On the 29th of March, I was giving a lecture about Blockchain Use Cases in Finance at the University of Applied Sciences in Basel.
Blockchain started with the Bitcoin and we can consider Bitcoin as a new base-money. But Bitcoin is just one of many use-cases in the blockchain economy.
In this lecture, we analyze what are blockchain potential use cases in finance. Here are the slides of Blockchain Use Cases in Banking.
Blockchain Use Cases
In the blog article Blockchain Business Model – What does it mean? we analyzed what does a blockchain business model means? Generally speaking, there are two types of use cases on blockchain:
- Financial use cases, which are the majority of blockchain use cases. The key focus of these use cases is on the monetary systems and on what banks are doing
- Non-Financial use cases, which get sometimes quite some attention in the media. But these are rather niche use cases
Additionally, we analyzed blockchain use cases in the blog article Internet Bubble 2000 versus Crypto Bubble 2018 – What’s next? Our main statement was that the revenue-generating use cases will be winning. It’s very similar to the Internet Bubble in the year 2000 – the companies with revenue models survived; the companies without revenue models didn’t get very far. The same financial principles apply to crypto companies and traditional companies. It’s all about the revenues. And it’s about generating cash-flows.
If we look at the financial use cases, then most of them are revenue-generating. Therefore our forecast, that these will be prospering use cases. We are at the beginning of the emergence of a fully new financial ecosystem, which starts to erode traditional banking.
How will Blockchain impact banking?
In the article Bitcoin and Digital Banking 2.0 (from a long time ago – from 2015) we did analyze the usage of blockchain – will blockchain trigger the next wave of Banking Digitalization? And, yes – this was our conclusion five years ago.
In the article Combining Traditional Banking with Crypto Finance, we did some scenario planning and analyzed what will banks do in this new situation? We forecasted the following strategic moves 3 years ago and that’s what is happening now. More and more banks start to offer their blockchain solutions. There is a very simple driver for this – the clients demand these solutions and the banks are earning revenues.
We analyzed this topic in the article Banks and Crypto: What Will Happen to the Banks? The following figure visualizes the transformation in the bank’s value networks. Earlier, the banks were in the center of clients’ value networks. But as alternative blockchain-based services emerge, clients will start to use these alternatives, thereby reducing their dependency on banks.
This means the value-adding activities start to circumvent the banks, which means the banks start to lose a part of their revenues:
In the article Blockchain Technology in Banking: Everything You Need to KnowBanks we analyzed how the blockchain transformation will impact the processes of the commercial banks. Why are the processes important? It’s because the service offering in the service economy is driven by the processes. We were perhaps over-optimistic in forecasting the impacts 3 years ago, however, this transformation has started.
Will there be an alternate financial system?
In the article Blockchain-based Financial System – Are we ready? we analyzed are we ready for a blockchain-based financial system?
Our current financial system has the following elements (see more the details in our medium post):
- Credit-Money and Debt
- Means to keep the base-money, credit-money, and financial assets
- Means to make payments and to transfer financial assets
- Exchange of different money’s and financial assets
- Financial products
- Means of wealth management
All these elements do exist or are emerging in the blockchain-based alternate financial system. This means we can speak of a fully alternate financial system, including all the standard components of a monetary system. And one more thing – this new blockchain-based financial system can exist independently from the traditional financial system.
Changes in the Macro-Environment
One needs to consider as well the macro-economic and monetary environment:
- Central banks are running massive money-printing exercises during the Coronavirus shock and after these shocks. See more in the article Coronavirus Economic Crash – What is the difference to the 2008 Financial Crisis? This exponential money-printing will translate into the trust erosion of the current monetary system
- Governments are running massive fiscal stimulus programs, which increase significantly their already unbearable debt level. The only way out for the governments is to tax more and to inflate.
Both these factors will lead to the loss of monetary value of existing fiat currencies and the erosion of traditional banking.
One needs a prudent attitude towards his financial assets. Therefore we proposed as risk mitigation a gradual migration to blockchain in the following way:
- Instead of keeping 100% of the assets in the banking system, let’s start with keeping 90%, then 80% and so on assets in the banking system and the rests in the blockchain-based financial system
- Instead of keeping USD or EUR, the users can keep first their equivalent stablecoins. However, these stablecoins are getting debased as much as the main currencies are getting debased (1:1 mapping …)
- Instead of using stablecoins, users would use the main cryptocurrencies, which have no risk of the debasement, but rather a high potential of the appreciation
If speaking about the blockchain use cases in finance, then we need to consider several factors:
- The alternate blockchain-based financial system is emerging at a very high speed
- The traditional banks start to develop their blockchain strategies and introducing blockchain offerings to their clients. It’s happening because more progressive banks realized they can generate the revenues so
- The macro-economic and monetary environment is deteriorating, especially because of the response of the central banks and OECD governments to the coronavirus crisis
This leads to the prudent decision not only to look at blockchain use cases in finance but to start to use a blockchain-based alternate financial system.
For more information check out the related articles from the SmartCredit.io blog: