Dr. Werner & Partner attend conference: ‘My Blockchain: A Practical Approach’.

Dr. Werner & Partner attended a conference pertaining to the practical aspect of the Blockchain at the ‘Le Meridien’ Hotel in St. Julian’s.  It was seen how the ‘Blockchain’ phenomenon enables decentralization on a global level which can certainly facilitate smart contracts and business transactions.

Adopting Blockchain to Insurance Schemes.

A very interesting and practical example regarding Smart Contracts in Insurance schemes was given. Noting that the process of buying insurance schemes is usually a cumbersome procedure for the client, the speaker noted that Germany suffers from 4 billion Euros a year in insurance fraud. In this connection, German entrepreneurs are coming up with novel ideas to minimise this fraud risk.

Applying Blockchain to the Insurance process can work wonders. A classic example involves flight delays and loss of potential earnings/business opportunities. Through this novel system, users will be able to enter their flight details in a flight tracker system. Customers will be able to get immediate pay-outs in case of delays as the programme will automatically determine the delay-time for the client. The funds will be reimbursed to the client via a data programme which will be immediately transferred to his/her crypto-wallet.

Therefore, when the data is transferred to a smart contract on the Blockchain, miners will collect and transfer the money and perform the necessary monetary calculations. Once the client then opens his crypto wallet [depending on the volume of data traffic] funds can be transferred immediately avoiding all formalities involved when dealing with Insurance Companies.

To be noted that in this scenario, the transaction taking place is solely between the customer and the insurance company regulated on a Blockchain. The biggest advantage in this regard is that there is no claims process as often happens in Insurance procedures. There is no endless waiting and unncessary meetings and the customer can thus immediately obtain a specific certificate of insurance. The transfer of funds can be done via FIAT or Virtual Currencies.

Blockchain ‘Ingredients’.

As seen in the above mentioned example, the three things needed to start operating the technology via the Blockchain will be:

• The Blockchain infrastructure itself– which is needed to create and generate the smart contracts. Everything built on the Blockchain will be ‘open source’.
• Risk Capital – this would be needed for the insurance scheme. (The generation of capital can be done through Tokens to fundraise the project like a Token generating event. The tokens will be then transferred into a ‘foundation’ which cannot be sold thereby guaranteeing its immutability, permanence and security).
• Licensing and Regulation. (Regulatory and coherent frameworks are needed for the consumers to ensure the utmost protection).

Malta offers clients the luxury & environment to build a decentralised structure and this can be done through Securitisation Cell Companies. Moreover, Token Generating events are in full compliance with strict Anti-Money Laundering proceedings and full KYC procedures. Privacy rights are also GDPR [General Data Privacy Regulation] compliant. The most essential element for customers is to appreciate that in the Public Blockchain, it is the Customer that becomes the: ‘sovereign’ of his own data. He is in other words, the master of his own financial fate.

Tracking the ‘Identity of Things’.

A case study on the Identity of ‘Things’ was also given by other keynote speakers. In an age beset by endless counterfeiting of products, the Blockchain can be used to ensure that things are both authentic and verified.

Identity components can be installed in products containing cryptographic keys full of data. These components will contain many security features. There could be what is known as an NFC inlay [a simple sticker which is physically installed in the product] and maintains communication via cell phones. Another possibility is a BLE inlay – which is similar but is very long-range and Crypto-seal – which tracks documents of high value ensuring the authenticity of documents. All data is thus stored in the Blockchain so if anyone tampers with the product, this will be permanently recorded in the Blockchain as evidence.

Understanding Bitcoins.

Important information was then also disseminated on Virtual Currencies specifically Bitcoins. Speakers highlighted the importance of customers protecting their private keys whilst also gazing towards the philosophical approach of Cryptocurrencies arguing that the role of VCs is to ensure that the people not banks are in effective control of their own money. However, investing in Bitcoin is still risky as hackers might attempt to steal Crypto wallets which is why Back-up is always essential.

Obtaining Bitcoins.

The process of obtaining Bitcoin was also explained. The best option of obtaining Bitcoin was evidently through Exchanges [platforms to obtain Virtual Currency] such as: Bitstamp, C-EX and Kraken. Strict KYC rules apply, following which the payment method is verified, FIAT currency is deposited and the order for Bitcoins is placed.

Decentralised Exchanges.

Since current centralised exchanges are overwhelmed with orders, decentralised exchanges will eventually play a crucial role in 2018. The problem prior to the year 2017 was the amount of trading which was taking place without any KYC procedures in place. This ‘problem’ now seems to be solved with enhanced due-diligence being performed by the Exchanges on all prospective clients. People need to also realise the risks entailed when using a smartphone and wallet in the sense that once hacked, there is no current insurance scheme which can protect a customer’s crypto-investment.

Altcoins.

Altcoins were also discussed in some detail [the only non-Altcoin is currently Bitcoin] and they can be described as digital tokens – a by-product of cryptographic verification in a decentralised ledger.

Tokens and altcoins are the future but checking the virtual currency’s utility is also vital and users are encouraged to always conduct their own personal research prior to purchasing any form of virtual currency. The major difference between Bitcoins and Altcoins is that Bitcoins can be used to purchase the latter [highlighting the inevitable ‘value’ of the Bitcoin in today’s global and diverse world].

At what stage will Bitcoin be classified as Money?

Money usually is composed of three main ‘characteristics’ = storage, exchange and accountability. It goes without saying that the ‘storage’ element of Bitcoins has already been classified. The challenge Bitcoin will face is whether the world’s population will generally accept it as a medium of exchange and whether it will pass the so called: ‘Accountability’ test. In essence, will people trust Bitcoin so much that they would prefer using it for their daily transactions over and above FIAT currencies? Food for thought.

Conclusion

Blockchain is gaining a lot of traction even world-wide and there are currently approximately 24 countries which are utilising the Blockchain technology. International patents involving Blockchain technology have exceeded the 1,500-mark and 90 banks are already applying Blockchain technology in their banking system.

Regulation will essentially provide comfort especially since Banks are generally speaking very skeptical when dealing with virtual currencies and more often than not attempt to block their usage due to anonymity of users and transfer of funds without auditing.

On a very positive note, what can certainly be said is that Malta is the ideal place for any innovative business venture as seen in the case of ‘service clusters’. In 1995, the country only had one fund with one manager yet in 2017 there were over 150 MFSA licensed Asset-Managers. In this connection, Malta is therefore the ideal hub for people willing to present an innovative financial project. A concrete example relates to the Gaming Sector where Malta implemented exemplary regulations and this contributed to economic growth but only thanks to a good legal framework and eventually trust amongst clients and corporations. Though business and entrepreneurs will always essentially complain regarding over-regulation, customer protection and client satisfaction will remain essential ingredients in the fabric of the very stable Maltese economy.