If one wants to sell it or trade NFTs, it depends on the platform and whether he can send it to other platforms or only keep it on that platform. Even if one is just selling an NFT, one still needs to pay a transaction fee in ETH gas, which is a denomination of the token called Gwei (one billionth of ETH).
The new owner of an NFT would receive possession of the NFT through a smart contract. NFT sellers will thereby need to ensure that smart contracts clearly outline the rights that are being assigned as part of the NFT. In most cases, the NFT holder is simply obtaining a non-exclusive license to the underlying intellectual property rights of an asset and only for non-commercial purposes.
How you buy an NFT depends on the type of NFT you want to buy and the platform you are using. Most NFTs are purchased with a cryptocurrency and some with fiat currency. For buying NFTs, you must have a crypto wallet that allows you to store NFTs and cryptocurrencies.
Before purchasing any NFT, one first needs to purchase some cryptocurrency. This depends on what currencies your NFT provider accepts. Most likely this will be ETH, Ethereum’s native token. They can be purchased by using a credit card on almost any digital exchange from Coinbase, Binance, eToro to Coinbase and even Paypal now. Most exchanges charge at least a percentage of your transaction when you buy crypto.
After this one will be able to move it from the exchange to their crypto wallet of choice. From that on it is simple on most platforms to connect the wallet. Once the wallet had been connected, users can begin browsing the market and placing bids.
Each user’s wallet address thereby acts as a passport and lets users interact with certain NFT platforms. And if one later decide to use NFT marketplaces outside of Ethereum, one will still be able to swap ETH tokens for alternative blockchain tokens.
NFTs allow digital works to at least be traded via NFT marketplaces. On these marketplaces NFTs can be created, bought or sold. Most marketplaces hold auctions where users can submit a bid for an NFT they wish to purchase. Buying an NFT from the primary marketplace increases potential resale value directly after the product goes on sale. That especially goes for a high demand NFT immediately after their release. On the other hand, one of the main issues with buying an NFT from a primary marketplace is it is hard to estimate the demand for the art. On the secondary marketplace, however, users are able compare purchases to previous sales.
Currently there are several NFT marketplaces and each marketplace sell different types of NFT. The most popular and largest ones include: OpenSea, Rarible and Foundation NFT. Other interesting platforms have names like CryptoSlam, AtomicAssets, SuperRare, Nifty Gateway and NBA Top Shot. Most of these marketplaces are still hosted on Ethereum’s blockchain, thereby acting as Ethereum’s dApps.
OpenSea is a marketplace for NFTs which operates on Ethereum trading rare digital items and collectibles. It hosts a variety of digital collectibles, from video game items to digital artwork. Using OpenSea, users can interact with the network to browse NFT collections to exchange NFTs for cryptocurrency. One can also sort pieces by sales volume to discover new artists.
Rarible s a so-called ‘democratic’, open marketplace that allows artists and creators to issue and sell NFTs. RARI tokens issued on the platform enable holders to weigh in on features like fees and community rules.
On the Foundation NFT marketplace artists must receive “upvotes” or an invitation from fellow creators to post their art. The community’s exclusivity and cost of entry – artists must also purchase “gas” to mint NFTs – means it may boast higher-calibre artwork.
An interesting newcomer on the NFT market is Coinbase. The cryptocurrency exchange, aims to launch a marketplace that lets users mint, collect and trade NFTs. Users can sign up to a waitlist for early access to the feature. Its marketplace, to be named Coinbase NFT, would include ‘social features’ and tap into the so-called creator economy (a term used to describe the world of people who make money posting videos and other content online).
NFTs provide a number of advantages to both content creators, sellers and buyers, depending on the platform they are created on. With NFTs in Ethereum, the smart contract is automatic: The code in the smart contract cannot be changed once it’s added to the blockchain, and the transaction cannot be changed once the criteria have been met and verified. This provides security to both creators and buyers.
Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares. For example, artists no longer have to rely on galleries or auction houses to sell their art. They can sell it directly to the consumer as an NFT, which also lets them keep more of the profits.
Typically, most art pieces are physically sorted, which exposes them to the risk of being stolen or duplicated. NFTs may eliminate these shortcomings to certain extent by allowing artists to keep the records of the actual copy on the blockchain network. On top NFTs create an ecosystem where artists can authenticate the actual ownership of their work by recording the metadata on-chain.
Most websites where NFTs are sold also allow content creators to add a royalty system to the subsequent selling of their content. Doing this they may receive a percentage of sales whenever their art is sold to a new owner. Importantly, the artist benefits every single time their NFT changes hands. This is seen as an attractive feature as artists generally do not receive future proceeds after their art is first sold.
NFTs allow for proof of ownership in the digital world for the collector. Before the invention of NFTs, there was no way to prove the ownership or authenticity of digital artworks or collectibles. With NFTs the investor has true ownership of the non-fungible token they purchase. When a digital asset is tokenized this creates value as it is possible to prove its authenticity and ownership, which also means it can be bought and sold many times over.
With NFTs, a copy can be verified with the use of a unique identifier included in the NFT, and the history of ownership for that copy can be maintained. Because it has a unique identifier, and there’s a record of the work on the blockchain, it’s easy to track.
Next to that due to blockchain technology and NFTs, the principle of ‘scarcity’ now also exists
in the digital world. This because each NFT is rare, unique and indivisible. For a collector, the intrinsic value associated with the purchase of an NFT is supporting an artist whose work they admire.
It also give access to decentralised finance (DeFi) NFT services. Some NFT projects such as Hoard marketplace are providing DeFi services which allows users to buy, sell, loan or rent NFTs. The platform empowers developers with tools to integrate digital art, in-game items and domain names with the Ethereum blockchain.
Other potential benefits of this NFT eco system are growth prospects and value preservation where artist can preserve their art and yield income. The growth prospects of NFTs are significant and present more opportunities for creatives and investors to join the market. The NFT market is firmly growing, which means most NFTs could only become more valuable and innovative as time goes on.
And there are the utility benefits. NFTs enable businesses and individuals to acquire and protect value in real-world and virtual objects. When one owns an NFT on the blockchain, one has the ability to flip it, or sell it on the secondary market, for profit.
While the advantages/benefits of NFTs clearly paint a promising picture for their future, these markets are also confronted with various challenges and risks that one should consider before deciding to enter the space.
First of all there is the market risk. The market for NFTs such as digital art and collectibles is booming — but that doesn’t mean they are a safe investment. Investing in NFTs comes with its own unique set of risks. Their future is uncertain, and we don’t yet have a lot of history to judge their performance. When investing in NFTs one should be aware of volatility, illiquidity, and fraud in the nascent market.
Though investing in art is often a subjective act, there is the risk of losing its value. The NFT market suffers from massive volatility, in part because there aren’t any mechanisms in place yet to help people price these digital assets.
When it comes to liquidity of NFTs every seller needs to find a buyer who’s willing to pay a certain price for a particular, one-of-a-kind item. That can put collectors in a difficult position if they have spent a lot of money on a ‘Top Shot‘ moment and the market begins to tank.
Another risk refers to the uncertainty in determining the value of NFTs. The valuation of NFTs depends considerably on the authenticity, creativity, and the perception of owners and buyers. An NFT’s value is based largely on what someone else is willing to pay for it, thereby leading to fluctuations. Therefore, demand will drive the price rather than fundamental, technical or economic indicators.
And there is the risk related to intellectual property issues. Someone who buys an NFT, only gets the right to use the NFT rather than intellectual property rights. It is therefore important to consider the ownership rights of an individual to a particular NFT in the metadata of the underlying smart contract, such as copyrights, trademarks, patents, moral rights, and the right to publicity.
The growing NFT market is also attracting cybercriminals resulting in various risks of fraud, cybersecurity and hacks. There have been a few instances of fake websites, where NFTs hosted on the platform have disappeared and faced copyright and trade infringements.
Some artists have also fallen victim to impersonators who have listed and sold their work without their permission. And those who own an NFT do not necessarily own the original version of the digital content.
Another risk related to cybersecurity and fraud include copyright theft, replication of popular NFTs or fake airdrops, and NFT giveaways. And there is the risk of smart contracts being attacked by hackers and the challenges of NFT maintenance. This is seen as a main concern in the NFT landscape presently. As a result people can end up buying the fake NFT tokens, which practically do not have any value as an asset.
In addition, NFTs are also associated with jurisdictional challenges as there is no specific precedent for regulating NFTs. Decentralized peer-to-peer transactions on blockchain-based NFT platforms without any monitoring authority can lead to AML and CFT challenges. As NFT can challenge the conventional FATF standard, regulations and intermediate supervision become necessary for these platforms.
An there are the various challenges NFTs may be confronted, that could limit their adoption. Some of these challenges are more fundamental.
One of the most fundamental challenge for this NTF market is how these tokens will have to be fused into an ill-suited legal framework. The lack of regulation creates a lot of pitfalls in NFT adoption. There is the confusion of how NTFs should be classified and thus regulatory treated. As a security or something else. NFT does not have a specific definition and can describe a wide variety of assets. They are unique, not interchangeable, and not fungible. With the increasing variety and number of NFTs, it is difficult to find a solid ground for compliance in NFTs. As of now, many of the existing laws pertaining to NFT are stuck on finding the ideal definition for NFTs. Various countries like Japan, UK, US and the EU have different approaches for the classification of NFTs.
Next to regulatory challenges there is the lack of uniform, universal infrastructure for NFTs that may limit their adoption. For instance the verification processes for creators and NFT listings aren’t consistent across platforms – some are more stringent than others.
Accessibility to NFTs can be a significant barrier for new entrants to the NFT market. While NFT marketplaces are user-friendly, content creators must pay fees for the creation and upkeep of the NFT. These fees are usually required to be paid with a cryptocurrency in a digital wallet. The NFT marketplaces are also only popular for certain types of digital content; currently, for example, there are very few writers who sell their work as NFTs.
Another pain point of using NFTs is the effect the cryptocurrency industry has on the environment. The current mining practices for the most popular cryptocurrencies use proof-of work techniques, which require a vast amount of energy from powerful computers.
The NFT markets are booming. And every day new use case are entering the NFT market attracted by the various benefits and the incredible profits that can be made.
But the risks and challenges this market is confronted with will ask for regulatory intervention. The importance of reflecting on the legal and regulatory NFT risks is clearly evident. As this NTF market continues to grow and expand into different use cases, this raises the importance of having an international regulatory body of Non-fungible tokens for its better regulation and legalization. The outcome could have a great impact and will be decisive for the future of NTFs.
It is however still uncertain how that will proceed.
Economist and researcher
23-11-2021 | Wim Kok | treasuryXL | LinkedIn
The current global trading environment has exposed new complexities and heightened risks associated with international trade, notably through Covid 19. Following the latest studies (* ADB) the global trade finance gap grew to an all-time high of USD 1,7 trillion. Especially for SME sector (being hardest hit) the availability of bank liquidity and credit is increasingly under pressure. As a result, the playing field of international trade needs greater focus on understanding and mitigating risks and making use of new opportunities in the accelerating digital world of Trade Finance.
“Following the latest studies (* ADB) the global trade finance gap grew to an all-time high of USD 1,7 trillion.”
The ability to quickly access cost-effective financing when and where it is needed is key for also treasury departments. The new challenges and rapid changing finance landscape prompts many Corporate Treasurers to re-educate themselves and/or seek specialized expertise from trusted advisors, identify new and reliable alternative funding sources, streamline their digital journeys and current (internal) processes to achieve additional efficiency, transparency and cost reduction.
The use of Trade Finance solutions via (mostly standard and “old”) banking products goes way back in history to the golden age (Bill of exchange and promissory note financing). Our TreasuryXL expert Wim Kok can guide and advise you on the roles of banks and other key players, including emerging Fintech providers, insurers and alternative providers. It is essential for the Treasury department to address the needs and or pain points of the company select the most appropriate solution or partner to solve the problems or make use of new opportunities.
To give you an idea of the regular trade finance products that are available to facilitate trade, we list the instruments below.
Below is a brief overview of the most commonly used trade finance instruments, i.e.
Besides the classical trade finance banking products liquidity techniques such Receivable Finance or the Factoring of complete debtor portfolios (with or without credit insurance) are also frequently in the industry.
Whereas the majority of trade finance products are (mostly) standardized and in international accepted format that are subject and adhere to the various international rules issued by the ICC** to name a few: UCP 600, ISP98, URDG758 and Incoterms etc.
International Business Consultant
Trade Finance Specialist
*The global trade finance gap grew to an all-time high of $1.7 trillion in 2020, a 15% increase from two years earlier, as the pandemic heightened economic and financial uncertainties and devastated global trade, according to the latest Trade Finance Gaps, Growth, and Jobs Survey, released today by the Asian Development Bank (ADB).
**ICC Headquarters 33-43 avenue du Président Wilson 75116 Paris, France Tel: +33 (0) 1 49 53 28 28 Fax: + 33 (0) 1 86 26 67 44 Email: [email protected]
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