Paolo Tasca: the Biggest Hurdle is the Uncertain Regulatory Status around Blockchains
In an exclusive interview with Binary District, Paolo Tasca, the founder and executive director of the Centre for Blockchain Technologies (CBT) at the University College London (UCL), discussed the barriers to the adoption of blockchain technology and the state of the initial coin offering (ICO) market.
Since 2015, major banks, financial institutions, and government agencies have allocated billions of dollars to the research and development of blockchain technology. However organizations have struggled to commercialize the technology and demonstrate the applicability of the blockchain in large industries.
Paolo Tasca noted that the interest and demand for blockchain technology has increased dramatically this year; virtually every bank in the global financial sector is toying with the idea of blockchain technology integration and adoption. Spain’s BBVA, Russia’s Sberbank, JPMorgan, Goldman Sachs, Intel, and Microsoft have joined blockchain consortia including the Enterprise Ethereum Alliance (EEA), the Ripple network, R3CEV, Axoni, and the Hyperledger Foundation to build enterprise-grade blockchains and permissioned ledgers.
For decades, Tasca has worked with some of the most prominent institutions in the traditional financial sector including Deutsche Bundesbank, where he was the lead economist on digital currencies and peer-to-peer (P2P) financial systems. Currently, Pasca is leading blockchain development and innovation in Europe as an advisor to the EU Parliament and the United Nations, as well as the director for UCL CBT.
“With this traction we have also seen increased research and investments in the field, with every major bank now joining Blockchain consortia or developing blockchain solutions in house.”
“While 2015 and 2016 have been the years in which we have seen the early phases of blockchain understanding and investments, 2017 has been the year in which the topic has received interest from a wider audience, gaining enough traction to see every major corporation and even small businesses talking about it. With this traction we have also seen increased research and investments in the field, with every major bank now joining Blockchain consortia or developing blockchain solutions in house”, said Tasca.
The Adoption of Blockchain Technology
Despite the capital and resources provided by many of the world’s largest banks, financial institutions, and tech corporations, the blockchain sector has failed to produce a single commercially successful platform that is used actively within the financial industry. Nevertheless analysts, including Blockchain’s Peter Smith, Ethereum co-founder Vitalik Buterin, Sberbank CEO Herman Gref and Tasca himself, remain confident that in the upcoming years, blockchain technology will experience rapid adoption -- especially once technological issues such as scalability, privacy, and security are resolved.
Tasca emphasized that the blockchain sector is at an embryonic phase, wherein significant amounts of capital and resources are being poured into the field and startups. Developers and open-source communities are actively investigating viable applications of the technology.
“The biggest hurdle to a much more active adoption of blockchain technologies is the uncertain regulatory status around these technologies.”
“With regards to the level of blockchain adoption, we are still in an embryonic phase mainly populated by innovators and early adopters who still have unclear preferences. In this context, I can see different types of challenges that need to be overcome. These concern the legal, technological and business spheres”, he added.
At this current phase of blockchain development, the two major hurdles that blockchain consortia and development firms are trying to overcomes are scalability and regulatory frameworks. By nature, blockchain technology is a decentralized protocol which enables the processing of transactions and smart contracts within a distributed ecosystem. As such, it is difficult for strictly regulated banks and financial networks to adopt a technology that is so transparent and open.
“The biggest hurdle to a much more active adoption of blockchain technologies is the uncertain regulatory status around these technologies. We know that the blockchain technology offers a multitude of use cases. However, for each of these use cases different regulatory questions will arise”, Tasca concluded.
The State of the ICO Market
The hype around the ICO market and decentralized protocols is not being justified with working prototypes, commercial applications, or successful platforms. Some of the most successful decentralized applications, like cryptocurrency exchange EtherDelta which accounts for 14 percent of the Ethereum network’s transactions, have not conducted any ICO campaigns or sales for crypto-tokens.
The cryptocurrency community and the global financial industry have started to express their concerns regarding the state of the ICO market, particularly the vast number of ICOs that are trying to raise large sums of money without viable projects and software.
“Tech startups are now trying to use these technologies to bring new platforms, on the top of open and decentralised networks, to the market; where users are also producers and shareholders, and where the value created is fairly and transparently redistributed”, Tasca explained. “They do not need VC, they can self-finance through the network with equity, debt or utility tokens via the so called Initial Coin Offerings (ICOs). ICOs employ features of Initial Public Offerings (IPOs) and Crowdfunding to create a new capital-raising process with no need for extensive regulatory compliance”.
One strong advantage of ICOs is that they allow users, investors, and the market to provide real-time valuation of blockchain project. With specific reference to EOS - the second most successful ICO in history that raised $185 million in its campaign - Tasca explained that the ICO market creates a transparent ecosystem wherein investors justify the value of the project on its products and software. However, he also noted that, “some startups, although they may have a legitimate and robust business models, [they] raise much more money than they actually need”, explained Tasca.
He went on to expand on this point, adding that, “the novelty of the ICOs is the presence of secondary markets like EtherDelta where token holders can exchange their tokens. This is a novelty with respect to the traditional VC market, which allows market corrections to take place. Tokens overpriced during the ICO are likely to be depreciated. An example is the EOS which, at the beginning of the ICO, in July 2017 had a market capitalisation of about $800 millions and now has a market capitalisation of about $200 millions”, he concluded.
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Margarita Khartanovich at email@example.com