Spotlight on Blockchain Applications
A decentralized online marketplace consists of a network of members without a central location who engage in transactions arbitrated by other marketplace members. Many such marketplaces are currently in development, with some providing their own cryptocurrency, such as Syscoin, and others, like OpenBazaar, using Bitcoin as a medium of exchange. OpenBazaar has received over $1 million of funding from investors and is touted as a “decentralized eBay.” However, since Bitcoin transactions cannot be blocked, there is a concern that the marketplace could be flooded with illegal contraband. While OpenBazaar has not yet been associated with any illegal activities, it remains to be seen what the startup will do to combat the potential misuse of its services.
Cryptocurrencies – Bitcoin and Beyond
Cryptocurrencies are entirely digital currencies – simply an entry on the ledger of a blockchain. Because the blockchain technology behind cryptocurrencies does not exist in one central location or institution, cryptocurrencies have the potential to reduce reliance on banks and other institutions as gatekeepers to the financial system. Central banks recently have begun to experiment with their own cryptocurrencies, seeing several benefits: Cryptocurrencies do not require printing, are harder to forge, and make issuing money significantly easier. Furthermore, electronic currency cannot be moved around without a trace as physical money can. In light of the recent Panama Papers leak and other anti- money laundering (AML) concerns, traceable transaction records offer a huge advantage to central banks.
Recently, a blockchain platform named Waves raised $2 million in the first 24 hours of a crowdfunding campaign. The platform uses blockchain tokens, which are issued by a platform member in exchange for existing national currencies, financial instruments, and other items with inherent value. In this manner, the platform allows traditional financial institutions to issue and support blockchain tokens, and is therefore a step forward in closing the gap between the current financial system and the cryptocurrency world.
Smart contracts are blockchain-enabled programs that can record the execution of various stages of a contract and complete it once all the terms are met. Every member of the blockchain cryptographically protects and powers the contract, ensuring objective and nondiscriminatory execution. Applications of smart contracts could include invoices, loans, inheritances and trade contracts, among many others. Platforms for smart contracts include Ethereum and Linq.
- The Linq application, launched by Nasdaq Private Markets in 2015, is a blockchain ledger platform that enables private companies to conduct securities transactions prior to going public. It is the first blockchain platform from an established financial services firm. The first-ever private securities issuance documented with blockchain technology was executed on Linq in December 2015.
- Ethereum runs on a custom-built blockchain that can handle more data than Bitcoin’s blockchain, allowing for more complex algorithms – for example, creating an invoice when a shipment is dispatched and providing a receipt once payment is made. Ethereum comes with its own programming language used to build the smart contracts. The Swiss- based firm was crowdfunded to the tune of more than $18 million in August 2014.
Identity Management and Digital Ownership
For decentralized marketplaces to function, it is necessary to establish tamper-proof identities – which is what a company called Onename is aiming to do. With Onename, a person can link a blockchain identity to email signatures, social media and other applications to allow others to verify that person’s identity. Another company, MyPowers, provides technology allowing this identity to be used to establish ownership of digital property.
Nasdaq recently announced its plans to allow residents of Estonia who are registered shareholders in the Tallinn Stock Exchange to vote in shareholder meetings via the Linq blockchain ledger platform. This will significantly impact the way in which shareholders and management communicate securely over long distances. Combined with the identity management described above, blockchain could revolutionize many other polling and voting processes. Since the voting is recorded on the blockchain, it will be authorized by the individual and authenticated by every user, making it extremely hard to forge or replicate.