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Cryptocurrency: a new kind of Clubcard?

As a traditional asset manager with an interest in new technology, Jonny Fry of Team Blockchain came to this ecosystem thinking (as many still do) that cryptocurrency and blockchain were somehow inextricably linked with Ponzi schemes, drugs and crime. But he came to realise; if you’re involved in nefarious activity, the last thing you’d want to get involved in is cryptocurrency. Where any transaction leaves an indelible digital footprint, that sits on the blockchain forever.

And while the west spends around $20bn a year on KYC and AML onboarding, in an effort to stem the flow of criminal money, it’s those oh-so-reliable banks which have been fined more than $100bn over the last decade for failing to do just that. In contrast, the majority of ICOs are actually very strong on AML, says Jonny. The system is a comparatively simple tickbox exercise. Meaning ICOs know, and can prove, exactly where the money is coming from.

When he started investigating the world of digital assets, of bringing best practice from the traditional asset management world into this new ecosystem, Jonny saw a lot of push-back from those who felt this exciting new way of doing business didn’t need regulation. But now he sees more and more professional services moving into this sphere. And as anyone managing your assets can only operate on a regulated platform, such as a stock exchange, there will be many more exchanges trading cryptocurrencies over the next five years. With such financial luminaries as Goldmann Sachs, Standard Chartered, Santander and State Street all showing interest, there is an ever more urgent need for not only the central banks, but insurers, to get on board.

And as blockchain brings greater transparency to the world of big business, huge corporations will find out exactly who their shareholders are – bringing an old-style relationship, or at least recognition, between owners and operators.

With a recent Bain study showing a 5% rise in client retention leads to a 71% growth in profitability, and 80% of future turnover predicted from 20% of existing clients, this new form of attracting and rewarding customers via tokens will become the new normal, says Jonny; the new Clubcard, the new Airmiles.

The current financial services industry is massively inefficient. And blockchain offers a solution. Devora are currently claiming that bonds issues via blockchain technology are 90% cheaper than traditional methods. And in a recent survey by DLA Piper, 31% of financial experts said they expect central banks to add cryptocurrency to their balance sheets in the next 5 years - and even 17% of asset managers admit to having a crypto strategy.

Jonny says that amongst others, Google is watching Ethereum and Bitcoin using data analytics, watching smart contracts to get a richer picture of what’s happening – which may be pre-cursor for a bid or closer association with the sector. And we might see Apple, Amazon and other tech giants getting involved, in partnerships or even takeovers. On the other hand, should big data be seen as an asset -or a liability in light of GDPR, where a non-compliant organisation can be fined 4% of its worldwide turnover?

Government experts conclude that data needs to be held in decentralised, super-secure way – which actually sounds a lot like blockchain!

Jonny predicts that some huge companies will come under pressure to be broken up, they are becoming more powerful than some governments. But then, the billions in fines for some of giants is now just seen as the price of doing business.

When it comes to individuals, this is a new world with much potential for us all to benefit, cutting inefficiency and friction in transactions, improving security, cutting out expensive intermediaries. He says, never be afraid to ask; there are lots of pre-conceptions about Bitcoin and cryptocurrency, which can be many different things - a bond, an equity, a currency – and we will certainly see many more global brands getting involved.

Key take-aways

  • ICOs are a successful way for mainly start-ups to raise funds; over the last 2 years more than $20bn have been raised, and more was raised in the first half of 2018 than whole of 2017.
  • ICOs and tokenisation will become way of attracting and rewarding customers.
  • During the early credit crunch when corporates stepped American Airlines used rewards execs used airmiles to take families away – rewards knock-on as spend on flights
  • Bain stats: 5% rise client retention = 71% rise profitability, 80% future turnover from 20% existing clients.
  • Postal system is a way of holding dead assets – people mount up stamps and then there’s a rush to deliver cards at Christmas.
  • Airdrops –if you give people money, they’ll pay attention to your brand.
  • Advertisers are moving away from TV ads and moving towards digital – as seen by Facebook’s contract to advertise during baseball. People increasingly don’t sit and watch tv, they access online on laptop.
  • If don’t do £99 tv licence for year’s viewing, instead do tokens, maybe only 30% will redeem, you need to make it exchangeable.
  • There is a Mercedes Coin, the more tokens you accrue via purchases, sales, servicing etc the more you can use them on other things Mercedes supports, such as sports.
  • One day you will be able to transfer these to other coins, or cash them in.
  • Traditional Clubcard points have a value, not in cash at the amount of discount somewhere else, so £10 off groceries is not worth £10 cash, but is a way to bring loyal customers into digital loyalty rewards.
  • It’s unlikely you will physically lose decentralised tokens held in an app on a phone, and it encourages ongoing engagement.
  • Airdrops offer a way of giving away tokens for loyalty which can then be traded.
  • There is likely soon to be an Amazon coin and IBM.
  • The Winklevoss twins’ Gemini Bitcoin exchange got the New York State Department of Financial Services to approve them; this May they won a patent for settling exchange-traded products with digital currencies.
  • Why not avoid crypto and stick with dollars? Approximately $60bn/year is repatriated from the west back home to family in poorer counties; crypto transfers are helping the poorest people to transfer money away.
  • Devora is issuing bonds using blockchain technology, claiming the cost of issuing bonds is 90% cheaper - a game-changer for smaller businesses.

Useful Links

https://www.linkedin.com/in/jonnyfry/

https://www.linkedin.com/company/teamblockchain-limited/

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