Bitcoin bubble warning, but blockchain takes off

The price of bitcoin has been highly volatile, sliding at the end of last week to as low as $5,555. (Reuters)

LONDON: The development of blockchain, the technology that underpins bitcoin, could prove as big a breakthrough as the Internet itself, an industry expert told Arab News — even as a major bank warned the popular cryptocurrency was heading for a crash.
Katsunori Sago, chief investment officer of Japan Post Bank said on Thursday bitcoin was in a bubble and its fair value should be around $100, far below the current price of almost $8,000, Reuters reported.
Sago said the bitcoin craze was worse than the dot-com bubble in the late 1990s. His view echoes that of JP Morgan CEO Jamie Dimon who described bitcoin as “a fraud” at a financial forum in New York in September.
But James Bernard, business development director of the Dubai Multi Commodities Centre (DMCC) told Arab News that a clear distinction should be made between blockchain, which offers huge potential, and cryptocurrencies that have faced hacking issues and massive swings in value.
A DMCC commentary on blockchain published earlier this year pointed out that it is the technology itself that is revolutionary. “Bitcoin is dependent on blockchain, but the blockchain technology is independent of bitcoin,” said the DMCC report.
In the world of commodities, blockchain is ideal for establishing and identifying a supply chain, said Bernard.
Everledger, said Bernard, is an example of a company that has been applying technology to make sure diamond data followed an authentication process throughout the blockchain.
“In other words, it is designed to ensure the same diamond that started its life with a polisher, for instance, is the same diamond sold in the shop to a customer,” he said.
Investment in blockchain technologies has already exceeded money invested in the Internet during the dot-com bubble, Bernard believes.
“A lot of people are betting that it will be bigger than the Internet, although there are still technical and developmental issues that need to be addressed,” he added.
At a panel discussion on banking and blockchain at this week’s Global Financial Forum — hosted by the Dubai International Financial Centre — speakers agreed that blockchain is in its early stages and had many years
before going mainstream, but all agreed the potential was
massive.
Leanne Kemp, CEO of Everledger, told the forum that banks could benefit from the immutable track-and-trace application of blockchain, which helps enhance trust and security.
Brian Behlendorf, executive director at Hyperledger, explained that there are two different types of blockchain: Permissioned and permission-less, with the latter used for bitcoin.
Behlendorf said he believed the potential benefits of the permissioned blockchain makes it attractive to financial institutions and other enterprises.
“Blockchain, or the son of blockchain, is already taking off,” said one London-based analyst.
At the end of 2016, The Royal Mint of the UK announced plans to launch a digital gold product called Royal Mint Gold (RMG), a joint venture with US exchange, CME. A spokesman told Arab News the system is now “up and running” and The Royal Mint is “in advanced discussions to sign up a number of corporate users.”
A key benefit is the cost reduction that comes through the elimination of storage and management fees, said The Royal Mint.
“By using distributed ledger technology, we can make it more cost-effective and provide increased transparency for traders and investors to trade, execute and settle gold.”
Under the system, assets on the blockchain represent gold held in reserve at The Royal Mint’s highly-secure on-site bullion vault storage.
Other companies are also developing blockchain technologies for different uses. A number believe blockchain technology can significantly speed up trade and eliminate bureaucracy.
Ramesh Gopinath, vice president of blockchain solutions at IBM, recently told the Financial Times the administrative costs of processing, moving, verifying and other documentation can almost double the cost of simply moving a shipment.
IBM is working on trade-related digital ledger technologies with shipping company Maersk and Walmart to find a “more secure and more efficient way to handle the document approval workflows needed to move goods across international borders,” he told the FT.
IBM has said by eliminating much of the paperwork, blockchain can cut up to 20 percent of shipping costs.
Elsewhere, a South Korean consortium has used blockchain to track reefer containers from Busan to Qingado, monitoring everything from shipment booking to cargo delivery.
Just as groundbreaking would be a breakthrough that would allow central banks to create digital versions of their currencies — an idea floated this month by Axel Weber, UBS chairman during an interview with the Financial Times.
Unlike bitcoin, digital currencies would be backed by the monetary authorities and could one day replace cash altogether. It is unlikely policymakers will ever take “unpermissioned” blockchain networks such as bitcoin seriously because of anti-money laundering rules that impose “know your customer” stipulations.
But regulated digital currencies would be a different kettle of fish, said Weber, although predicting when they will happen is difficult, he added.