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Blockchain: the 10 Commandments for CIOs

| 25-10-2019 | Carlo de Meijer | treasuryXL

In my last blog about Gartner and Blockchain I mentioned the importance of the role of CIOs. They are supposed to play a leading role in determining if this technology could be of use for their business. Great question is: are CIOs already prepared for that role. In this blog I will sum up ten commandments for them that should be prerequisites for successful implementation of blockchain technology in their company.

1. CIOs should study blockchain, potential benefits, opportunities and use cases for their business

In order to get grip on blockchain and what it could mean for their business, CIOs should investigate what blockchain really is, that means the ins and outs, its characteristics, how it works, how to integrate blockchain into existing legacy systems etc. CIOs should put real thought into how this technology could potentially benefit the business, asking themselves why they need it, and what value it offers over legacy database or other technologies

While in the next few years blockchain will mostly affect how an organization executes its business, longer term  blockchain will eventually change the core of a business. They therefore should start focusing beyond solely on how this technology is being used today. CIOs should look for opportunities to leverage blockchain technology for deeper business changes that can drive real value.  They should focus on areas where blockchain could strengthen the organization’s value proposition. CIOs should figure out which use cases are most appropriate, , and propose projects that could truly differentiate the organization.

2. CIOs need to understand how blockchain will impact key parts of the business

The opportunities for blockchain technology are massive. It can significantly impact many parts of the business. The most important question for CIOs is how these changes might affect the enterprise and how can the organization exploit the technology?

CIOs need to start thinking about what value blockchain can add to their organization and how to tackle the challenges over the next five years. They should plan for incremental evolution of their own blockchain strategies. For that they should carefully look at the stages in which blockchain  technology is situated. The Gartner Blockchain Spectrum distinct four phases: blockchain-enabling; blockchain-inspired; blockchain-complete and blockchain-enhanced. We are now half way i.e. in the blockchain-inspired phase. Technologies in this stage combine some elements of blockchain, but lack two core elements:  decentralization and tokenization (see my blog: Gartner Blockchain Spectrum: a great tool for CIOs March 18, 2019).

3. CIOs should look at the potential gaps, weaknesses and hurdles of blockchain

Blockchain is not there yet. And – next to that – this technology is not a panacea for all companies problems.  CIOs should be aware of that.  One of the main elements of blockchain is decentralization. It removes central authorities from the process and enables a level of trust between two parties who have never done business before. The definition of participant will – as a result – expand beyond individuals and businesses to include things like smart contracts, distributed ledgers, connected things and DAOs.

Blockchain will facilitate the interactions between all of these participants and enable a new society, but cannot solve all trust problems. CIOs therefore should create a map that highlights potential gaps and weaknesses.

CIOs should also be aware of the various hurdles that prevent massive adoption. It will take a number of years before this technology will enter the maturity stage. Considerable work needs to be completed in ‘non-technology-related activities’ such as standards, regulatory frameworks and organization structures for blockchain capabilities to reach the Gartner Hype Cycle Plateau of Productivity. This is the third stage now also including the previous lacking instruments: decentralisation and tokenization. In a recent blog, Gartner listed eight hurdles needed for the technology to deliver its promises, including technically scalable blockchains, advances in smart contract technology, transaction risk assurance, data confidentiality, and an efficient consensus algorithm.

For effective rollouts, CIOs also need to keep in mind that blockchain is not secure in and of itself. Blockchain is a complex technology, and can lack the clarity of oversight and auditability that more traditional systems offer. As a result, compliance and enforcement costs may increase with blockchain implementation, and some regulatory environments (such as GDPR) may require oversight that is difficult to achieve with the technology. This is exacerbated by a lack of common standards or legal frameworks. CIOs should look at methods to manage these blockchain-related risks.

4. CIOs should brief their CEOs on the strategic implications of blockchain

Company boards will have to make strategic decisions on blockchain in a climate of uncertainty. Many boards of directors will therefore call upon CIOs to brief them on blockchain due to current market hype. CIOs should therefore regular update their CEOs on new developments. The difficult task as a CIO is to explain the strategic implications of blockchain without getting stuck in its technical aspects. Board directors do not want a lot of detail. They just want the high-level issues, implications and suggested actions. CIOs should thereby focus on three main areas: a description of blockchain, frictionless markets and the cross-industry business impacts of a programmable economy. The reason for this is that blockchain has the potential to create cross-industry, transparent and frictionless markets, where transactions have almost no costs and restraints. However, be aware that the future business climate, risks and legal status of blockchain remain unclear.

5. CIOs should warn their board not to underestimate the impact of blockchain

CIOs should warn their board not to underestimate the impact of blockchain. Blockchain for most industries remains ‘mired between inflated industry expectations and general disillusionment’ with regard to how it can improve business processes. While most have heard about blockchain, few understand the technology and its implications for business. This bears the danger that they are underestimating the impact of blockchain. Enterprises run the risk of having their business disrupted if they do nothing about blockchain; however, undertaking a blockchain initiative carries risks too. It is important for CIOs to discuss the areas where blockchain will affect the board’s risk calculations.

CIOs should also determine and inform their CEOs whether blockchain could solve business problems and whether they really need this technology. Existing systems may look much more efficient, or could be managed cheaper compared to blockchain solutions.

6. CIOs should think and work towards a new blockchain-based business model

Once decided to implement blockchain in their company, the greatest challenge for CIOs will be thinking about and working towards a new blockchain-based business model. As blockchain is a collaborative issue, main question for CIOs is, how they could come up with a business model in which companies in an industry can agree on common standards and operate together.  This asks for a strategic approach. By focusing on a number of key areas early in their blockchain efforts, CIOs can lay the foundation toward successful execution. These areas include: make the blockchain business case, build an industry ecosystem, determine the rules of engagement, and, navigate regulatory uncertainty.

First of all CIOs should give strategic clarity when presenting their business case. This should ensure that their blockchain initiative has a business purpose around which they and other participants can align. For that it is needed to identify the business value. To get the most out of blockchain, collaboration between (previous) competitors is key. This should result in building an industry ecosystem, aimed to meet industry-wide challenges. For that it is important that CIOs discover the benefits of collaboration.

A third area of attention is to determine the rules of engagement. Every blockchain will require rules and standards, particularly around what various participants will be able to access and how they can engage. CIOs should thereby explore potential blockchain models and chose that one that fits best. Finally, CIOs need to “stay agile” to meet regulatory requirements as they evolve in the years to come. They should understand the shifting regulatory landscape.

7. CIOs should focus on the various challenges when implementing blockchain

Despite the potential opportunities of blockchain technology, organizations still face a number of important challenges when it comes to implementing blockchain. CIOs should focus on these challenges, that should be identified well in advance, in order to get the best out of this technology.

A first challenge – and not the least one – is the possible lack of skills. Because blockchain is still young and not yet a mainstream technology, there are very few professionals with skills in this area. This asks for intensive education, setting up internal and external courses, hiring externals etc.

Another challenge is the non-existence of a  universal standard for blockchain. This limits the usability of blockchain in and between companies. Until you have standards, you really can’t share information in the classical sense. Though one uniform standard is still far away, Gartner predicts that there will be four main standards in about five years’ time. A third challenge is that blockchain must integrate with legacy technologies so that businesses can exchange information in a meaningful way. In some industries, this is a major obstacle. People just don’t understand the technology, or know what it is good for.

8. CIOs should continue to develop proofs of concept internally as well as part of market consortiums

In order to get grip on blockchain and what it can mean for their business, CIOs should continue to develop proofs of concept to test blockchain’s business worthiness. Thereby they should take into account that different industry domains (upstream, midstream, downstream and marketing) and functional areas (such as commodity trading, cash management, supply chains and data integrity) are expected to adopt blockchain on different timelines.

For enterprise success, blockchain needs to be a consortium effort – not something that is used only internally. CIOs should be aware that the transformative nature of blockchain works across multiple levels simultaneously (process, operating model, business strategy and industry structure), and its success will depend on coordinated action across multiple companies. The way to create a multi-company blockchain consortium however is a very difficult one.

9. CIOs should look to combine blockchain technology, Big Data Analytics, IoT and AI

Blockchain should not be looked at in an isolated way. In order to get the most out of blockchain technology, CIOs should investigate integrating this technology with other ones like Big Data Analytics, the Internet of Things (IoT) and Artificial Intelligence (AI).

Once blockchain has been combined with the Analytics, IoT and AI, blockchain has the potential to change business models forever, impacting both data and monetary flows and avoiding centralization of market power (see my blog: Blockchain and Big Data: a great marriage, January 29, 2019).

10. CIOs should be aware of the changing world in which business exist.

Finally, CIOs should be aware of the changing world in which business exist. Not only because of blockchain, but also triggered by other technologies. The reality is that blockchain and its core elements will radically alter not only the business world itself. The future might eventually lay in a more decentralised programmable economy, that may evolve into digital societies that have a legal standing equivalent to today’s corporates and individuals. These digital societies will set the terms of competition in the future. CIOs should realise that, not  only by developing the technology, but also the ethics and practices to exist in the digital society.

What does this all mean for CIOs?

CIOs are counted on for innovation in their company. Related to blockchain, there however will be a need to  a different approach, away from present blockchain tech-of-the-day approach to a more methodical one to innovation. This asks for a new type of CIO. To deliver, CIOs should realise and recognise that their ability to innovate is nowadays restricted by an organisation that lacks flexibility and agility. CIOs should instead become more flexible and agile and deliver an operating model that is fast, connected, and insights-driven.



Carlo de Meijer

Economist and researcher


Gartner and Blockchain: the Good, the Bad and the…

| 01-10-2019 | Carlo de Meijer | treasuryXL

Last year Gartner, the high-standard research institute, painted a rather realistic scenario for blockchain. In one of its research papers, Gartner stated that its latest technology hype cycle puts blockchain beyond the peak of expectations and is currently sliding down towards the trough of disillusionment stage. They estimated a 5-10 year timescale before it enters the plateau of productivity, or mainstream.

Now a year later, in a recent study Gartner show a more sober picture. They found that most enterprise blockchains have been ‘mistargeted’, and that most of the blockchains in use today will need to be replaced in a couple of years.

This raises a number of questions. According to some commentators, blockchain is having an identity crisis. They state that technology is constrained by assumptions and that technological immaturity is prohibiting efforts from moving beyond the pilot phase. Other say that this is just a normal stage in the development of a new technology?

The bad …..

First the bad news. The report gives a rather sober vision for blockchain technology and its near term development. According to their research that was published last June, Gartner predicts that by 2021, more than 90% of current enterprise blockchain platform implementations will fail or need to be replaced in a 18 months period. This is due to a fragmented blockchain market and ‘unrealistic expectations’ by CIOs.

A May 2019 report by Gartner already predicted that 90% of blockchain-based supply chain initiatives would suffer from ‘blockchain fatigue’ by 2023. Garner’s June research report however has a much broader industry base and should therefore be taken seriously.

Fragmented blockchain market

The blockchain and distributed ledger technology has already become highly fragmented in terms of platforms, standards and offerings. This makes it difficult for companies to push ahead with real-world uses.

Multiple blockchain platforms

The present blockchain platform ecosystem is a very fragmented one. Today CIOs can choose from numerous blockchains available using either private ledger approaches such as R3 Corda, Hyperledger and Digital Asset or public ones such as Ethereum. Each consortium is thereby trying to make their offerings ‘the de facto basis for value exchange and digital asset representation, smart contracts and decentralised applications’. Gartner does not expect that there will be a single dominant platform within the next five years.

Fragmented offerings

The blockchain platform market is composed of fragmented systems and offerings by blockchain providers that often overlap or are being used in a complementary fashion. The blockchain platforms and technologies market is still nascent and there is no industry consensus on key components such as product concept, feature set and core application requirements.

Companies are as a result unable to find an off-the-shelf, complete packaged blockchain solution. Hybrid offerings of conventional blockchain platforms are adding further confusion to justifying a use case. This adds more complexity and confusion, making it that much harder for companies to identify appropriate use cases.

No uniform standards

Blockchain standards esp. for financial services companies are currently fragmented and immature. Standards are critical for corporates esp. in the financial industry, because they are constantly moving assets between clients, partners and other institutions. Fragmented blockchain standards are likely to prevent widespread short term deployment of blockchain and distributed ledger technology in real-world systems. Until consortiums and standards groups come together on several industry standards or de facto standards emerge, the use of blockchain will be limited mostly to proofs of concept and pilot tests.

Implementation issues

No seamlessly integration

To achieve the true potential of blockchain, implementations must be seamlessly integrated with already installed software solutions. However, major software and SaaS providers are not offering blockchain solutions as add-on features to their enterprise solutions. Currently, integrating blockchain platforms with existing systems can cost organizations millions of dollars, which further slows blockchain adoption.

Lack of interoperability

Cross-industry interoperability standards are, and will be critical especially for financial services companies. These blockchain platforms however often use differing implementations, data formats, data interchange and directories, making interoperability among different blockchains difficult across organisations.

Lack of strong use cases

As a result of the above shortcomings there is a lack of strong use cases. Most projects have remained pilot projects, due to a combination of technology immaturity, lack of standards, overly ambitious scope and a misunderstanding of how blockchain could, or should actually help the industry.

Not meeting companies needs

According to Gartner, another major challenge that CIOs and IT decision makers currently face is that blockchain platform vendors often use (marketing) messages that don’t link to a target buyer’s use cases and business benefits. This may add to the confusion around blockchain capabilities and how they augment existing processes. Buyers are still confused as to how these functions are achieved or what benefits blockchain may add compared to their existing processes.

Overestimation by CIOs

 Following from the results of the Gartner 2019 CIO Agenda Survey conducted from April through June amongst more than 3000 CIOs from almost 90 countries and across major industries, there is also a mismatch between expectation and reality about how they perceive blockchain technology.

The survey shows that many CIOs overestimate the capabilities and short-term benefits of blockchain as a technology to help them achieve their business goals, thus creating unrealistic expectations when assessing offerings from blockchain platform vendors and service providers. Even though they are still uncertain of the impact blockchain will have on their business, 60 per cent said that they expected some level of adoption of blockchain technologies in the next three years.

Misunderstandings by CIOs

There are a number confusions about blockchain technology leading to misunderstandings at CIOs. The vast majority of projects focus on recording data seeing it as the main offering of this technology. Many corporates however fail to use major capabilities of blockchain technology, such as decentralized consensus, smart contracts and tokenization.

Another misunderstanding amongst CIOs is their idea that the technology is already mature enough so that it is ready for production use. In fact many platforms however are still in a nascent and immature state far from being ready for large-scale production. Gartner however expects this will change within the next few years. And there is the wrong idea amongst many CIOs that protocols are identical to business applications. A protocol is the underlying technology such as Hyperledger Fabric of R3’s Corda and is invariably applicable to several industries. Applications need to be developed on top of these.

There is also the conviction in may CIOs mind that interoperability between various blockchain platforms is already a fact. Although some platforms talk about interoperability, Gartner finds it ‘challenging to envision interoperability when all the protocols are evolving quickly’.

The good ….

But it is not all bad news we can read in Gartner’s recent research paper. Despite the predicted gloom and the mismatch between expectation and reality, blockchain still has a solid future. Still the underlying technology is attractive and its potential uses cases vary across industries.

Impressive business value added

Although the technology will need constant updating, Gartner also predicts that by 2025, the business value added by blockchain to the industry will exceed $176 billion. More impressive is how this figure may surge to $3.1 trillion by 2030.

More stable applications

The ‘chaos’ in the blockchain solutions market is expected to only be a momentary challenge, ‘one that will pass as the hype-cycle dies down, and leads to more stable, enterprise-wide or rather industry-wide applications’. Within three to five years, many of blockchain’s core technical challenges are likely to be resolved. Given the attractive features of blockchain technology it can really drive interesting projects.

Standards maturity

Though it is very unlikely there will be a single de facto standard at all levels, Gartner expects that fragmentation will collapse and that we are three to five years away until standards mature and settle, resulting into no more than four dominant standards. This may allow for more interoperability among different blockchains.

“It’s unlikely there’ll ever be just one standard, but ultimately [there will be] a couple [of] standards bodies who’ll adjudicate…. Ultimately, there will be one or two standards..,. but no more than four”. Gartner

Blockchain capabilities as an add-on

Software suppliers, meanwhile, will integrate and upgrade their chosen blockchain versions and ensure compatibility with their own new software releases. In the next two to three years, Gartner expects all major ERP and CRM players to offer blockchain capabilities as an add-on feature for their software and SaaS products. These efforts will dramatically reduce the costs of deploying blockchain projects across the financial services organizations and their supply chains.

Transformational business impact

The 2019 Gartner Hype Cycle for Blockchain Business shows that the business impact of blockchain will be transformational across most industries within five to ten years. But these opportunities demand that enterprises adopt complete blockchain ecosystems. Future technology developments and removing remaining obstacles may enable that.

“Making wholesale changes to decades-old enterprise methodologies is hard to achieve in any situation. However, the transformative nature of blockchain works across multiple levels simultaneously (process, operating model, business strategy and industry structure), and depends on coordinated action across multiple companies.” Gartner

More intelligent applications

In the future, more intelligent blockchain applications are expected, in line with Gartner’s predictions. Especially as we move further on the Hype Cycle and past the so-called “Inspired Solutions (phase 2)” by 2022 and get well into “Complete Solutions (phase 3)” form 2025 onwards. And finally reach he Plateau of Productivity – the point at which mainstream adoption takes off.

And the …… way forward for CIOs

Companies working with the ‘myriad’ of blockchains available today should realise it is ‘highly unlikely’ the one they are using now or are planning to use short term will become the industry standard in five years. Corporates therefore need to investigate intensively how to navigate the next blockchain wave best.

Well–founded business plan

Many companies want to be fluent in blockchain before the technology is everywhere. For that they need a well-founded business plan. Those who fail to do sufficient scenario planning, experiment with the technology, and delay consideration of decentralization and tokenization risk significant long-term disintermediation.


Understanding and learning how to leverage the technology to create useful and practical solutions, is of utmost importance. In order to help CIOs in their blockchain journey, Gartner came up with a list of recommendations and valuable advices. CIOs should continue to educate executives and senior leaders about the blockchain opportunities and challenges most critical for business.

CIOs should also be aware of complicated challenges and of a number of impediments when deploying blockchain projects: standards, governance, integration and interoperability. They should therefore pay close attention to these hurdles blockchain projects face. In order to get used to blockchain technology and its applications, it is important for CIOs to continue to develop proofs of concept internally as well as part of market consortiums. By doing this they may learn how to leverage the technology to create useful and practical solutions, to take good decisions.

This Garner Hype Cycle is a very useful tool for corporates to get insight in the scope of blockchain’s transformation, how it impacts various industries as well as may show the current state and evolution of this technology.



Carlo de Meijer

Economist and researcher


Using Blockchain for Legal Entity Identifiers or LEIs

| 19-09-2019 | Carlo de Meijer | treasuryXL

In one of its reports, GLEIF, the Swiss-based organisation which coordinates the management of the global Legal Identity Identifier (LEI-) system, suggested to use blockchain technology for identifying financial legal entities, as that would not only improve transparency and security but may also lead to broader global acceptance of the LEI.

This however raises a number of questions such as: Why could blockchain be of use for LEI and its users? What role could smart contracts thereby play? What benefits could blockchain bring for the LEI? And what does the most recent blockchain-based projects for the LEI tell us?

What is the LEI?

But first, what is the LEI? According to their website definition, “the Legal Entity Identifier or LEI is a 20-digit, alpha numeric code based on the ISO 17442 standard. It connects to key reference information, allowing clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’”.

In other words a LEI is a uniform way of keeping track of financial legal entities. They are global and have no borders at all for accurate and trusted identification of companies around the world. Looking in that way, the publicly available LEI data pool can be regarded as a global directory, which may greatly enhance transparency in the global marketplace.

The management of the LEI system is coordinated and supported by the above mentioned Global Legal Entity Identifier Foundation (GLEIF), while registrations are performed by so-called LOUs or Local Operating Units.

GLEIF and Blockchain

In their report on the LEI to the Financial Stability Board (FSB) in 2012, the GLEIF stated that “the design of the global LEI system would be premised on a ‘logically’ centralized (meaning not physically centralized) database that will appear to users to be from a single seamless system”.

GLEIF however recently recognised that the organizationally federated operating model used for the LEI in 2012, could be upgraded to a technically federated operating model: the distributed ledger model (DLT). This upgrade could potentially provide the same DLT platform for both the LEI and the UPI (Unified Payments Interface), of which the GLEIF is supposed to be the natural repository. This distributed design has always been a longer term goal for the global LEI system.

Present challenges for LEI

The LEI provides a global standard for the representation of identity as well as a standard validation rule set. Both elements however are subject of a very detailed compliance program in order to ensure proper issuance and maintenance of LEI and data quality.

Nowadays collection and storage of data is conducted in multiple country or regionally located operating units (LOUs). Each has their own databases (there are more than 30 at present in the LEI system and a large number of separate ones for each trade repository), and send their data daily in batch overnight processes. LEI data is sent to the GLEIF. Trade repositories send their data to multiple regulators and to central collection facilities depending on the jurisdiction. All regulators and trade repositories maintain their own data copies of identifiers for products and counterparties, and for trades.

This method bears in it a number of challenges, in terms of non-optimal transparency, security and risk issues where blockchain could be of help.

Blockchain and Identity Management

When it comes to use cases for blockchain, security is one of the serious items that comes in many minds. Identity management is one sector of industry that is supposed to provide high-level security to those who rely upon it to keep their data safe. But in reality security is not always what they get. The digital age has introduced new challenges in terms of preventing identity fraud and other criminal abuses for private people but increasingly also for corporates.

Nowadays there is an increased need for strong, multi-step security that identity management services should bring. The widespread adoption of blockchain technology to ensure that any number of these centralised databases are ‘not compromised’, should give enough arguments for the identity management industry to embrace this technology.

Some use cases for identity management

There are a number of interesting blockchain use cases in the identity management field. These include issues like identity verification, non-custodial login solutions, self-sovereign identity, secure identities for the decentralised web etc. These use cases have all proved their usefulness in such an environment.

Identity verification

Blockchain’s multi-step, multi-factor identification processes have proven to work and are already implemented by a number of companies. Admittedly, it is hard to imagine why the blockchain authentication model has not (yet) gained more mainstream adoption, especially considering the stakes of stolen identities and credentials.

Non-custodial login solutions

With non-custodial logins based on the blockchain, there is no longer need of a central entity who holds the power over user names, pass words, and the database that controls them. By removing the custodian of these credentials and replacing them with public and private keychains for logins, the former centralised entity can still ensure that ‘those logging in are who they say they are’, without holding a central database that hackers can easily acquire and use as ransom money.

Reduce third parties’ involvement

Blockchains could also help reduce the number of third parties while still maintaining a user’s identity. One solution could be that a user would store their data and identifiers on a blockchain which they could use throughout the internet, instead of granting each site or service their personal data and credential time. A second proposal is built on a similar blockchain containing the user’s data but allow third parties to access the data with their consent.

Smart contracts for Identification services

Using blockchain for the identification services including the LEI would preferably be in the form of so-called smart contracts. These contracts are ‘included and coded’ applications and data representing the life-cycle processes of a trade. It is stored and activated across a networked database – the distributed ledger – which itself is networked across the Internet.

In other words, a smart contract is self-actuating, based on standardized contract terms that is translated into standard trade life-cycle processes imbedded in coded applications. The smart contract acts on standardized data sets, setting its outputs in conformity to each participant’s processing requirements.

A smart contract requires data standards, including the LEI and its reference data for each participant in the supply chain; the UPI (Unified Payments Interface) and its reference data; and the UTI (Unique Transaction Identifier). It also requires process standards for each event in the life-cycle of a trade.

How could smart contracts be used for the LEI?

But how can smart contracts be used for the LEI? The central point of using smart contracts for the LEI is to treat a single record for any entity to be identified by some key as ‘atomic’. This in the sense of being administered as a single unit of data, by the authority that assigns the keys. Then the representation of a single ‘atomic’ record can be considered as a state for a single smart contract.

Each such contract would offer a method for accessing the representation, and a dynamic data structure that holds ‘revisions’ of the representation. That is, when the record changes globally, its new representation would be added to the state of the contract. Such contract can hold many revisions of the representation, bound only by the capabilities of the network’s global storage, called ‘entity contract’. Together with entity contracts, someone can devise one or more ‘master contracts’, that keep track of individual entity contracts and make accessing an easier process.

What approach for the LEI?

The use of permissioned and private blockchains or distributed ledgers for identity management purposes such as the LEI will require mapping between real world entities. This is hosted via cryptographic algorithms creating public/private keys pairs linked to reference data. The owner of the private key can write into the chain.

This however raises a number of major issues: Firstly, are we going to see multiple digital IDs depending on the application or are we going to use one ID to access all applications. And second, what is the appropriate management for all these IDs.

There are a number of possible scenarios:

One could use identity labels i.e. unique keys in the blockchain/DLT application. That means using the LEI in a distributed ledger system for tracking financial instruments. This is de facto the standard approach due to legal and regulatory requirements.

Another scenario is using blockchain/DLT for managing the LEI creation and management itself. This however should be seen as a longer term project. There are still many open questions but this approach bears interesting aspects for the further evolution of the LEI system.

MakoLab LEI.INFO and Graphchain Proof of Concept

An interesting project that should be taken seriously for further development is the MakoLab LEI.INFO system. Polish-based MakoLab, a Digital Solution Agency for the industry, last June announced the deployment of their production grade Blockchain-based LEI system.

This was the result of two Proof of Concepts (PoCs) for a radically new blockchain LEI system, based on the private Hyperledger Indy blockchain, using the innovative GraphChain database that is much more flexible than any standard existing system available today. These PoCs allowed MakoLab to investigate deeply the possibility to construct a system which represents the ‘highest level of both technological and organisational security’ and is completely decentralised.

Hyperledger Indy Framework

Given the vulnerability of the data, the suggested architecture for LEI is that of a so-called consortium type of blockchain that works on Hyperledger Indy. This is a blockchain model where the consensus process is controlled by a pre-selected set of nodes. The network of Hyperledger Indy nodes thereby runs as a private, permissioned blockchain for the Global LEI System.

In this model different nodes are used. User nodes that participate in the global blockchain as passive users. They can see all the data stored in it, but cannot create or edit anything. Registration nodes having all the properties of the User nodes plus the ability to provisionally add new LEIs to the system. However, such newly added LEIs are not visible on the system until the LOU nodes confirm them through the ‘Proof of Authority’ mechanism. And LOU nodes that have all the properties of the Registration nodes plus the capacity to confirm the new or modified LEIs as valid. Application of the blockchain technology with LOUs running their own nodes, would make the LEI system much safer and more reliable.


End June MakoLab announced the full production version of the innovative GraphChain for the LEI.INFO infrastructure. They thereby created a conceptual proposal how the entire LEI system could run on GraphChain. GraphChain should be seen as a new innovation of creating a blockchain compliant distributed database. The main idea behind GraphChain is to use blockchain mechanisms on top of an abstract RDP (Resource Description Framework) graph data model, that is used for data publishing and interchange on the web.

GraphChain is thereby defined as a linked chain of named graphs specified by the GraphChain ontology and an ontology for data graph part of the GraphChain; a set of general mechanism for calculating a digest of the named RDF graphs; and as a set of network mechanisms that are responsible for the distribution of the named RDF graphs among the distributed peers and for achieving the consensus.

The data graph model describes the semantics, or meaning of information and stores these data as a network of objects with materialised links between them, thereby managing highly interconnected data. It thereby uses graph structures with nodes, edges and properties to represent and store data.

LEI.INFO system

The new functionality allows cryptographic verification of the accuracy or usefulness of the underlying LEI data. The LEI.INFO system uses the RDF graph data model to express LEI reference data as semantic data, that can be verified against the network of Hyperledger Indy Blockchain. This LEI.INFO platform allows to get instant access to the database of entities holding LEI’s and as a result to find a reliable supplier, partner or customer.

LEI.INFO offers a wide range of LEI-related services including a new LEI registration process, resolution of the LEI codes for both humans and software agents, Data Analytics Solutions and integration services for KYC and financial information consolidation applications.

What may blockchain bring for the LEI?

From what is said before, it should not be difficult to see how blockchain and a single database that could be updated in real-time, securely maintained through encryption technology, distributed and shared by all of the participants could benefit those organisations who use the LEI. The reconciliation of the various copies of what is intended to be identical data sets could be done in real-time.

Managing LEI on blockchain delivers transparency and ensures the necessary trust and certainty optimal for combatting financial crimes, streamlining various administrative processes like onboarding, and truly knowing corporate customers, partners, and other businesses. This could ‘revolutionise’ the oversight of the financial industry. As a result of this all, it may lead to firmly reduced resources and costs of the validation process required for conducting due diligence about those entities.

McKinsey, the global consultancy estimates that the largest financial institutions alone can each save $1 billion in costs through a simplified portfolio of data repositories. ISDA members, many being the largest of financial institutions, are envisioned as direct beneficiaries of such savings.

Going forward

Blockchain technology could be of great help for the Global LEI system. The MakoLab project is thereby a very interesting one that deserves further investigation.

This LEI.INFO project however is just a first step in their research and development process with this technology. Taking into consideration the growing potential of the solution, MakoLab is “working on further-enhancing the LEI resolver with other top-class solutions – semantics particularly – as well as translating blockchain into other business areas” .

In the end such an architecture of the new LEI system will enable ‘thousands of registration authorities from multiple countries to participate in the new LEI creation’, thereby opening the path for the true global adoption of the system.



Carlo de Meijer

Economist and researcher



CSDs have a role to play in a blockchain environment

| 12-08-2019 | Carlo de Meijer | treasuryXL

There is a broad consensus amongst the post-trade industry that blockchain technology will revolutionise the securities post-trade world and could radically change how assets are maintained and stored by custodians and central securities depositories (CSDs).

Blockchain technology may enable real-time settlement finality in the securities world. This could mean the end of a number of players in the post-trade area, such as central counterparty clearing houses (CCPs), custodians and others. For a long time, also central securities depositories (CSDs), as intermediators in the post-trade processing chain, thought they also could become obsolete.

This idea however is changing. While CSDs are making up their mind on their future position in the blockchain world, they are increasingly considering blockchain as enabler of more efficient processing of existing and new services, instead of a threat to their existence. But what will be their future role?

Complex/fragmented post-trade infrastructure

As we all now, the current post-trade infrastructure is highly complex and fragmented. Much of this complexity and fragmentation is the result of the various intermediaries needed in the post-trade process. They include players like banks, brokers, stock exchanges, central counterparty clearing houses (CCPs), central securities depositories (CSDs), real-time gross settlement (RTGS) systems and custodian banks.

In the current set-up of the post-trade environment, important record-keeping functions, such as those relating to the issuance, settlement, registration and safekeeping of securities, are performed centrally by different specialist intermediaries. Intermediaries also perform the post-trade servicing of assets, such as crediting dividend payments or bonus issues to client accounts, or managing rights issues and takeovers.

They are thereby dealing with siloed outdated legacy systems and technologies each having their own ledger that are not good communicating with each other.  Consequently, they spend much time and resources on reconciliation and risk management. As a result settlement currently takes two or more days in many places, involving high risks and high costs for transacting parties.

The present role of CSDs

Situated at the end of the post-trading process, CSDs are systemically important intermediaries. They thereby form a critical part of the securities market’s post-trade infrastructure, as they are where changes of securities ownership are ultimately registered.

CSDs play a special role both as a depository, involving the legal safekeeping and maintenance of securities in a ‘central depository’ on behalf of custodians (both in materialised or dematerialised form); as well as for the issuer, involving the issuance of further securities by issuers, and their onboarding onto CSDs’ platforms.

CSDs are also keeping a number of other important functions, including: dividend, interest, and principal processing; corporate actions including proxy voting; payment to transfer agents, and issuers involved in these processes; securities lending and borrowing; and, provide pledging of share and securities.

Blockchain: disruption in securities post-trade

DLT offers the prospect of rationalising and combining post-trade activities in one single action, offering safer and cheaper record-keeping, as well as more seamless securities issuance. They thereby may create significant cost savings and efficiency gains across the securities market’s post-trade infrastructure.

  • Blockchain is linking trading partners directly. That means everything will be in place in the ledger at the time of the transaction.
  • With DLT, all of the complex systems and processes to transfer cash and equities from one account to another are not required. Everything can be embedded into the blockchain.
  • Institutions will no longer have to maintain their own databases, as with DLT there will be only one database for all participants in the transaction (so no more fragmented islands of information).
  • This will heavily ease the reconciliation process, allowing increasing transparency and efficiency in a presently highly fragmented industry.
  • It could permit the direct or real-time settlement of transactions between accounts, the simultaneous verification of transactions and the registration of ownership, and the direct and automated payment of entitlements to accounts.
  • As a result, buyers and sellers can match transactions in seconds and all parties are aware a transaction has been done.

On the other hand, DLT has the potential to heavily disrupt existing post-trade processes in financial services. Shared ledgers of ownership promise to revolutionise the post-trade infrastructure, Thereby impacting the business model of a number of intermediaries.

Use of a blockchain network would automate the process further, with completely integrated authentication and transparency of the transfers themselves. As a result, clearing and settlement can be transformed into a single process, in which digital and digitised assets are delivered against payments instantly, thereby removing the need for a market infrastructure provider to hold a security, or token in its own physical or electronic vault.

The extent to which blockchain will disrupt existing processes in financial services is still unsure. Some say a complete disintermediation of middle and back office processes is under way, removing most (or even all) intermediaries from the post-trade processes.

Others however say the impact of this emerging technology will be less forceful, with a (limited) number of existing intermediaries to play an important though somewhat different role.

CSDs changing attitude

What is sure is that for some actors in the securities post-trade world, DLT will completely replace their businesses or even make the work of some intermediaries such as CCPs and custodians redundant. Others will still be needed, but they should question what will be their added-value within future DLT services, such as CSDs.

CSDs are changing their viewpoint on DLT including blockchain. Instead of seeing blockchain as a threat to their existence, they are now also considering them as (potential) enabler of more efficient processing of existing and new services.

“CSDs could have an important role to play in a blockchain-based settlement system. As ‘custodians of the code, CSDs could exercise oversight of, and take responsibility for, the operation of the relevant blockchain protocol and any associated smart contracts.” Euroclear Report

CSDs are believed they will continue to perform an important role as trusted, centralised financial market infrastructures (FMIs), providing gatekeeping services and oversight of the relevant blockchain.

How are CSDs reacting?

Recognising the threat as well as the opportunities of blockchain to their current services, a group of CSDs across the world has been working together and with regulators to define their future role in the blockchain post-trade environment. By working together they will ensure that CSDs from each region are represented, potentially unleashing (unimagined) network effects.

Aim of this cooperation is to explore how blockchain could be used for post-trade processes, identify, define and develop use cases in the securities depositories’ industry (including smart contracts and digital assets), and identify how existing standards could support it.

Another  group of 30 central securities depositories (CSDs) in Europe and Asia are researching possible ways to “join hands” in developing a new infrastructure to custody digital assets. The CSDs will attempt to figure out how to apply their experience in guarding stock certificates to security solutions for crypto assets.

“A new world of tokenized assets and blockchain is coming. It will probably disrupt our role as CSDs. The whole group decided we will be focusing on tokenized assets, not just blockchain but on real digital assets.”

These CSDs clearly see an opportunity to apply their knowledge and skills to the crypto currency space, where “losing your private keys means losing your coins forever”. The group’s focus is looking at how to protect these keys for crypto investors, and how the tokenization of “everything stands to change everything”. The next phase of the research will also involve some large custodian banks.

CSDs future role in a blockchain environment

There are various reasons why CSDs may continue to play a role in the post-trade bklockchain environment. That is not that strange as the primary functions of CSD may run parallel to many of those that emerge from the blockchain technology. CSDs are aware that some of those roles will neatly fit into their natural infrastructure. But there will also be some activities that will become obsolete.

Looking at the roles that could be suited for CSDs, those would be anything around safety, notary and governance.

1. Notary function
Blockchain may enable tokenisation of assets and the use of smart contracts. All these are new components in the value chain. This may mean that a digital actor will be needed to manage this tokenisation, and creation and maintenance of smart contracts, overseeing the entire securities token ecosystem. CSDs could fulfil this notary function.

1a. Asset tokenization
Asset tokenization is the representation of assets on the blockchain in the form of tokens, which are designed to be unique, liquid secure, instantly transferable, and digitally scarce – and therefore impossible to counterfeit.

In a world where securities and other assets become tokenised, some have argued that an intermediary will still be needed to issue them and create rules. Tokenised assets exchanged on a distribute ledger may still require CSDs to hold the equities, which the token represent. They would thereby fulfil the crucial notary function, both as tokenising agent and as operator of the escrow accounts in which the real assets are hold.

1b. Custody of private keys
There may also be a need for secure maintenance of personal encrypted keys. Adopting blockchain technology would allow individuals and companies to have complete control over their assets and data, accessed through a set of private keys that must be kept secure.

Emerging technologies like decentralized key recovery will allow more and more individuals to secure custody of their own assets, thereby removing the artificial and expensive separation between legal and beneficial ownership in most asset markets.

Some will choose to take that responsibility themselves, but many investors may choose to outsource the custody of their private keys and token wallets to the companies and CSDs that can provide an independent and secure safekeeping service for these private keys.

2. Record of title for securities
CSDs could  also be of value to record of title for securities. In many cases, the law mandates how title to property transfers. EU regulations state that for “any financial instrument to be transferable and tradable”(i.e. takes place on a trading venue, exchange or multilateral trading facility), securities must be recorded (registered) in book entry form in a CSD.

Under the current law, to enable having a blockchain-based system of transfer of title to securities, the blockchain would need to be the system that the CSD operates, which is not truly distributed.

Or one would need to create a new legal regime that recognizes that the transfer of title on a blockchain is effectively a transfer of title to the relevant property, and allows that in the context of securities trading. But that would take a lot of time to realise.

As a solution, the blockchain technology can be implemented through a hybrid model in which the CSD can either operate a blockchain platform itself to perform the book entry role. Or it can continue to perform this role off-chain, with the third- party blockchain platform accessing those records held by the CSD via an API (application programme interface).

3. Governance
CSDs could also play the governance role in a DLT based system – to ensure that what happens within their systems is unchallengeable. The movement from a post-trade system based around the existing infrastructure to a DLT-based system, without updating the regulatory and legal regime, could introduce a new systemic risk into the financial system. Regulators and legislators are unlikely to be comfortable in allowing the wholesale replacement of the existing infrastructure with DLT-based solutions.

CSDs are best placed to retain a ‘policing’ or governance role in a blockchain framework. This role should be the management of an insolvency of a party, particularly if there is a position that is not settled and the relevant contract is not yet completed. The involvement of CSDs in a governance and operational role could help increase trust of investors, and raise the quality of the blockchain ecosystem infrastructure underpinning these new asset classes.

4. Trusted gatekeeper: Authorisation and administration
CSDs could also be of help as trusted gatekeeper to DLT networks. While regulators will set the standards for admission to the network, the admission tests are likely to be administered by other parties. The most likely candidate for that role of trusted gatekeeper to DLT networks are the CSDs.

They are already the “first home of financial assets issued, and guardians of the integrity of every issue they accept”.

“The regulators are unlikely to want to immerse themselves in the operational details of the authorisation process.” “They will sub-contract that work to a trusted intermediary (read CSD).”

5. Other roles

A. DLT proxy voting system
One role in the post-trade environment that is already intensively investigated by CSDs is the management of a DLT-based e-proxy voting system. This would include providing general meeting services and give shareholders an easy, user-friendly and secure tool for voting remotely.

There is potential for improvement for instance in respect to the depots of voting rights. The system would automatically allow (or disallow) voting privileges for members based on what voting rights they had within a particular organization.

By using open source blockchain technology the efficiency and integrity of the Annual General Meetings and shareholder voting processes can be increased. Given that it is an end-to-end solution – from the time a meeting is announced and all the way through the voting process to the publishing of results – it means that all stakeholders will truly benefit within the process.

“By leveraging blockchain, we are able to reduce friction in the voting and proxy assignment process and also ensure that all information is transparent to stakeholders when required and with the proper security, governance and risk procedures in place.

B. Elective corporate actions
CSDs could also have a role to play at elective corporate actions.  Corporate actions recorded by the ledger may include paying out dividends, splits, issue of rights, warrants, pay-ups etc.

The user group for a permissioned blockchain network can choose who should validate these actions. They could simply give validation rights to every node. Getting issuers to publish elective corporate actions, such as rights issues and proxy votes, directly onto a blockchain, however might be a difficult step to realise.

Alternatively, this could be the role of a trusted third party, or a combination of both a trusted party and the nodes. This would imply a logical role for CSDs, creating a common registry of ownership associated with an ID.

C. Reconciliation
CSDs could also be of help in the reconciliation process. Blockchain may certainly help automate other components of the settlement process, such as reconciliation. A DLT-based reconciliation tool, with multiple trading firms participating in a record-based system, however could still occur within the CSD, which may act as the single point of reference for reconciling the various records.

D. Cross-border collateral mobilization
A final area where CSDs could play a role is in cross-border collateral mobilisation. Leveraging blockchain technology could overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient.

“Designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions.”

By using CSDs it could enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions.

Concluding remarks

CSDs are likely to play an integral role but important role in any blockchain environment. Their role however will look quite different from we know them today. They can be the logical center of the system, custodying the standards, processes and governance of the system.

CSDs will have the opportunity to be agents of change. CSDs however need to adapt to meet new demands asking for delivering added value services in the new blockchain environment.

But they are not there yet! There is clearly a gap between the long-term opportunities presented by blockchain and the challenges involved in making progress.

Several blockchain initiatives in this area have failed, or are just ended their pilot stage or are very limited in scope. CSDs are also not currently building a single solution. Rather, each group is building its own platform designed to interoperate with the others.

There is thus urgent need to leverage existing business standards for the distributed ledger technology application in order to realise a global infrastructure that can smoothly operate cross border.


Carlo de Meijer

Economist and researcher

Towards a central bank digital currency?

| 06-08-2019 | Carlo de Meijer | treasuryXL

Since Facebook announced its plans to come up with their own digital currency named Libra, a heated debate has risen about whether central banks should issue their own digital currency.

Central banks worldwide have expressed their worries about Facebook’s plan. According to them the prospect of a tech firm (and may be also others in the future) with billions of users launching its own money potentially poses a threat to existing fiat state currencies and especially to monetary stability.

Long-time sitting at the side-lines, this plan may accelerate the idea of a central bank digital currency (CBDC). Though there are no real plans (yet), are some strong arguments for central banks to start issuing their own digital currency.

This however raises a number of questions such as: What sort of digital currency?; What would be the main arguments? What role should banks play in this process? And, what would be the impact on financial stability?

Central banks counterbalancing Libra

Central bank are seriously watching the emergence of a new global digital currency called Libra, introduced by Facebook (see my Blog: Facebook and Libra: a global digital currency, 1 July 2019). The birth of Libra thereby serves as an “alert” for central banks and regulators.

There is growing belief that if Libra could be successfully launched, it would challenge central banks’ monetary sovereignty, posing a long-term threat to central banks control of money. Any role for Libra beyond the payment function could bring changes to the rules of the global monetary system, and regulators should pay close attention to that possibility.

“From the government’s perspective, we pay more attention to its influence on financial services, monetary policy and financial stability.”

Accelerating the launch of their own digital currencies by central banks could be a counterbalance.


The initial cautious stance towards a central bank issued digital currency, ranging from wait-and-see to very negative, has firmly changed. Central banks and governments from all over the world as well as international financial institutions like the IMF and BIS are now sounding a much more positive tone.


It is interesting to find that already last year (November 2018) the International Monetary Fund (IMF) started to examine the potential innovative nature of digital currencies and has supported CBDC proposals more positively. Christine Lagarde, at that time Managing Director of the IMF, urged central banks to consider CBDC since they could satisfy public policy goals, including financial inclusion, security/consumer protection, and privacy in payments.


While just a few months ago, Augustín Carstens, the general manager for the Bank for International Settlements (BIS), was still questioning the value of central-bank-issued digital currencies, he recently acknowledged that central banks will likely soon need to issue their own ones.

Carstens warns that “big techs have the potential to become dominant” in this area thanks to network effects. Further, the arrival of such products “might just be around the corner if there is clear evidence of demand from the public”.

 “And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies. If Facebook and big tech companies get their way, however they may have to.” Augustin Carstens

BIS is now supporting the many central banks’ efforts to research and develop digital currencies based on national fiat currencies. At the very least, the BIS concludes in its recent report, new “comprehensive” public policy is needed to “respond to big techs’ entry into financial services so as to benefit from the gains while limiting the risks.”

The potential implications of such a change towards central bank digital currencies for the stability of the global financial system however aren’t entirely clear, according to the BIS.


Though not taking an official position, a European Central Bank (ECB) official has come out generally in favour of wholesale central bank digital currencies (CBDCs).

Vitas Vasiliauskas, a member of the Governing Council of the ECB and chairman of the board of the Bank of Lithuania, said the question is not if but whether CBDCs should be retail, wholesale, or both. A retail CBDC would be available for the general public, while a wholesale version would be restricted to serve a limited circle, mostly financial institutions. In between these two types, “multiple theoretical sub-models also exist,” he said.


The People’s Bank of China (PBoC), the country’s central bank is accelerating its efforts to introduce a government-backed digital currency, aiming at “securing a cutting-edge position in the global cryptocurrency race”. The central bank is organizing market-oriented institutions to jointly research and develop a central bank digital currency and the program has been approved by the State Council.

“A digital currency issued by the central bank can improve the efficiency of monetary policy, and help to optimize the payment system.”

China’s monetary authority identifies the nature of digital currency as “a substitute for cash”, rather than a speculative instrument. The use of cash is declining in China amid booming digital payment systems.

The central bank digital currency could be a new monetary policy tool, or an investment asset that carries an interest rate to satisfy investors’ demand for value. It might also be used as a reference for bank interest rates on deposits. The Chinese digital currency also could be used domestically. But “everything is just under discussion”.

Why CBDCs?

There are various arguments raised to issuing central bank issued digital currency based on DLT. The main are described below.

Towards a cashless society

One of the reasons mentioned is that in the Western world a growing number of people do not use cash anymore. Physical payments are thereby gradually replaced with electronic payments. CBDCs could provide a safe, liquid payment instruments to the general public. They have the potential to reduce cash handling costs since all the transactions can be made using a digital representation of money and are traceable.

…. and a formal based economy

A shift in central bank money from cash (physical money) to digital currency is another way to shift the economy from being informal-based to formal-based so that the economy becomes more tax-based, transparent, and efficient. This is especially relevant for emerging markets.

Increased financial inclusion

Another motivation  for especially emerging economies regarding CBDC proposals is financial inclusion. In many of these countries a large number of people are unbanked and/or without access to commercial banks and the internet and thus excluded from conventional banking services. CBDC might promote digitization of the economy and, thus, economic and social inclusion.

More effective monetary policy

Shifting from cash to digital currency through issuing CBDC may enhance the effectiveness of monetary policy (such as a negative interest rate policy under the effective lower bound) because of limiting the scope of cash substitution that could emerge to avoid a negative interest rate.

Implementing CBDCs can allow new monetary policy tools to be used. Alternatively, CBDCs can be used as a tool to increase aggregate demand by making ‘helicopter drops’ of newly created CBDCs to all citizens, making it easier to meet the central bank’s monetary policy target of price stability.

Safer and more effective financial system

And there are the efficiency and financial stability gains to be get from CBDC. CBDC has the potential to improve the existing wholesale financial systems—including interbank payments and settlement systems, delivery versus payment systems, and cross-border payments and settlements systems.

Allowing individuals, private sector companies, and non-bank financial institutions to settle directly in central bank money (rather than bank deposits) may significantly reduce the concentration of liquidity and credit risk in payment systems.

This in turn could reduce the systemic importance of large banks. In addition, by providing a genuinely risk-free alternative to bank deposits, a shift from bank deposits to digital cash may also reduce the need for government guarantees on deposits, “eliminating a source of moral hazard” from the financial system.

Foster fintech sector

The use of CBDCs may promote a technological environment and foster the fintech sector. This is especially relevant for emerging economies. Those economies may find it difficult to develop banking systems and capital markets that are comparable to those in advanced economies. Fintech services are new and innovative.

Encourage competition and innovation

The regulatory framework would make it significantly easier for new entrants to the payments sector to offer payment accounts and provide competition to the existing banks. It would also reduce the need for most smaller banks and non-banks to run their payments through the larger banks (who are able to set transaction fees at a level that disadvantages their smaller competitors).

What sort of central bank digital currency?

When discussing the options of central bank digital currencies we can differentiate proposals into retail CDBC i.e. targeted to the general public and wholesale CBDC issued only for financial institutions. And there are multiple in-between types that may have characteristics of both retail and wholesale.

Retail CBDC

A retail CBDC is one that will be issued for the general public. Retail CBDC based on DLT has the features of anonymity, traceability, availability 24 hours a day and 365 days a year, and the feasibility of an interest rate application.

The retail proposal is relatively popular among central banks in emerging economies, mainly because of the motivation to take the lead in the rapidly emerging fintech industry, to promote financial inclusion by accelerating the shift to a cashless society, and to reduce cash printing and handling costs.

Wholesale CDBC

A wholesale CBDC is for financial institutions that hold reserve deposits with a central bank. It could be used to improve payments and securities settlement efficiency, as well as to reduce counterparty credit and liquidity risks.

A value-based wholesale CBDC would replace or complement reserves at the central bank with a restricted-access digital token. A token would be a bearer asset, meaning that during the transaction the sender would transfer value to the receiver, without intermediaries.

This would be something fundamentally different from the current system in which the central bank debits and credits the accounts without transferring actual values.

The wholesale CBDC is seen as the most popular proposal among central banks because of the potential to make existing wholesale financial systems faster, inexpensive, and safer. The Bank of International Settlements (BIS) also shares the view that wholesale CBDC could potentially benefit the payments and settlements systems.

Some experiments have been already conducted or examined by central banks since 2016—such as those in Canada called “CADcoin” under Project Jasper, Singapore Project Ubin, Japan-Euro Area Project Stella, Brazil, South Africa Project Khokha, and Thailand (Project Inthanon). (See my earlier blogs: Blockchain and Central Banks: A Tour de Table Part I and II, 3 and 9 January, 2017).

Retail versus wholesale CBDC?

Compared to emerging economies, central banks in advanced economies are not enthusiastic about retail CBDC. And that is not surprising. Many central banks do not wish to create competition between central bank money private sector money, taken into account the limited potential benefits from using retail CBDC.

A retail CDBC would be a step too far (or too early) for them. If a central bank issued a digital currency whereby everyone (including businesses, households and financial institutions other than banks) could store value and make payments in electronic central bank money (the r-CBDC variant), this could have wide-ranging implications for monetary policy and financial stability.

Wholesale Central Bank Digital Currency would bring a number of important efficiencies. Besides their retail payments and settlements systems are already highly efficient, almost real time, and always available. Most citizens are banked, while the use of cash in most European countries – with the exception of Sweden and Norway – is still rather high (and not declining in the same speed).

Moreover, wholesale CBDC technology would allow linking to other platforms. Directly linking securities or FX platforms to cash platforms could improve the speed of trades and eliminate settlement risk. Settlement on OTC markets, as well as for syndicated lending and trade finance could speed up considerably if linked live to an instant wholesale CBDC system.

Wholesale CBDC may also simplify (cross-border) payment infrastructure, strongly reducing the number of intermediaries involved. This may improve efficiency and security, minimise liquidity and counterparty risks and reduces cost.

Deploying DLT technology would also allow “smart” features to be added to wholesale CBDC, including earmarking funds, limiting their use in time and place, applying conditional interest rates and others. Such smart features would allow central banks to explore new and powerful operational monetary policy tools, such as tailor-made interest rates.

Finally. real-time monitoring and better track-and-trace options on a unified platform should facilitate both anti-money laundering efforts by banks and supervision over those efforts.

Coordinated CBDC approach

This wholesale approach is a likely first step towards more universal adoption of CBDCs. It is less disruptive and makes global payments cheaper, faster and more secure. But who should take the initiative to build the wholesale CBDC?

Only central banks have the mandate to issue a digital currency or token and call it legal tender. They however lack extensive experience and resources needed to build and maintain such an infrastructure and, build a compliance apparatus to supervise clients and transactions.

The private sector, on the other hand, has the necessary experience and resources to do this. Next to that, commercial banks also have an incentive, as regulation is becoming ever more stringent (KYC, AML), and makes it more costly to maintain a presence in payment systems in multiple countries.

Moreover, the current international payment system, based on correspondent banking, creates various costs such as KYC and handling costs of all banks involved. There are also delays due to opening hours in different time zones while liquidity is trapped in pre-funded nostro-accounts. A single cross-border 24/7 international direct payment and settlement system therefore is very attractive for them.

In order to build a successful wholesale CBDC, one needs the private sector’s experience and the central banks, thereby taking away the various counterparty risks. Moreover, jurisdictional differences need to be harmonised. So international public-private partnerships make sense.

Though this seems controversial, one should keep in mind that the existing monetary system is already a public-private partnership. While central banks determine monetary policy and monitor financial stability, commercial banks actually create most of the money by lending. Central banks (and other government agencies) in turn license and regulate them.

The way forward

Up till recently, not many central banks so far have found strong advantages of issuing their own digital currency at this stage because of several technical constraints.

The potential launch of Libra however has been an important wake-up call for a large number of central banks.

Given that blockchain technology has been progressing fast in the settlement and payment areas (as well as DLT), central banks may now see incentives to increase their interest in wholesale CBDC proposals and consider actual implementation seriously in the near future.

Wholesale CBDC however will still have to compete with upgraded legacy systems. Both central and commercial banks should therefore take a cautious approach when building completely new alternatives. Experimental wholesale CBDC that are cross-border from the start and involve multiple commercial and central banks, should have the biggest chance of success.

A retail CBDC however may be “a faraway goal” because of the potential adverse impact on commercial banks by promoting a shift of retail deposits from commercial banks to a central bank.



Carlo de Meijer

Economist and researcher


Facebook and Libra: the new global currency?

| 04-07-2019 | Carlo de Meijer | treasuryXL

Since Facebook announced to launch a new digital currency, the Libra, a complete media craze arose. The one blogger stumbled as it were over the other. And while the one group sings hosanna over this initiative (a salvation for the bankless), warning signals come especially from the supervisors and regulators part (time bomb under the global money system). And next to that there arose a great many discussions on whether or not the crypto character of the Libra. What are the chances that this Libra will really see the light? And if so, what will that mean for the existing financial system? Let’s give it a shot.

What is the Libra?

Libra is the new declared crypto currency (based on blockchain technology) of social technology giant Facebook. Libra is meant to become the in-house currency for Facebook, Instagram and WhatsApp’s combined 2,7 billion users. An alternative digital means of payment to purchase products, sent money across borders or make donations. To enable peer-to-peer payments, a digital wallet, the Calibra will be introduced that will work with Messenger and WhatsApp.

The mission of the Libra project is to come to a simple world currency and a financial infrastructure that may help move forward the millions of unbanked people in the emerging markets. Money transfers by labour emigrants, so-called remittances, are one of the most important income sources for those people. Annually, according to the World bank, almost 500 billion of euros are being transferred via private bookings from rich to poorer countries. And that at very high fees.

The Libra Association

Libra will be controlled by an independent body, the Libra Association, that will be based in Switzerland. The Association nowadays consists of 29 founding members (including Facebook), with big names like MasterCard, PayPal, Visa, Booking Holdings, eBay, FarFetch, Lyft, Spotify and Uber. The intention is to have 100 founding members by the time it launches next year.

The Libra Association will actively manage the Libra currency for stability. Each Libra will be covered by liquid means for the full hundred percent. For every Libra that will be issued, the Libra Association will have to maintain a basket of short term government bonds and (real) fiat currency including dollars, euro and yen. If these Libras are exchanged into fiat currency, then also the coverage disappears.


The launch of the Libra, though just in 2020, has triggered a deluge of reactions from governments, supervisory, regulatory authorities and others like the cryupto world, media etc. all over the world. Some are positively optimistic, others reacted cautious but most are sceptic or even negative. Terms like corporatocracy and techno-pocalyps were even mentioned to describe this Libra project. And that is not surprising!

Most intensive reactions came from France where the Finance Minister le Maire said that “Libra cannot  … and must not happen” and that “it was out of the question that the cryptocurrency should become a sovereign currency”. He has asked central bank heads from G7 countries to write a report on the Libra by mid-July.

The BIS already has put a lot of attention on alternative currencies in its recently published annual report. The BIS warned that if big social technology companies like Facebook or Amazon, are going to dominate the financial system, that will increase the risk of system disturbances.

Other international organisations like The International Stability Board are  very sceptical about the Libra plan, while the British supervisor FCA is not yet prepared to accept the Libra.

But most important, we are still awaiting the official reaction of US supervisors. The ambitions are, especial from the US, to halt the Libra development until further investigation offers the well needed answers. For that purpose the Senate Banking Committee has scheduled a hearing for July 16th, while Facebook has been invited to testify at a hearing of the Financial Services Panel on July 17th.

In the UK it could have similar scrutiny, as the Bank of England noted that
“regulators would have to consider how they’d treat this new asset class”. Though they are not that negative, the Bank of England governor Carney stated that Libra would be subject to the highest standards of regulation.

Libra is …..

…. not a cryptocurrency!

From various reactions on the Libra project it was made clear that the Libra is not a cryptocurrency, as was declared by Facebook. While cryptocurrencies are decentral, transparent and anonymous, the Libra has nothing of these characteristics.

It follows the business model of Facebook, being centralised, closed for the external world and almost without privacy for its users. Though the Libra Association in which Facebook just has a very small vote, and it is supposed to have 100 partners in total, the technology and infrastructure is in hands of Facebook.

….  not a (real) blockchain

Looking at Facebook’s Libra, it makes no real use of blockchain technology. The Libra blockchain is a very special one. There is one big block in which all transactions are being stored, very similar to a normal database. Nobody is aware, but the data at Facebook will not be transparent.

…. (more like) a private digital currency

Contrary to the well-known cryptocurrencies like Bitcoin, Ethereum and Ripple, the Libra is covered by financial assets including government debt and fiat currencies. In that sense the Libra is rather similar to private issued  banknotes.

No level playing field for banks

Some see Facebook Libra just like an ordinary bank. With the introduction of the Libra, Facebook will execute the old-fashioned banking matters, in that way that via the Libra app, Calibra one can transfer money globally and instantly. So, the Libra in fact combines digital ease with the structure of a bank.

And who knows if Facebook is going to offer more than just payment services. It is very likely that they will (in the near future) broaden their services by offering credits etc. And if that is the case, Facebook is starting with their creation of money. Imagine a bank with the potential of 2.4 billion of clients that is not subject to regulation and supervision, creating a non-level playing field.

Urgent need for proper supervision and regulation

There are a range of risks when this process takes place without guidance by supervisors and regulators. A new digital currency with the potential capability of the Libra (Facebook has no less than 2.4 billion users), should be  matter of both banking supervisory bodies and monetary authorities.

Think about the following: the Libra has been launched and Libra will have to keep an equal amount of hard currencies in reserve as the brought in money, that should be invested in short term, government bonds in the various currencies incl. dollars, euros and yen. If the components of the basket changes, or the number of Libra brought in by Facebook fluctuates strongly, that might have impact on the financial system.

If the Libra becomes a success it will be crucial for the functioning of the payments system that it should be subject to the highest standards of supervision. Supervisors should therefore soon come with the decision what the Libra now exactly is: a currency, an investment or something complete different.

Should central banks step in?

Another issue is: how should Central Banks react. Introducing the Libra will also cause sensibilities in the monetary field. Question that arise: will the Libra become a – although stable – currency that will be created separately from the existing system or will it be a complement?

With the introduction of the Libra, Facebook is in fact filling the gap left by the central banks on the international payments market. Key question is: what is preferable, a private global digital currency or a public variant issued by central banks.

According to editors of the Financial Times, the “Zuck-Buck” as they call the Libra will be no less than a global shadow currency, a private variant of a global system of central banks, a sort of Federal Reserve.

It is thus high time that the long-lasting debate about a digital currency issued by central banks should gather space with the possible arrival of the Libra. Just staying on the sidelines is no issue any more. The technology is there.

Why not the IMF thinking about creating an international digital currency that brings stability and meet all the privacy challenges.

Hurdles for Facebook to overcome

The Libra is not there yet. Facebook still faces many hurdles and needs to answer many questions.

I admit, there are positive sides to the Libra initiative, such as Libra’s promise to have cheaper – or even no – transfer costs, while Libra payments will be made as easy as WhatsApp. And there are the potential efficiency gains and better entrance to financial products by many unbanked which may lead to economic growth. But there are also many negative issues to be mentioned.

When talking about privacy, Facebook has not a good reputation. How will Facebook handle the privacy rules? And how is Facebook going to convince customers to give their money in play? But also, how can Facebook prevent that the Libra will also facilitate transactions that possibly may be used for criminal purposes. Therefor Facebook should show that for them it is serious in properly meeting the privacy rules.

“This money will allow this company (Facebook) to assemble even more data, which only increases our determination to regulate the internet giants”. French Finance Minister Bruno Le Maire

Another potential legal hurdle for the Libra project is to keep banking and commerce apart. To prevent conflicts of interest payments and banking are separated from the rest of the economy in the US. Depending on what data is visible for the partners in the Libra Association, there may be enough legal issues that should be solved.

And there is the size issue. According to many, Facebook is already too big and too powerful not to be supervised and regulated. In order to get an “ethical banking culture”, it is needed to make sure that institutions, crypto or not, will not be ‘Too big, to Fail’.

Facebook may also count on the appropriate competition. Such as from China by players like Alipay and We Chat. Moreover there is a big chance that also other tech companies will come with their own currency.

By the way, I am also on Facebook and have a lot of friends. Keep it like that!



Carlo de Meijer

Economist and researcher


Blockchain: Game-changer for Small & Medium Enterprises?

| 21-06-2019 | Carlo de Meijer | treasuryXL

In many countries Small and Medium-sized Enterprises (SMEs) are the backbones of their economy. Their role is crucial to worldwide economic and social developments, with more than half of the overall world population working in such companies. In the Netherlands for instance, more than 90% of the Dutch companies are SMEs and together they produce 60% of the added value of the Dutch Economy. SMEs however are confronted with a number of important challenges. including limited access to bank loans, inefficient procedures and lack of information necessary to conduct business efficiently.

While most people relate blockchain to large companies, blockchain also opens new opportunities to SMEs in every sector to solve existing challenges and enable them to optimise their business and develop new business models. Up till recently there were several obstacles which led to slower adoption of blockchain and other distributed ledger technologies by SMEs. But that is changing.

Let’s have a look!

SMEs and present challenges

Despite their status as the backbone of any major economy, SMEs face many challenges. They have a great problem in finding  financing, scale their operations, process payments and recruit other ancillary services that are both necessary to grow or go global. For emerging economies, increasing access to credit is key to generate of new jobs and economic growth.

  • Bank loans

 A big problem for SMEs, esp. for beginning entrepreneurs is to get a loan from banks for starting or growing their business. This is why many of the new or ongoing small and medium-sized businesses disappear. Almost 30% of SME companies shut down in the first three years of operation due to lack of funding.

Since the banking (credit) crisis of 2008, banks are inherently risk averse, so their tolerance for SME lending has become relatively low. Last year’s report from the World Bank estimated that 70 percent of small, medium, and micro-enterprises are unable to access the credit they need. While the global demand for SME credit stand at $2,38 trillion, the truth is, only a fraction (about 15%) of businesses actually get the loan that they request from banks.

  • Trade finance

 Another challenge for internationally operating SMEs is to get trade finance. Trade financing, much like many forms of credit providing, is a key component of the success of SMEs, but that key is not always easy to obtain. SMEs face lots of hurdles in their quest for funding, especially when it comes to accessing traditional trade finance products. Trade has changed dramatically in the last 10 years. But trade finance has not. The $1.5 trillion trade finance gap is driven by data shortfalls. The industry is still heavily paper-based and follows outdated processes and procedures. Typical trade finance operations are as a result still time-consuming, bureaucratic, and simply too expensive for new SMEs. This disproportionately impacts small- and medium-sized firms and firms in Asia and the Pacific.

  • Cash flow issues

 Inability to bring in capital continues to cause enormous harm to small businesses–stifling growth and causing cash flow difficulties. In fact, 40 percent of small businesses reported cash flow issues within the past year. Businesses need cash flow to pay for materials, start the production process, pay employees, or cover any other business expenses. For smaller companies a late payment can be the difference between success and failure.

  • Limited alternative financing

 These SME companies nowadays often turn to alternative forms of financing to obtain funds and ease their cash flow issues. In recent years, the peer-to-peer (P2P) lending system emerged as an alternative to the bank loans. And this segment is growing. Crowdfunding has also emerged to fill the gap in the market, but is mainly focused on technology start-ups. This new funding route is closed to most SMEs from other sectors.

  • Personal identity

Personal identity and data control are major concerns for online retailers as most of the interactions between customers, and online retailers are controlled via usernames and passwords stored in centralized platforms. Such platforms are vulnerable to hacking, and user data can be accessed and misused by hackers. Next to that people can easily falsify documentation and identity proofs.

  • Adoption of new technologies

 Another major challenge for many SMEs is how to deal with new trends in digitalization and automation. While large corporates often have the resources to react promptly, experiment and develop new products and services and thus benefit from the new technologies like blockchain, this is not the case for many SMEs.

This while they are experiencing problems for which these solutions including blockchain could be a solution. Many small- to medium-sized companies find it difficult to get started with new technologies since the scale of SMEs is often too small, among other reasons. Most SME’s miss the manpower, skills and knowledge to develop new strategies on such new trends.


Use cases

Blockchain presents itself as a solution to these challenges. This technology could solve the problems in the areas of funding and trade finance. Though it makes sense to use blockchain for money-related businesses, they may also be used to solve many of their inefficiency problems. Safe and secure data transactions and smart contracts may optimise supply chains and improve client satisfaction by automated services.

  • Trade finance           

Blockchain could became a game-changer for SMEs that are looking to expand abroad in their search for trade finance. Trade finance products are being made more efficient due to transparency and the consensus mechanisms that replace multiple instances of verification and checking.

A new study by the World Economic Forum and Bain & Company shows that blockchain technology could play a major role in reducing the worldwide trade finance gap, enabling trade that otherwise could not take place. Another finding is that the impacts would be largest in the emerging markets and for SMEs which may display the use of the technology beyond well-established markets and corporations.

The Asian Development Bank forecasts the global trade finance gap currently stands  at $1.5 trillion, or 10% of merchandise trade volume and is set to grow to $2.4 trillion by 2025. But the results from the new study shows the gap could be reduced by $1 trillion using blockchain technology efficiently.

  • Supply chain finance

Blockchain technology may also contribute to solve the problem of getting supply chain finance. A bigger segment of the market is nowadays building open account solutions. But because of the difficulty in tracking how deep the supply chain is, often financing is only offered a few tiers deep. As blockchain is much more flexible with data than existing digital systems, this technology opens up the possibility of this level of financing.

On blockchain, both suppliers and buyers have access to necessary transactional information in real-time. Every step of the supply chain process is time-stamped and verified by all parties, meaning that information is accurate and immutable. This added level of visibility may also mean that businesses will have more invoice financing solutions available, too. This transparency may result in faster transaction processing improved cash flows for suppliers, and potentially better rates from invoice finance providers.

  • Smart contracts

One of the most attractive features that blockchain has is the potential to offer SMEs smart contracts, which not only define the terms and penalties around an agreement in the same way that traditional contracts do but also automatically execute and enforce those pre-agreed terms and conditions (but without the need for middlemen). Many labour intensive and expensive business processes can easily being replaced at little cost.

The largest opportunities could come from smart contracts, single digital records for customs clearance. Smart contracts can represent an invoice, or any similar financial document, and be used as collateral to support a loan. They would help mitigate credit risk, lower fees and remove barriers to trade.

To avoid the initial development costs of building on Ethereum, there are already blockchain companies like Confideal and dApp Builder that make it easy to create and launch a complete smart contract portal with just a few clicks.

  • Funding/collateral

Blockchain technology has the potential to completely “reinvent the wheel” when it comes to SME funding. Blockchain could help revive peer-to-peer lending practices that has emerged outside of the regular banking system, by digitizing what was once a manual process.

Through disintermediation, blockchain makes it significantly easier and faster for small and medium-sized companies – not just technology start-ups – to raise funds through equity. The removal of these barriers reduces the need for complicated paperwork, while the automated nature of the process may mean that  commissions, excessive brokerage fees associated with selling shares, and other overheads can all be left behind.

  • Identity management 

Another area where blockchain could become a game changing factor is in the area of online identity verification. A growing number of SMEs do their business online triggering demand for increased online security. The risk of identity theft and fraud could be eliminated with the use of a decentralized identity, such as blockchain. It allows a more effective and reliable form of identification of a person without the requirement for third party involvement. As well as the benefits in terms of the reliability of the verification, the speed at which checks can be performed is much faster. This can help businesses speed up processes and make them more reliable.


SME-focused initiatives/projects

To address the various challenges for SMEs in their search for blockchain solutions, a growing number of SME-focused initiatives have been launched.

  • Blockchers project

One of these programs is Blockchers, as part of the European Horizon 2020 project. Blockchers is a project that will facilitate the revolution of blockchain and other distributed ledger technologies (DLTs) across European SMEs. It is an acceleration process for SMEs and start-ups to build real world use cases of blockchain technologies, thereby financing real world use cases of this technology in traditional sectors.

One of the main goals of Blockchers will be fostering the matchmaking among traditional SMEs and potential DLT specialists, as technology providers, and “sensitize about the benefits and opportunities around DLTs to implement real use case scenarios in a variety of verticals”.

Alastria Blockchain Ecosystem has been chosen by the European Commission as the technological partner for the Blockchers Project. They will  provide the blockchain infrastructure to the start-ups participating in this EU Project, developing blockchain solutions to SMEs.

  • Project Blockstart

To make sure SMEs can experiment “if and which blockchain solution will help to tackle the problems in their activities”, Bax & Company, a leading European innovation consultancy, has set up the project Blockstart. The aim of Blockstart is to increase the competitiveness of SMEs in the health, agro-food and logistics sectors by providing business support, identifying and testing business opportunities from blockchain innovations. Working together, the partners that will form an international ecosystem of business networks, incubators and blockchain experts, will test the market readiness of different blockchain solutions in real-life settings. Blockstart will help small- to medium-sized enterprises (SMEs) strengthen their competitive positions through the use of blockchain technology.

  • Dutch logistic project

And there is the project of RDM Knowledge Center and Sustainable PortCities in cooperation with Windesheim University of Applied Sciences, to investigate the opportunities for SMEs in the Dutch logistics sector to benefit from logistics applications of blockchain. In the project SMEs active in cold chains, the pharmaceutical industry, transport, forwarding and warehousing are involved.

They try to give answer on questions that SMEs ask, including: what are the consequences of blockchain for their business model?; what kind of knowledge should they have about the potential of blockchain?; could blockchain technology improve their logistic processes?; and, how can blockchain technology create added value for their company?

  • Singapore PLMP Project

Singapore blockchain company PLMP Fintech has launched the Blockchain Technology Creatanium Centre (BTCC). BTCC is a blockchain centre, focused on accelerating the blockchain ecosystem for Singapore small and medium-sized enterprises (SMEs) across various industries, allowing businesses to compete on a global level and increase efficiencies in operations and funding. BTCC will also provide education and development as well as house a blockchain and ICO ecosystem.

Similar centres are planned for Indonesia and Thailand.


SME-focused blockchain platforms

Furthermore, to help increase blockchain’s adoption across multiple industries and enlighten businesses of the technology’s potential, a large number of open source collaborative blockchain platforms have been created such as Hyperledger, Ethereum etc. Their main goal is allow enterprises to build customised blockchains that would answer specific needs instead of letting companies solve issues on their own. In recent years also platforms specific focused on SMEs have been launched such as We.Trade, Karma and others.

  • We.Trade platform (trade finance) 

Nordea has launched a blockchain-based platform designed to make it easier for SMEs to trade with other companies in Europe. The we.trade platform, a blockchain network for trade finance, is available to all Nordea SME customers, with trading controlled through a set of rules designed to bring security to the process.

The new offering is built on the we.trade platform developed by a group of 12 banks using IBM blockchain technology. The aim of the project is to simplify trade finance processes for SMEs by addressing the challenge of managing, tracking and securing domestic and international trade transactions by connecting all of the parties involved (i.e. buyer, buyer’s bank, seller, seller’s bank and transporter), online and via mobile devices. Providing more companies more efficient access to trade financing and credit across Europe will allow them to grow their business by expanding into new markets and forging new trading partnerships.

  • Karma (funding)

Karma (Russia), launched early 2018, is a true P2P platform which is fully decentralized. By design, the platform is a unique enabler that gives SMEs access to additional liquidity. Based on the blockchain technology, it enables users to invest in any SME. The platform offers its users a wide spectrum of investment opportunities. One of the features that make Karma “stand out of the crowd” is its ability to let investors lend to SMEs anywhere around the world.

  • Traxia (trade finance)

Traxia is a decentralised global trade finance platform. The proposed new blockchain-based system used to assess the creditworthiness of SMEs, will build a bridge between the banks, the SMEs and the data provider.

By using the blockchain, and smart contracts they will be able to offer transparent, fast, and not so costly transactions for small businesses. Thereby solving the long waiting problem by allowing for a transparent platform for invoice trading designed just for SMEs.

The loan system will connect technology to how people think and behave to determine who is credit-worthy. The system will link alternative payment data to accounting certificates to mobile and social data to psychometrics. The alternative payment data thereby looks at utility payments, rental payments and accounting certificates.

  • Blockchain identity platforms

Already, a number of blockchain-based companies are taking advantage of blockchain’s identity tools. Its decentralized nature and security features to provide better and more transparent identification tools, offers a way for customers to identify themselves and have access to certified documents and notaries as well as a marketplace for customers to purchase services and products.

Instead of buying expensive, centralized server architecture or “paying hefty fees” to companies like Amazon Web Services or Google, a comprehensive start-up CEO might instead choose to rent custom-sized decentralized hosting space from a blockchain platform. This provides increased data integrity and a more efficient cost plan as well.

  • Other blockchain-based platforms for SMEs

A group of 11 Indian banks have teamed together to unveil the nation’s first blockchain-linked funding for SMEs. The goal is to revamp lending for “default-prone small firms”, by helping bring forth the virtue of transparency. The blockchain network will allow the banks to access public credit data so they can reduce risks when offering lending. In 2018, the Hong Kong Monetary Authority (HKMA) embarked on a similar undertaking and launched eTradeConnect. The blockchain-powered platform was aimed at solving the various challenges that hamper the link between banks and SMEs.

Later that year, the Abu Dhabi Global Market, another multinational financial hub located in the United Arab Emirates, entered into a joint agreement with HKMA and Singapore’s central bank. They aim to create a blockchain-powered, cross-border trade and finance platform for SMEs hassle-free access to funding.


What advantages may blockchain bring for SMEs?

Blockchain has the potential to offer a lot of distinct advantages to small and medium-sized businesses, such as trust, speed, more safety and security as well as risk reduction in terms of lesser identity fraud and hacking, thereby reducing time and unnecessary costs.

This may enable them to solve the cash flow problem, the paperwork issues, as well as the problem to go global (thanks to the globality of blockchain platforms), preventing them from going bankrupt.

  • Available funds

First of all the risk of getting no funds at all will be greatly reduced. Because there is no doubt about when funds will be released, companies can deliver services in time knowing that funds will always be available when they should be. Payments for goods from distant buyers and payroll to overseas employees may become easier and can be completed at a fraction of the current costs. As a result, it can help bring products and transactional services to market quickly and inexpensively.

  • More safe and secure transactions

Security and transparency will also prove to be value-added benefits of blockchain for businesses. For SMEs with global aspirations, blockchain technology using secure communication techniques may guarantee more safety and security in their transactions.

The blockchain technology will assist firms to overcome problems associated with asymmetric information, collateral requirements, a lack of sufficient credit reporting agencies and internet data security and cybercrime. Blockchain technology thereby ensures safe, automated and efficient data transactions that may be used in the exchange of private information, or monitoring goods in transport or tracing the origin of food products.

  • More cost efficient processes

To make their processes more efficient , blockchain applications will definitely streamline business processes and offer a great potential for reducing costs and complexity of processes.

Significantly reducing overhead costs is a major advantage for small businesses hosting services on the blockchain. Using blockchain means reducing the amount of resources and time entrepreneurs put in for administrative tasks. This may contribute to offload the traditionally high costs of security, Know Your Customer (KYC) protocols, data storage and other overheads.

Apart from significantly reducing the investment that founders must make in these support activities, the cost savings can be passed onto customers to make prices more competitive. This may allow SMEs worldwide to compete on a more level playing field.


What are SMEs already doing?

A study conducted by the Emory University (US Atlanta) in collaboration with Provide Technologies and Aprio claims that the small and medium enterprises are investing twenty-eight times more in blockchain than large enterprises. The report furthers that most of the blockchain-based projects are aimed towards business process automation while authentication and compliance are the second and the third most significant blockchain usage across the globe. The report also marks that the payments industry stands fifth when it comes to blockchain adoption whereas, identity management and market place governance follow the top tier applications very closely.

There is a growing community of innovative start-ups that are developing SMEs focused blockchain solutions. However, the sectors in which DLTs really make sense, besides fintech, could be those in which existing SMEs do not (yet) have enough knowledge on how DLTs work nor how they could uptake these technologies (traditional SMEs).

Need for regulatory framework

Blockchain SMEs face uncertain regulation that limits their scope of action and imply a risk for their growth. The real challenge, going forward, will be the legality of smart contracts, and a global regulatory framework needed to establish true peer-to-peer lending across borders; just because it is legal in one country, does not make it so in the next.

A “good” regulatory framework should bring more clarity, fostering the uptake and prevent from fraudulent actions such as those linked to the anonymity of users in transactions. In the meantime, the power and potential of blockchain and smart contracts is increasingly being recognized across the business and political spectrum. While it may take regulators some time to catch up, broader adoption will lead to sensible regulation.

Forward thinking

Looking at these advantages, it is easy to see why a growing number 0f entrepreneurs  in the SME world is willing to invest more into blockchain. With the blockchain and related services such as smart contracts, the SME world may expect to see a total transformation of how they nowadays do their business. Blockchain will make international dealings more conducive for SMEs and may allow them to compete in ways that are unthinkable today.

Blockchain is however still in its early stages. The mass adoption of blockchain by SME companies has not yet started, and widespread adoption will take time. For this to happen, the biggest obstacle is getting more businesses to build on blockchain and drive customers toward these solutions. This asks for trust.

Trust will be built over time, and in order for the promises to become a reality, some businesses must start trusting the process. Proving to the world that there is a lot of opportunity in using the blockchain for absolutely everything related to business.  Given how this technology could boost trade by more than $1tn in the next ten years, according to World Economic Forum, this may be a call-up to the big blockchain companies to come up with SME friendlier solutions.



Carlo de Meijer

Economist and researcher



Blockchain-as-a-Service: accelerator for adoption

| 04-06-2019 | Carlo de Meijer | treasuryXL

Blockchain technology has attracted growing interest from various businesses from large corporates to SMEs. But a large scale adoption by corporates and others has long time been hindered by the lack of options. But that is changing.

When interacting with the blockchain they have now two options. They can either set up their node directly, thereby removing the “invisibility cloak” of blockchain. Or they can decide to let someone else do that for them. And here comes BaaS or Blockchain-as-a-Service in scope. BaaS or Blockchain-as-a-Service is comparatively a new blockchain technology, that can be easily integrated in existing corporate infrastructures.

The global Blockchain-as-a-Service Market is set for a rapid growth. According to a recent survey, the Blockchain-as-a-Service is expected to register a CAGR (Compound Annual Growth Rate) of over 15%, during the forecast period (2019-2024), reaching around USD 30,6 billion globally by 2024.

We are not surprised by the emergence of Blockchain-as-a-Service. This overall Blockchain-as-a-Service market has seen accelerated growth with the coming up of creative innovations for blockchain and a faster growing customer demand. The growing demand for this new way of delivering blockchain services is attracting a wide field of new providers in the BaaS market, offering gigantic entryways for advancement.

Why BaaS?

Why do businesses need Blockchain-as-a-Service? Blockchain technology is on rise and business are increasingly willing to adapt to this technology. So far, however, the impact of blockchain disruption has been rather limited.

The companies that really want to use it, may encounter a number obstacles. The resources and expertise needed to develop new blockchain technologies has been a major hurdle for businesses that want to adopt the blockchain.

Blockchain technology is rather knew and relatively unknown. The technical complexities and operational overhead involved in creating, configuring, and operating the blockchain, and maintaining its infrastructure, often act as deterrents to its mass adoption.

Corporates are still far away from understanding the future of blockchain technology and the complexity of setting up of blockchain networks. Its implementation in terms of any technological change entails organizational risks.

Blockchain requires huge investment when it comes to setting up infrastructure and maintaining it. It is much more resource intensive, as compared to traditional databases.

 What is BaaS?

A Blockchain-as-a-Service platform is based on, and works similar to, the concept of Software as a Service (SaaS) model. It is a full-service cloud-based offering that enables customers including corporates to leverage cloud-based solutions to build and use their own blockchain applications and smart contracts and functions that will be hosted on the BaaS platform.

The BaaS platform would deal with the always confusing and labour-intensive back end activities for corporates and/or their business. They will provide all the necessary infrastructure and operational support to ensure that the blockchain applications run smoothly.

The platform will manage all the necessary tasks and activities to keep the infrastructure agile and operational. In other words, it allows the blockchain part of the technology to be relatively invisible for corporates.

Blockchain-as-a-Service providers are, therefore, key for large-scale blockchain adoption across businesses as they enable companies to adopt the blockchain without having to spend as much money as they would have to if they were to develop blockchain solutions on their own.

How does BaaS work?

BaaS would work similar to that of a web hosting provider. BaaS is like a blockchain module toolkit and utility system under the Blockchain Engine for which their users pay a fee.

In BaaS, an external service provider sets up all the necessary blockchain technology and infrastructure for a customer. By paying for a fixed BaaS subscription or consumption, a client pays the BaaS provider to set up and maintain blockchain connected nodes on their behalf. A BaaS provider thereby handles the complex back-end for the client and their business.

The BaaS operator also takes care of support activities like bandwidth management, suitable allocation of resources, hosting requirements, and provides security features like the prevention of hacking attempts.

Leveraging BaaS model, the client can now focus on their core job – the functionality of their blockchain – instead of worrying about infrastructure and performance related issues.

BaaS for who?

Blockchain-as-a-Service is ideal for organizations that wanted to outsource their technological aspects, and are not involved in understanding the working mechanism of the blockchain.

According to the earlier mentioned survey, the financial services industry is expected to occupy the largest market share. Blockchain-as-a-Service offerings are already revolutionizing this industry, as banks and financial service companies are among the most heavily invested enterprises exploring blockchain technology.

This is due to the many, highly valuable decentralized applications of blockchain technology, thereby giving rise to new business models in various areas, such as cross-border payments, remittance, exchanges, internet banking, trade finance, Know Your Customers (KYC), and risk and compliance.

The market is also gaining traction with SMEs that have not the sources to do that on their own. As these are increasingly working online, efficient blockchain services are increasingly required to secure the identity of digital entities and online authentication of personal identities, which drives the demand for Blockchain-as-a-Service offerings.

What may BaaS bring?

Allowing someone else to take care of the complex backend of blockchain ecosystem for corporates, allows corporates or their business to benefit from blockchain technology without really having to deal with blockchain technology.

Instead of creating and running their own blockchains, a business, large or small, can now simply “outsource” the technical complex work and focus on its core activities.

The BaaS format allows companies to familiarize themselves with blockchain technology before making conclusive business decisions about its use.

With BaaS as a cloud-based service, users will be able to develop their own blockchain based products like smart contracts, various applications and services without any setup requirement of the complete blockchain based infrastructure.

If BaaS speeds up, it can lead to real savings for companies. A study by Accenture found that blockchain technology could help banks reach cost savings to reach as high as 38 per cent, or around $12 billion.

 Top BaaS providers

The potential of Blockchain-as-a-Service has been recognized by some of the world’s largest software and technology companies. The interest of many businesses in implementing blockchain and the real difficulties of doing so have triggered several tech companies and cloud providers to now offer Blockchain-as-a-Service (Baas) to businesses that prefer to outsource the development of blockchain solutions.

The list of leading Blockchain-as-a-Service providers is growing, illustrating the growth in the dynamic on-demand tech sector. End 2015, Microsoft became one of the first companies to develop this service. The company has been adding BaaS modules to their cloud-computing platform, Azure, that is  focused on the Ethereum blockchain.

The Linux Foundation last year released Hyperledger Fabric 1.0, a collaboration tool for building blockchain distributed ledgers, such as smart contracts, for vertical industries. IBM has also built their own BaaS service, a Hyperledger Fabric BaaS system based on the Bluemix Cloud Platform. They are focused more on private consortium blockchains.

There are other big names as well that are betting on Blockchain-as-a-Service. Like Oracle Autonomous Blockchain Cloud Service, Amazon Web Services (AWS), HPE Mission Critical DLT and SAP Cloud Platform Blockchain. Of special note in this field is the work being done by R3. R3 has created Corda, a Distributed Ledger Technology (DLT) designed specifically to respond to the needs of financial institutions that use this technology.

Most recent BaaS platforms

Microsoft Azure Blockchain Service (ABS)
Microsoft this month announced the launch of Azure Blockchain Service, which is aimed to simplify the formation, management and governance of consortium blockchain networks. Azure, basically, offers Blockchain-as-a-Service (BaaS) by providing several easy-to-deploy, enterprise-ready templates for the most popular ledgers, including Ethereum, Quorum, Hyperledger Fabric, Corda and more.

Azure BaaS, in a nutshell, represents not just a public cloud hosting provider for distributed ledgers, but an organic and integrated low-cost, low-risk platform for building, delivering and deploying decentralized blockchain applications technology.

“Azure Blockchain Service deploys a fully-managed consortium network and offers built-in governance for common management tasks such as adding new members, setting permissions and authenticating user applications.” Microsoft

J.P. Morgan’s Ethereum platform, Quorum, will be the first ledger available in Azure Blockchain Service, giving both companies’ customers the ability to deploy and manage scalable blockchain networks in the cloud.

“Because it’s built on the popular Ethereum protocol, which has the world’s largest blockchain developer community, Quorum is a natural choice. It integrates with a rich set of open-source tools while also supporting confidential transactions, something our enterprise customers require.” J.P. Morgan

“Quorum customers like Starbucks, Louis Vuitton, and their own Xbox Finance team can now use Azure Blockchain Service to quickly expand their networks with lower costs, shifting their focus from infrastructure management to application development and business logic.” Mark Russinovich, chief technology officer at Microsoft Azure

Amazon Web Services (AWS)
Launching a managed blockchain service late last year, Amazon is now opening Amazon Web Services (AWS) for general availability. This new service is developed on top of open-source frameworks like Hyperledger Fabric and Ethereum.

Customers simply choose their preferred framework, add network members, and configure the member nodes that process transaction requests. Its Amazon Managed Blockchain takes care of the rest.

“Amazon Managed Blockchain takes care of provisioning nodes, setting up the network, managing certificates and security, and scaling the network. Customers can now get a functioning blockchain network set up quickly and easily, so they can focus on application development instead of keeping a blockchain network up and running.” Amazon

It is a fully managed service designed to help companies quickly set up blockchain networks of their own that can span multiple AWS accounts that are scalable and easy to create and manage and configure the software, security and network settings.

“This can be done with a few clicks in the AWS Management Console, doing away with the typical cost and difficulty of creating a company network”. Amazon

Already companies like AT&T Business, Nestlé and the Singaporean investment market the Singapore Exchange have signed on to use the company’s services.

Ardor (ARDR)
Ardor is one of the latest in the growing field of contenders for Blockchain-as-a-Service (BaaS) providers. It provides the blockchain infrastructure for businesses and institutions to leverage the strengths of blockchain technology without having to invest in developing custom blockchain solutions.

Ardor is a BaaS platform that will allow corporates and others to use the Nxt blockchain, an advanced blockchain platform. It separates security from functionality by creating multiple chains. Ardor offers a main chain that handles blockchain security and decentralization. It provides customizable child chains that come ready to use, out of the box, for various business applications.

When customers want to implement a new project on Ardor, they can create a child chain. The child chain holds all the functionality and customizability supported on the Nxt blockchain. However, it is still linked to the main chain and derives its security and decentralization from using the main chain for verification.

The developers of Ardor are the same company behind the open source Nxt project. Ardor however goes beyond Nxt to solve critical issues of blockchain growth, scalability, and customization. Ardor includes every feature supported by the Nxt blockchain, but it changes the architecture of how new blockchains get implemented.  

Towards decentralised BAAS solutions

BaaS however has some limitations though. An inherent tension seems to exist between the decentralized promise of blockchain and the more centralized nature of Amazon’s and other providers fully managed BaaS services.

BaaS should be seen as a means to an end, and necessarily involves adding some centralization to blockchain, which is never ideal. The purpose of blockchain is however to have decentralized solutions to centralized problems. This could be the banks as much as it could be any trusted middleman.

What does the ideal version of BaaS look like? BaaS is an essential step to be able to bring blockchain mainstream. But in a perfect blockchain world, we would not have centralized BaaS.

It could possibly look like Ardor and Nxt, where BaaS is front-loaded into the fundamentals of the blockchain. Alternatively, MIMIR Blockchain Solutions are creating the world’s first Decentralized Ethereum Service Provider (DESP). They are using Proof of Stake mechanics to allow for decentralized BaaS. Instead of having one entity set up all the blockchain infrastructure for a corporate, MIMIR creates a system where the multitude of nodes can work together to share blockchain access to the growing number of corporates and others  who want access to blockchain. Instead of relying on a centralized party to share blockchain access, MIMIR relies on a distributed model where all connected nodes can get paid to do the heavy lifting for people.     

Forward thinking

The arrival of Blockchain-as-a-Service or BaaS is an interesting development in the blockchain ecosystem that is indirectly aiding the blockchain adoption across businesses. Definitely, creating, maintaining and managing a new blockchain solution will be easier with BaaS.

Though BaaS does still require one to rely on a centralized third party, it is a strong step towards bringing blockchain technology to the world. BaaS may be the necessary catalyst that can lead to a much wider and deeper penetration of blockchain technology across various industry sectors and businesses.

BaaS will set the blockchain future trends by making it more feasible and solving the existing problems of the industry. As more businesses look for convenient and cost-effective ways to leverage blockchain technology, it is likely that BaaS offerings will continue to proliferate.

“Taking the burden of difficulty out of the equation” will allow a wide range of businesses and industries to adopt blockchain into their existing platforms.

Though there is still a long way to go, for many companies, BaaS is – at this moment – the best way to begin the blockchain journey. Keeping an eye on the space can help corporates to  choose the right BaaS provider for their business needs.



Carlo de Meijer

Economist and researcher