May 2016

PROMOTING BLOCKCHAIN INNOVATION IN AUSTRALIA


In this edition:

- CEO's MESSAGE: Accelerating Blockchain Adoption in Australia

- Consensus New York: Round Up of the Big Themes from New York

- Global Blockchain Forum - Global Collaboration Update

- The Economics of How Blockchain Could Impact Cards & Payments

- Removal of GST 'double taxation' from Digital Currencies

- Digital Commerce Headlines

   


Nick Giurietto


CEO's Message

CRAIG WRIGHT AND BLOCKCHAIN ADOPTION IN AUSTRALIA

T he self-outing of Australian, Craig Wright, as the person behind the pseudonymous inventor of Bitcoin, Satoshi Nakamoto, was the talk of the town in New York last week at the world's largest Blockchain conference, Consensus.

But for most participants, the true identity of Satoshi is a question of historical interest only.  The New York conference saw 1500 delegates representing hundreds of companies - and hundreds of millions in investments  - coming together to seize the transformative power of Blockchain to change almost every industry. The moment in time for Satoshi - whoever he or she may be - to play a similar role to Tim Berners Lee in the early days of the Internet has passed.  The Blockchain transformation has begun and is far bigger than any individual.

As one of only a few Australians in the New York crowd, the possibility that Craig Wright could be the inventor of Bitcoin, provoked some deeper reflection.  How is Australia currently positioned to benefit from Blockchain innovation? And how can we accelerate Blockchain innovation?

Australia is actually highly regarded in the Blockchain world.  ADCCA is a founding member of the Global Blockchain Forum. Our regulatory environment is seen as broadly accommodative. Our market is sophisticated yet perfectly sized as a test environment for innovation. The reputation of our data scientists in the CSIRO's Data61 and universities is outstanding.  Our large banks are active in Blockchain investment and innovation.  Most notably, the ASX partnership with Digital Asset Holdings to develop a Blockchain based settlements platform is a bold step.  And the impending launch of the Australian Digital Currency Industry Code of Conduct is being seen as a role model from which the rest of the world can learn.

Yet despite these advantages, Australia is punching below our weight.  A big wave of Blockchain based transformation is building on the horizon and it is far from clear that Australia has enough firms positioned to be the Layne Beachley or Mick Fanning who will 'drop in' and ride that wave to the shoreline of commercial success. Not to mention the profits and jobs of the future.

So how can Australia increase our share of the rewards from Blockchain innovation?

Step one is to make sure that our regulatory environment is truly technology neutral.  The Government's recent FinTech Statement made some great progress in this direction.  Yet the UK, Luxembourg and the US State of Delaware have already embarked on more ambitious proposals.  So let's first bed down and implement those good policy ideas as quickly as possible then make it a national regulatory priority to survey the whole regulatory landscape and remove any unintentional roadblocks to the adoption of transformative technology.  With focussed co-operation between industry and government this could be done in a year.

Step two is for the government to start experimenting directly with Blockchain solutions for delivery of government services.  The potential for significant cost efficiencies AND an improvement in the consumer experience alone should be reason enough to move forward. A Government Blockchain Hackathon that brings together key government agencies providing services to citizens and Blockchain developers from across the country will allow new and innovative solutions to old government service delivery problems to be identified.  The best can be backed as a pilot program offering the chance to create real solutions, while learning about the technology and encouraging our local Block App industry.

There's more to be done but these two steps will bring together government and industry in a tighter collaboration to ensure that Australia makes the most of its head start in Blockchain innovation.

There's much to play for.

 
Nicholas Giurietto
CEO and Managing Director
ADCCA

NOTE: A version of this article was published in the Australian Financial Review on May 10, 2016.

   


CONSENSUS 2016 - The Big Themes from New York

Consensus 2016 was held in New York from May 2 to 4.  Over 1500 delegates from more than 40 countries came together for a programme with 125 speakers exploring everything Blockchain.

The theme for this year's event was "Making Blockchain Real".  This was very much reflected across the agenda with a major focus on the practical use cases for both business and government that can be implemented now to take advantage of the transformative possibilities offered by Blockchain technology.  The hype cycle is over and it's time for business.  And there certainly was a lot of business - with both start ups and established players announcing new ventures.

There were three broad themes that emerged across the Consensus conference:


1. Blockchain is Bigger than Fintech.

Although many of the applications showcased at Consensus were targeted at the financial services sector, particularly in payments and settlements, there were just as many in other areas including supply chain management, proof of provenance and identity.  Perhaps the most quirky was an announcement by US defence research agency DARPA that they plan to use Blockchain for secure communications.


2. Regulate Lightly but Carefully

Many regulators and other policy bodies were represented at Consensus.  A consistent theme across industries and across countries was that regulation should proceed lightly while the industry is in its formative phase and allowing everyone to understand the impacts of evolving new business models.  There was also widespread acknowledgement that carefully targeted regulation, especially when it comes to consumer protection, is essential to build confidence.

Often, the right regulatory stance is to refer to core principles rather than the detail that has developed around existing paradigms.  Using those core principles whilst updating the detail for a new model was the widely accepted path forward.

Interestingly, the Governor of the influential US state of Delaware, announced a suite of measures to promote adoption of Blockchain technology including use of blockchain in delivery of government services, use of smart contracts and new legislation to facilitate trading of shares via a blockchain registry.


3. Identity is at the Heart of Everything.

And finally, a recurrent theme was that blockchain needs a solution to the issue of identity to realise its full potential - and that blockchain likely offers the solution!  Linking a known individual or corporate identity to a transparent and immutable record of a transaction on a blockchain is the key element to allow new business models to develop.

And the notion of self-sovereign identity utilising blockchain to allow an individual citizen or consumer to take control of their identity information and decide who gets to see it and for what purpose was widely viewed as a potential answer. 
   



GLOBAL BLOCKCHAIN FORUM

Collaboration Update

A ustralia is a founder member of the Global Blockchain Forum.


The Global Blockchain Forum is an international collaboration among industry associations representing digital asset and blockchain businesses.  The common mission is to share best practices, develop common standards and help shape regulatory inter-operability for a global industry.


The Japan Blockchain Association  was welcomed to the forum on May 3rd.  Active outreach is ongoing with a number of other countries, including Canada, Hong Kong and the EU, to expand the global reach of the forum.

The first meeting of the GBF was held in New York alongside the Consensus 2016 Conference.

Two early priorities for collaboration were identified.  The US Digital Chamber has developed a consumer guide for doing business using Bitcoin.  This was shared with the other forum members who will be able to adapt the basic framework for their jurisdiction.

Similarly, ADCCA shared the draft of our Australian Digital Currency Industry Code of Conduct which is nearing finalisation.  There was a lot of interest in this as a concrete example of the industry adopting a self-regulatory framework.  Other members are likely to be able to take advantage of the work done in Australia to develop similar codes for their own countries.

The collaboration agenda of the GBF will continue to grow in the coming months but these are strong and concrete first steps.
   



Jason Potts
Professor of Economics
RMIT University, Melbourne
The Economics of how Blockchain could impact Cards & Payment

B lockchains - or distributed cryptographic ledgers -  are a radical new general purpose technology that, like computers or the internet, will transform many things we do, including, certainly, payments systems. I've written about the economics of blockchains in the first part of this paper,  here .


We can use economics to think about this. In order to get a sense of how this new technology might change things we need to start with the basic economics of card and payments system.

In economic theory, a card and payments system is a two-sided market (also known as a platform). In a two-sided market there are two distinct user groups, each side providing the other with benefits. in general, to maximize overall benefit, some transfer will be required from one side to the other.  In a credit card system, this is for example the interchange fee.  On this matter, I;ve written with Sinclair Davidson, a colleague at RMIT University, about the economics of two-sided markets in the context of Australian interchange fee regulation and why the Reserve Bank isn't the right regulator for our payments system.

The platform model of payments infrastructure works with a single monopoly currency (government money, the AUD) and has massive scale and network economies because of the efficiency gains from endogenising the transfers to create efficient levels of use on both sides of the market.  It is a monopoly model that rewards scale and operational efficiency.

So what happens when we add the new blockchain technology to this payments infrastructure ecology? There are two broad views on this.

The first view, and I'll call it the standard view, because that seems to be what many in the industries are expecting, or perhaps just hoping, is that this is indeed a big new technological revolution - but it will be like the previous big ICT revolutions that have affected payments: namely computers, internet and mobile.

That is, blockchain is really just another ICT change that impacts on payments, and while making some new things possible, will by-and-large have its impact by reducing the transaction costs to incumbents and resulting in overall efficiency improvements in more or less doing the same things.  The result will be greater transactional efficiency, but no real change to the structure of the market.  An example of this is the excitement about private blockchains, such as Ripple, but a recognition that this does not fundamentally change the business model, it just makes international clearing much faster, cheaper, better.

But the second theory is that the impact will be fundamentally disruptive.  in this version, the technological possibilities within blockchain are exploited not by blockchain per se, but by the infrastructures and platforms that can be built upon it.

In this view, blockchain will drive massive (payments) platform fragmentation on the back of smart contracts and decentralised autonomous organizations.  We've written about this in the second part of this paper, drawing on the example of the Backfeed protocol, which is based on Ethereum platform technology.  The results will be a proliferation of niche payments ecologies, most of which will be fully automated using smart contracts.

Which of these two predictions will unfold is not clear yet.  But if it's the second, then things are going to get interesting.  To survive this disruption, new strategy will be required to identify your niche payments/economic community and transition them to their own digital currency and economic co-ordination system.  Community level payments in emergent economies will be the watchwords.


References
 
Davidson, S., De Filippi, P., & Potts, J. (2016) 'Economics of Blockchain' Available on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2744751



Jason Potts
Professor of Economics, RMIT University

   


Removal of GST 'Double Taxation' of Digital Currencies 

T he Australian Government Fintech Statement of April 2016, declared the Government's intention to remove the double-taxation of a digital currency transaction under the GST rules. Currently, GST is applied to both the underlying transaction for the purchase of a good or service AND the exchange of digital currency to facilitate the payment.

Removal of the double-taxation of digital currency transactions brings Australia into line with the UK, EU and Japan and is a welcome move.

The Australian Treasury has now released a discussion paper on exactly how this policy goal could be achieved and is inviting comments from interested stakeholders before June 3rd, 2016.

The Treasury discussion paper focuses on two important questions.

Firstly, is it better to identify a digital currency using a principled definition or simply by listing eligible digital currencies? Or perhaps some form of intermediate scheme?

And secondly, how best to remove the double-taxation?  Is it preferable to expand the definition of 'money' to include digital currencies or is it preferable to regard a digital currency payment as 'input taxed' or even "GST free'?  Each alternative has subtle but significant differences.

ADCCA encourages interested stakeholders to participate in the review.  Our core principle is that a digital currency transaction should be treated as near as possible in an identical manner to a transaction using fiat currency.

   
DIGITAL CURRENCY HEADLINES

Fluent Closes $1.65m Round for Blockchain Platform

Finance Magnates, May 2016
 
One of the latest fintech startups that leverages Blockchain technology and that has received funding is US-based Fluent Networks.

Fluent has emerged from stealth mode with a distributed ledger solution aimed at helping corporations - including banks. lenders and other enterprises - enhance their approach to trade finance in their supply chain via use of the Fluent network.  


 
How the Blockchain can avoid the perils of Futurism

Coindesk, May 2016
 
 
In this opinion piece, Martin Hagelstrom of IBM speaks out against what he argues is the pervasiveness of futurist thinking in the blockchain industry, reasoning that practical solutions are currently a greater need.

 
-Read More-

 
i
 
NATO Innovation Contest Seeks Military Blockchain Applications

Coindesk, May 2016
 
 
The communications arm of NATO is closing an innovation contest in which it called on applicants to submit ideas for blockchain applications.

Among the solutions NATO requested were military-grade blockchain applications, including for military logistics and procurement and finance as well as 'other applications of interest to the military'.
-Read More-

 
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Copyright © 2016 | ADCCA | All rights reserved.

Published by the Australian Digital Currency Commerce Association 
Editor: Nicholas Giurietto


The ADCCA Industry Newsletter reaches a regular audience of over 1200+ Industry and Government Leaders, domestically and abroad. This reach includes regulators, parliamentarians, enterprise C-Level executives as well as cross-industry stakeholder participants both at the professional association and emerging FinTech business levels. To learn more about ADCCA or enquire as to Membership opportunities, please contact us via the below:

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