The block chain is institutionalizing itself

Blockchain applications are proliferating in both industry and the service sector. As the technology facilitates work processes and increases productivity, not only entrepreneurs but also more and more Swiss bankers are taking an interest in it. This general recognition is considerable progress for such a complex technology. At the same time, however, its weaknesses are beginning to show, which will hopefully soon be remedied.

The blockchain, personal payment guarantor and "virtual notary", is embodied by dozens of computers that join together to validate and store transactions. Initially, the focus was primarily on two aspects: the creation of a virtual currency (Bitcoin) and the automated validation of financial transactions.

smart contracts

Since the introduction of smart contracts, which combine the blockchain, the Internet of Things and the digital creation of documents, technology has become indispensable in many areas of activity. For example, for the digitization of customs forms that come in batches when goods are moved internationally, for automating the financing of commodity trade, to guarantee the traceability of food and the right temperature when transporting sensitive medicines, or to charge readers of digital media for the exact time spent reading, and for many other processes.

The rise of Initial Coin Offerings or ICOs is now the second major application of the blockchain. Halfway between crowdfunding and an IPO, this involves a start-up being able to finance its development by issuing so-called "coins" that can be traded on a blockchain platform. The canton of Zug was one of the first places in the world, and is still one of the few, to provide a legal framework for this type of financing, earning it the name "Crypto Valley".

However, these ICOs come with two problems. Even if the transactions are secured via the blockchain, the investor can still trade under a pseudonym. And what should happen to the "coins" when it comes to renting larger premises or paying for equipment and materials with Swiss francs?

iron out weaknesses

Last September, the Swiss Bankers Association (SBA) called on its members to review compliance with the Anti-Money Laundering Act by companies launching ICOs. It also published a Guide, which is designed to help banks open accounts for companies that want to convert their "coins" into hard cash. This institutional recognition was much anticipated.

Over time, however, it became clear that the blockchain also has its weaknesses. For example, while it may control the exchange of data, it does not verify that the information provided is accurate. For example, tracing the name of a grower who supplied the meat for a frozen lasagna is only possible if the grower did not provide a false name. How can the information collected be authenticated?

The mishap that befell the start-up DAO during its IOC is also perplexing. One of the investors discovered an error in the source code, which had been accepted by all other shareholders, and was thus able to steal 50 million dollars. Is that illegal? Do you have to be able to read computer code to venture into the world of ICOs?

And finally: Is the blockchain environmentally friendly? Bitcoin, for example, the blockchain application most heavily criticized for its gigantic energy consumption, uses as much electricity as four nuclear power plants generate - a lot, really.

These three examples show that this technology is not yet mature. But there is no doubt that this will change rapidly. The "crypto-anchor", an edible microcomputer, embedded in a tablet, for example, will soon allow anyone to verify the authenticity of that medicine via smartphone. And already, the latest generation of computers designed to ensure blockchain operation consumes significantly less power.

Blockchain technology has yet to find its place. But it is already extremely promising. (Source: asut)

Claude Beglé*

Claude Béglé, Vaudois (CVP), is following the challenges of digitalisation with the greatest interest and has therefore also Motion on blockchain, in which it calls on the Federal Council to work with all stakeholders concerned to develop a strategy that would allow Switzerland to further consolidate its dominant position in blockchain technology.