Specialist investment bank Exotix argues that the biggest potential for blockchain technology, first developed to underpin bitcoin, lies in frontier markets.
Analyst Paul Domjan says blockchain could be used for things like property registration, contract law, and exchange in countries with volatile local currencies.
Goldman Sachs made a similar point about the potential for bitcoin in countries with unstable local currencies.
LONDON — The biggest potentially for blockchain technology is in developing markets not developed markets, according to specialist investment bank Exotix.
Paul Domjan, global head of research, analytics & data at Exotix, which specialises in emerging markets, compares blockchain technology to the smartphone and mobile boom of the last decade in a note sent to clients this week.
Smartphones brought about much greater change in developing markets than developed and allowed many countries to “leapfrog” fixed line telephones.
Domjan writes: “Today, frontier markets may be positioned to leapfrog developed economies once again, but this time the key technology is blockchain and cryptocurrencies.”
He sees the clearest applications in recording property ownership, contract enforcement, and storing or sending currency.
Blockchain technology, also known as distributed ledger tech, was first popularised by bitcoin, the digital currency created in 2009. It allows for a shared database that is near instantly updated, meaning all parties can see the same version of that database. It uses complex cryptography and group authentication to police the editing of the ledger.
Usually people have a central database to record things like trade. That way an impartial middleman can make sure everyone is playing by the rules. Blockchain removes the need for that middleman.
The technology was originally developed to do away with the need for a central bank for bitcoin, meaning it could be totally independent. But this feature has almost endless applications for other industries and processes that involve a trusted middleman or central authorities.
Banks are particularly keen to adopt blockchain, as its inbuilt security and trust checks cut out the need for middlemen in processes like settlement and clearing. This, in turn, cuts down costs. Santander estimated in a 2015 report that the technology could save banks as much as $20 billion.
Sceptics argue that blockchain simply replicates processes and systems that already work relatively well, without enough of a payoff to warrant the costs.
Domjan says: “Due its distributed nature, recording new assets on a blockchain can be quite slow, with transaction times measured in hours or even days rather than the seconds that are typical of e-commerce. As such, blockchain technology is a poor substitute for existing ownership records in developed or even emerging economies.”
‘We see this advantage across the developing world’
That’s not the case in emerging markets, Domjan says, where there is often only a poorly developed and unreliable system for recording property ownership.
“Whereas some emerging markets, such as Russia and China, have property registration systems on par with those in the high-income OECD countries, frontier markets in Latin America, Sub-Saharan Africa, and South Asia lag far behind, with average performance less than half that of the best performing economies,” he …read more
Source:: Business Insider