While everyone was going wild about Bitcoin a few years ago, something much more important was happening in the world of financial technology, or fintech. That something was blockchain, the technology behind Bitcoin.
In principle, a blockchain is simple. Encrypt each block in a relational database, organize that database in the form of a general ledger, then have access control over the resulting ledger. A person or company is a block in the chain. So is an offer to buy or sell. So is a transaction.
Everyone in the chain has access to the data, but since data is encrypted it’s safe from those without the key. Offers can be separated from those making them, creating anonymity. More important, every block is entered just once, then reused or referenced, meaning a market’s email and phone tag chain is eliminated.
There are problems with authority and scaling, but in a big market with a limited number of participants, the technology is already ready for prime time.
If you want to build a skyscraper, or a refinery, or a microchip plant, you need reinsurance. Various levels of risk are piled atop one another, and a different capital pool buys each risk level. If disaster strikes, there are many hands to pay out.
But the reinsurance business is filled with paperwork, phone tag and email chains, many involving questions of identity or financial wherewithal that need, in theory, to only be asked once.
Last fall, five European insurance groups formed the Blockchain Insurance Industry Initiative, or B3i. The group now has 15 members, enough to begin testing how a system would work.
Who gets in, how does data go into the chain, how do companies bid on pools, and how do you referee the market are all up for discussion. How will the blockchain pay out on claims? How will the blockchain fit in with the reinsurers’ existing systems?
Developing a blockchain is more about negotiation than programming. Agreeing on the design more energy than development. Bankers and insurers who seldom get along have to agree on the new system for it to work. But in this case, the result could revolutionize a huge industry, making it simpler to write policies, making price discovery easier and allowing for more capital pools to play.
This is why the blockchain hype cycle is in full swing, and analysts are selling reports with hockey-stick graphs indicating blockchain markets could be worth $2.3 billion in just five years.
Meanwhile, In Kenya …
Forget Apple Inc. (NASDAQ:AAPL) Apple Pay. The biggest mobile phone-based money transfer network in the world may be M-Pesa, created by Vodaphone Group plc (ADR) (NASDAQ:VOD) and a Kenyan partner a decade ago.
M-Pesa can organize all kinds of transactions, including gambling. If you want to see what the mobile money future looks like, book a flight to Nairobi.
Over the weekend, Sportpesa — a sport gaming site using M-Pesa — shelled out 221,301,602 Kenyan shillings, or $2,142,839.07, to a single winner. This was one fun phone call.
But there is a bigger story underneath it all. There are now 84.1 million mobile money accounts in sub-Saharan Africa, and Visa Inc (NYSE:V) has only now entered the market.
That market just got interesting.
What We’re Watching
There is a lot to watch on the fintech beat. Here are just a few highlights:
- Financing on fintech startups is said to be drying up, as the action moves to Europe.
- That should not be happening since a fintech-based stock trading site called Robinhood.com has just achieved a $1 billion valuation in its latest funding round.
- Don’t ask if they will pay for that with Bitcoin, because there is a new currency on the virtual block, Ethereum, which will hold its annual summit meeting May 19.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares AAPL.