The Future of FinTech

Blockchain Report
Prepared by Tim Baker
December 11, 2018
Financial Management 201-C
Professor A. Can Inci

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 Table of Contents
Introduction
Abstract 3
What is Blockchain 4
Blockchain Technology 9
Cryptocurrencies
What are Cryptocurrencies 10
How they are Evaluated 12
How to Trade/Buy/Sell 14
Bitcoin 17
Impact on Global Finance
Skepticism 19
Utilization by Businesses 20
Fraud and Illicit Activity 24
Government Involvement 27
Application of Technology Across Industries 29
Conclusion
Current State of Blockchain 31
Future of Blockchain 32
Should you Support or Oppose 33
Works Cited 35

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 Introduction
Abstract

If you have paid any attention to FinTech or the news over the past few years you are

sure to have heard of cryptocurrency. Maybe you've heard all the media attention Bitcoin

received in that time or maybe you've never heard of either cryptocurrencies or Bitcoin. These

two topics are very important in the world of FinTech, but what's vastly more important is the

technology that creates the foundation for these things to operate, blockchain.

The wheel was invented in the B.C. era and changed how the world traveled ever since. The

printing press was invented in the 1400s and changed the speed in which information traveled

the world. The discovery of electricity in the 1800s forever changed the way the world was

powered. Telephones came next and forever changed the way in which humans connect with

one another. Further along in the 1900's the world was introduced to the computer and forever

simplified complicated human tasks. After the computer, the internet was created and it has had

an astronomical impact on the world we know today. Blockchain may just be the next step and

biggest invention of our generation.

The impact of blockchain on the world cannot fully be determined just yet because it is

still in its infancy stage of life. Blockchain technology, thus far, has been implemented into

cryptocurrencies and has changed the network in which currencies trade hands. This

technological impact is evolving every day and the full impact of blockchain technology on the

modern world is yet to be known. As innovation continues there are more and more applications

for blockchain being discovered and pursued daily. Every day this technology continues to

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change the world in which we live. The following report will explain this technology in depth

and investigate the world of blockchain.

What is Blockchain

Blockchain was unveiled to the public in 2008 by a man named Satoshi Nakamoto after

his publication of the paper Bitcoin: A Peer-to-Peer Electronic Cash System. This release

outlined the technologies application to Bitcoin and the need for such technology to make

cryptocurrencies a possibility. But the general idea and the principles of blockchain as outlined

by this paper transcend the mere application of its use to Bitcoin and the cryptocurrency world.

Blockchain forms the foundation for Bitcoin's operation and as Sally Davies put it in simple

terms, "Blockchain is to Bitcoin, what the internet is to email".

Blockchain in simple terms is a digital file that consists of "blocks" of data that are

chained together to form the blockchain (Marr). These blocks of data represent an agreement

between parties on a state of affairs and procession on the basis of that covenant (Weber). For

example, consider an agreement between two students for the purchase of a textbook. Student

one agrees to purchase the book from student two for $100 on the basis that it is the required

book for student one's course curriculum. Student one then bestows the $100 to a trusted third

party, a mutual friend named Phil, to then endow to student two if the terms of the agreement are

met in whole. If the textbook indeed is not a required material for the course student one would

then be entitled to the $100 or vice versa if the textbook were a required material for the course

student two would be entitled to the $100. Although there is always the risk of foul play even

with a third party involved. For instance, Phil could take the money and leave or student one

could lie about the textbook not being a required material to solicit a discounted price from

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student two or student two could break into student one's room and steal the $100 after the book

is sold. In the case of such foul play, it is difficult to enforce the initial covenants between the

parties through the verbal agreement. But what if the covenants and commitments from the

verbal contract made between student one and two were specified in a non-manipulatable

contract?

To solve for the enforcement of such covenants there must first be evidence and proof of

the covenants. In the case of blockchain, this evidence comes in the form of blocks. These

blocks store the terms/conditions of an agreement, the exact date and time at which the

agreement took place, and the parties involved. This block serving as the proof of evidence for a

transaction. Looking back at the textbook example, mere proof of evidence does not solve the

issue of foul play. Documentation of the agreement in writing or in this case a digital file (a

block) could have been procured and given to Phil for safe keeping, but this alone does not

prevent Phil from foul play such as destroying the document.

To solve this next issue of d from a trusted third party there must be a distribution of the

proof of evidence or block. Doing so would require sharing this digital file to other computers.

But still, this does not prevent Phil from sharing the file to other computers that he happens to

own or hacking into those computers to manipulate the file after distribution. Eliminating this

third party is the next step in making the proof of evidence or block more secure. To do so

would require the digital file or block possessing the proof of evidence to be distributed to

multiple different locations not owned by the parties involved. This aspect of blockchain is the

decentralization of the ledger containing blocks (2017b). On the blockchain when a block is

completed, and proof of evidence is established it is sent to every single computer on the ledger.

Information is now stored on many different computers rather than one with total control over

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the stored information or block, hence meaning content is not owned or controlled by any one

party or computer (Marr). This successfully eliminates the middleman and third party but still

does not prevent the possibility of either party involved or a third-party hacking into these

computers to access and manipulate block content.

A theoretical fix for eliminating hacking is to encrypt these blocks. The definition of

encrypting as provided by the Oxford English dictionary is, "to convert (data, a message, etc.)

into cipher or code, especially to prevent unauthorized access". A different cryptographic key

pattern shall be used for every block that an owner enters to hide the identities of the parties

involved in any block on the blockchain. The encryption method creates a public record of a

transaction through the creation of a block but allows for the anonymity of the parties involved

(Nakamoto). In the textbook scenario, this would be done by translating the terms of the

agreement between student one and student two into a unique combination of keys.

Hypothetically (and shortened for convenience) the date and time of the agreement along with

the terms of the agreement would be coded as "Ehfksfj(#$%lkf4208-awesfd1='>f@slmn". A

computer that possesses the cryptographic algorithm would create the encrypted block. The

cryptographic key to that block not being known by either party, but rather stored simultaneously

in each computer that stores the block. Although more secure, it could still hypothetically be

possible for a party to hack into the ledger and algorithmically generate a key that codes for the

given block allowing for manipulation.

Much like a financial institution, a financial service company with a long history of

fostering transactions is more trustworthy and safe than that of a company who lacks any prior

history of fostering transactions. Application of this degree of security to blockchain may seem

difficult because there is no trusted financial institution fostering the transactions and agreements

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that form blocks. To provide for a long history of trusted, reliable blocks and ensure the security

of each successive block requires the duplication of blocks, which creates the blockchain.

This concept is much like building blocks. A child may stack alphabetical blocks starting with

the letter "A" as the foundation block and work vertically by placing the letter "B" block on top

of it and so on. Following this pattern, the letter "D" block's standing would be dependent on the

letter "C" block being in the proper spot and so on with the 26 letters of the alphabet. Let's say

the "A" block represents the agreement between student one and student two. The "B" block

representing a completely unrelated agreement between two farmers and so on with each

successive block representing unrelated agreements between parties. Although unrelated, these

blocks are connected via a link from each new block to the previous block because it is

dependent on the prior for its own structured position, making each successive block contingent

on the agreement that came before. To manipulate the "Z" block at the top of the tower, one

must first manipulate the "A" block and every successive block after it. Now think of 100 kids

simultaneously building the same exact block tower of the 26 letters of the alphabet starting with

"A" on the bottom and "Z" at the top. To manipulate the "Z" block on one tower and ensure that

all 100 kids have the exact copy of this new tower you would have to follow this process with all

100 block towers. Instead, imagine these 100 kids as 100 computers around the world with the

same exact copy of 26 letter blocks all representing different agreements between parties. To

manipulate the "Z" block at the top of the tower, one must first manipulate the "A" block and

every successive block after it on every single one of the 100 computers. Blockchain technology

replaces these 26 lettered blocks with (theoretical capabilities for) infinite blocks of encrypted

data that represent agreements between parties. Additionally, the distributed ledger that

computes the blockchain is made up of thousands of computers. In order to successfully hack a

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block, one must hack into all blocks that came before on the chain until the desired block is

reached and follow this process on all computers on the ledger simultaneously.

Blocks are created representing agreements between parties on a peer-to-peer basis.

These parties involved being completely anonymous to the public. While the agreements

themselves are transparent to the public with the creation of a block. Trust in the agreements is

generated through "cryptographic proof instead of trust" (Nakamoto). This cryptographic proof

is created through the chain of successive encrypted blocks that are verified across the distributed

ledger of computers. In short, the longer a chain the more secure the chain because hacking

would require decrypting every previous block in the chain on every computer in the ledger until

the desired block is reached. No single computer on the ledger owns the content of the

blockchain so all computers across the ledger work to verify the blockchain simultaneously using

complex algorithms. If a mistake arises on one computer, the other computers on the ledger fix

the mistake and the longer blockchain is accepted as the accurate/correct one. This long process

of verification, encryption, and decentralization of the blockchain makes blockchain virtually

impossible to hack. With this security comes endless possibilities for application of blockchain

technology in various industries, markets, occupations, business practices, and governments.

The illustration below depicts the blockchain process in a six-step graphic.

(2017a).

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Blockchain Technology

There are many advantages to blockchain technology and blockchain has paved the way

for great advancements in fintech and consequently the financial services industry. As talked

about in the prior section with the textbook example, blockchain has allowed for a successful

removal of the middleman in financial transactions. Eliminating the middleman effectively

eliminates inefficiency and the costs associated with their services (Weber).

Another clear advantage of blockchain technology is the instantaneousness of use. The

complex computing processes as mentioned in the prior section perform immediately upon the

completion of a peer-to-peer interaction. This instant technology could prove to be helpful in

speeding up the processes of purchasing and selling and relieve companies of currently time-

consuming contract processes. Using blockchains to reduce the time to perform constant and

unchanging tasks for clients would significantly reduce costs and allow for time to be allocated

in other facets more efficiently.

Another advantage of decentralized ledgers for financial institutions is the security of

information and data in the event of natural disaster (Weber). For example, a financial services

company headquartered in Florida is susceptible to the effects of a hurricane. In the event of a

hurricane hitting their headquarters, there is potential for data to be destroyed through water

damage. This data could consist of internal information or client information, regardless it is

important data to keep safe. If blockchain were utilized in this scenario the data would be stored

across the decentralized ledger ensuring the safety of all information in the event of geographic-

specific damage.

Transparency is a major advantage of blockchain technology. This also has to do with

the lack of a third party in contracts. Since blockchains are purely peer-to-peer all parties

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involved have 100% transparency in reviewing agreements because they are stored on the

blockchain for public viewing without the threat of third-party manipulation. Total transparency

will increase trust in proceedings between companies because of the blockchains "proof of trust"

(Nakamoto).

A major downside of blockchain technology is the energy it consumes. Decentralized

ledgers performing complex algorithms concurrently at every instant in time requires immense

computing power. For instance, the total bitcoin miners combined power usage around the world

is greater than that of 159 countries (Adams). Continued power usage of such mass quantities

has negative effects on the environment. In addition to the negative environmental effects is a

high cost of production for operating highly functioning, successful blockchains on a large scale.

The future will bring about large-scale blockchain users seeking cleaner and cost-effective

energy methods to continue to operate blockchain technology as well as environmentalists

seeking regulations to the energy consumption limits of such blockchain operators.

Blockchain is capable of operation on large, global networks as seen with

cryptocurrencies like Bitcoin. This high-tech technology will continue to introduce itself into

facets of the financial services industry as well as various other industries and markets.

Although current success is promising for future implementation around the world, blockchain is

still only in its infancy stage of life. As years pass this technology will continue to be shaped by

tech engineers, financial institutions, governments, and markets to fine tune blockchain for future

sustainability and application.

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 Cryptocurrencies
What are Cryptocurrencies

Cryptocurrencies, as defined by Collins English Dictionary is "a decentralized digital

medium of exchange which is created, regulated, and exchanged using cryptography and

(usually) open source software". These virtual currencies work very much like fiat currencies

like the US dollar, Euro, and yen. Although a key difference between cryptocurrencies and fiat

currencies is the fact that there is no government backing to the security of these monies ("virtual

currency"). Bitcoin was the first ever cryptocurrency created back in 2009. Since then

thousands of different cryptocurrencies have been established across the globe.

Cryptocurrencies operate much like stocks in some conceptual manners. These virtual

currencies have a fiat currency price as determined by the market. These market prices are

determined by basic economic supply and demand models. Just like stocks, cryptocurrencies fair

market prices fluctuate. Another function in which they are similar to stocks is that they are

bought, sold, and traded on exchanges. Much like stock exchanges, these crypto exchanges can

operate on a national or international level. Unlike stocks where the overall health of a nation's

economy may be a proxy of the performance of domestic stock exchanges, cryptocurrencies

currently have no considerable, measurable effect on the health of a nation's economy (Simpson).

Instead of initial public offerings (IPOs), cryptocurrencies have initial coin offerings (ICOs)

when introduced to the market. Commonalities also include a ticker for buying cryptocurrencies

on a crypto exchange, for example, Bitcoin's ticker symbol is BTC.

Another option instead of purchasing cryptocurrencies with fiat money like you would a stock is

to follow a process called mining. Mining for cryptocurrencies is done through a computer

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process of solving algorithms. As mentioned before, all cryptocurrencies operate on the basis of

blockchain technology. Miners use computers to solve complex algorithms that solve for the

code on individual blocks on a cryptocurrency blockchain. As these algorithms solve codes

these blocks are released from the blockchain into the virtual network in the form of a coin of the

given cryptocurrency blockchain they mined for ("Legal Tender"). In the case of

cryptocurrencies, the blocks on the blockchain represent transactions. So, in essence, the solving

of a code of blocks verifies transactions made on the blockchain. When these blocks or

transactions are solved they are released from the blockchain and effectively erased from history,

creating space for new coins.

How they are Evaluated

There are multiple different ways to evaluate cryptocurrencies. These evaluations vary

from a financial perspective as well as technical efficiency perspectives. The financial

perspective side of crypto evaluation is much like stock evaluations. Like stocks they can be

evaluated by price per coin (share), market capitalization, volume traded, percentage net change,

and circulating supply. From a more technological perspective on evaluation, people look to

metrics such as transactions per second (TPS) and scalability. On the technical side of

evaluation, these metrics are measured in real versus theoretical values.

The importance of measuring theoretical metrics of TPS and scalability are useful in

evaluating the future performance of the actual blockchain technology cryptocurrencies use

rather than the actual value of those cryptocurrencies (Sun). It is desirable to have high TPS and

scalability because it represents capabilities to reach a larger share of consumers at a more

effective rate. These metrics help to evaluate the efficiency of the given cryptocurrencies

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blockchain. The chart below shows the top ten cryptocurrencies based on market

capitalization rate

(Cryptocurrency).

The formula for calculating market capitalization rate of a cryptocurrency is just like that

of a stock. It is found by multiplying the total current coins by the price of a single coin. As

seen by the table above Bitcoin has the greatest market cap and outpaces the next closest

competitor, XRP, by about $50 billion. The chart also depicts the other relevant metrics used to

evaluate cryptocurrencies. These market caps reflect the risk of investment. Just as we see with

stocks, a higher market cap reflects a lower risk while a lower market cap reflects a higher risk of

investment. In general principle, Bitcoin has the highest market cap, hence the lowest risk,

because it was the first ever cryptocurrency ever created as well as the most well-known

cryptocurrency which enables a greater perceived trust in its value.

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How to Trade/Buy/Sell

Buying, selling, and trading cryptocurrencies are much like trading stocks on a stock

exchange. One key difference to be aware of in trading cryptocurrencies is that they can appear

on and be traded on multiple different exchanges. Since these markets are purely virtual they act

more like dealer exchange markets, they are non-physical and offer completely computerized

trading. Unlike regular stock markets that vary based upon primary and secondary markets,

cryptocurrencies that are already existing in the market and new ICOs both can be traded in the

same virtual market. Just like stock markets these crypto exchanges offer investors to buy and

sell crypto coins using fiat money. Some exchanges accept a wider range of currencies than

others. Exchanges such as Coinbase are most popular in the United States (Hansen). While

Binance is the leading crypto exchange throughout the rest of the world.

Another concept to keep in mind is the cryptocurrency wallet. Cryptocurrency wallets

are used to buy and store different cryptocurrencies. Some wallets operate in the same function

of exchanges in the sense that you can buy multiple different currencies while others restrict you

to specific currencies on a wallet by wallet basis. Most cryptocurrencies offer users to buy and

store their currencies with a direct wallet through their account. Other applications like Coinbase

operate like a wallet and exchange in one where you can store currency as well as trade it on the

market. These wallets charge fees for purchasing currency using a maker-taker model. A maker

fee is one that is applied to trades that are not readily matched to book orders, increasing

liquidity. While taker fees are trades that are instantly matched with book orders, lowering

liquidity (Staff). Maker and taker fees are usually charged different rates.

Although it's been almost ten years since the creation of Bitcoin, cryptocurrencies are still

developing into more user-friendly platforms. In the early stages of introduction, many people

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were distrusting of the idea of virtual money that did not have any true intrinsic value. Still

today people are skeptical. It wasn't until about 2013 when rags to riches stories began to

emerge in the media about Bitcoin investors that the cryptocurrency world began to catch

worldwide attention. Such investors who invested the pennies of its worth in 2009 were

witnessing astronomical returns as the value skyrocketed. Investors like Mr. Smith inspired

many to start investing in the cryptocurrency as well (Bishop). Media coverage helped to lower

skepticism about the realm of cryptocurrency, but still just as some people are still skeptic about

stocks, you can never eliminate all skepticism. Now it is time that cryptocurrencies begin

mainstreaming themselves with user-friendly dashboards and conveniently easy access to

applications. With little to no regulations in place around the world to limit cryptocurrencies,

they have seemingly endless possibilities of how to make investing in them as streamlined as

possible.

Coinbase, for instance, offers a relatively easy and time effective account set up. An

account can be set up in a matter of a few minutes. First, users are asked to give their full name

and email along with creating a password. To avoid robot hacking they include a quick

CAPTCHA in addition. Then you are given three stages of identity verification, the stages

following the first being optional. Then you are given the option of adding a source of funds

such as a bank account. Users are given access to a number of well-known banks to link their

account with. A user then chooses the desired bank to link and sign in with their online banking

credentials. Once verified, in a matter of minutes you are enabled to buy, sell, and trade a

number of cryptocurrencies (Coinbase).

In a poll of fifty Bryant University students, students were asked two questions. One

being, "have you ever bought, sold, traded, or used any form of cryptocurrencies?". The second

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question being a follow-up, "if you answered yes to question one what cryptocurrencies have you

used". The results of the poll are given below.

These results show (at least on a college student age demographic level) a lack of

investment in cryptocurrencies. This lack of investment could possibly be attached to a lack of

discretionary funds for such age demographic, but the common trend correlates a lack of crypto

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investing. Also attributing to this deficiency is the non-government backing of securities. When

governments back securities they immediately become safer investments. In addition to an

absence of government involvement, there will likely be an influx of investment as the crypto

world continues to enhance user interfaces and ease of trading to match investor desires and

needs.

Bitcoin

Bitcoin is the gold standard of cryptocurrencies. It first emerged into discussion in 2009

when Satoshi Nakamoto introduced it to the world. Bitcoin was the first ever application of

blockchain technology. As shown by the market capitalization chart on page 14 Bitcoin has the

highest market capitalization of all cryptocurrencies in the world with a $62 billion cap. The

coin limit for Bitcoin is 21 million coins. The current supply of coins is over 17 million. The

graph below shows the price of one Bitcoin since its open in 2009.

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The chart to the left features the change in dollar price and percent in the given time increments.

The positives highlighted in green and the negatives in red. In total the value of Bitcoin has

underwent extreme fluctuations of price since its introduction (Bitcoin Price Chart History).

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 Impact on Global Finance

Skepticism

Just as the blockchain world witnessed with Bitcoin's initial unveiling and continue to see

with cryptocurrency investments, people are skeptical with the application of blockchain in the

world. The financial services industry cannot stay reserved and skeptical about pursuing

blockchain technology. Not all institutions are hesitating in their pursuit, but many are still

awaiting the "right time" to hop on the blockchain train. In waiting for the "right time"

companies will lose out on internal and external opportunities for expansion of market share,

capital growth, overhauling of utility processes, lowering of costs, and trade finance innovation.

Some of this skepticism arises from the lack of understanding of blockchain technology as well

as a lack of trust in the new technology. Another major drawback to implementing blockchain is

the lack of knowledge regarding how internal audit departments will go about dealing with legal,

compliance, and risk factors of blockchain.

The full effects blockchain will have on the financial services industry is impossible to

predict. Some broad analyses have identified areas of the sector that can be positively enhanced.

But the future of such technological implementation is seemingly unknown, while still extremely

promising. As Grainne McNamara put perfectly, "people aren't just thinking about the

technology as a method to promote efficiency and change some of their existing operations. It's

also a way to bring about entirely new, creative revenue streams". As blockchain is continually

implemented into the world of finance innovate proposals of its application potentials will

continue to grow.

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 To grow blockchain from its infancy stage to its full potential for application will require

increased capital investment. To experience the benefits of blockchain on everyday practices

institutions and companies must convince their internal auditing departments to get behind the

technology and allow for the appropriation of funds to pursue this investment opportunity.

Financial institutions have much to gain from implementation and the return on investment of

such initiatives is very high and still unmeasurable at this current stage of use. Steve Davies is a

global blockchain leader and attributes that, "blockchain is an emerging technology. It's not yet

enterprise grade but that process is underway in financial services and now in other industries

too. We see this technology as an enabler to some of the financial services' most intractable and

costly challenges." Expect to see the financial services industry to follow the trend depicted

below and continue upping investment into blockchain tech initiatives. (Steve Davies).

Utilization by Financial Services

As mentioned before, there are many benefits to implementing blockchain into the

financial services sector. Clear benefits that blockchain can bring to any function of its

application is increased security. When dealing with large assets and quantities of money

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security is one of the first things that must be established before creating a business venture out

of such an undertaking. This function proving essential to the financial services industry.

Besides just enhanced security other benefits include enhanced transparency, accurate tracking,

permanent ledger, and cost reduction (Curran).

To discuss potential uses it must first be addressed the problems with the current

processes blockchain tech aims to fix. In asset ownership, there is a long process of determining

ownership of given assets. This process involves reviewing government records to establish

ownership of given assets as well as account confirmations, identity verifications, and

reconciliations that create a long paper trail of documentation. With a long trail of paper

documentation comes a lack of fluidity, hence applying friction to the process of establishing

ownership rights to assets before they are even traded (Curran). Potential blockchain allows for

the reduction of time consumed to perform these tasks. There is also the potential for use in

defraying the costs of settlements as well as shortening the length of time in which settlements

take place. In legal settlements regarding the performance of institutions in a given contract, the

elements of the contract must be established and specific guidelines as to performance are

brought forth in lawsuits against institutions. Using blockchain would establish a legal smart

contract in the form of a block on the chain in which all parties involved have a transparent view

of the contracts as well as proof of evidence that the block has not been tampered with to

manipulate the contract. Along with the contract elements, the exact date and time of the

contract's acceptance would be included on the block. This would be effective in reducing legal

action and speed up the process of establishing liability. In the instance of unilateral contracts,

blocks could be created on the chain that automatically triggers the specific performance of a

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task or payment of parties as outlined in the contract upon the completion of the initial

performance.

Benefits of implementation are greatly focused on the liberation of time-consuming

activities. In decreasing the time necessary to perform business practices corporations operate

more effectively. With more efficient time utility companies can spend that time (and as a result

capital) in various other sectors of the business. This may also relieve companies of hiring for

jobs that are documentation and filing based. In relieving that portion of the work staff

companies can increase the effectiveness of their labor. Blockchain will also provide institutions

the access to real time documentation and processions. Allowing for real time assessment of

asset ownership, contract completion, intermediate process comparisons/evaluations,

reconciliations, and verification will also enhance the effectiveness of business (Curran).

Moving forward in blockchain implementation companies will witness the immediate benefits of

all aspects of the time utility blockchain creates.

Blockchain will have an enormous effect on the efficiency of trade financing. Formerly

trade finance was dependent upon the trust in financial institutions to trade assets between

companies, consumers, and across borders. With proof of trust in the blockchain, there would be

no need for a trusted intermediary institution in the trading of assets. Eliminating the

intermediary is not the only benefit to trade financing that is to be had. The use of blockchains

smart contracts has vast incremental benefits in allowing for automated processes that validate

currency exchanges in these situations. With a distributed ledger in place, all parties involved in

a trading of assets can view, in real time, a transparent copy of the covenants of the trade. This

transparency effectively establishes truth in every transaction. With truth in the transaction,

there is a more highly functioning regulation and audit procedure (2017a). Successful

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implementations of blockchains in trade finance have already hit markets and resulted in lower

costs and more streamlined trading. HPE is just one of the many IT companies beginning to

implement blockchain technology into their company infrastructure. They are currently testing

enterprise-grade capabilities of blockchain as a service. With the focus of it reaching enterprise

levels the tests are aimed at increasing scalability, security, performance, and resiliency. IT

companies continue to unveil their blockchain as a service model. It is estimated that by 2025

blockchain will generate over $176 billion in business value (HPE). With substantial profit

margins on the horizon, financial services companies will continue to seek new and innovative

ways to apply blockchain technology to trade financing industries.

To successfully implement blockchain into financial services institutions companies

must first introduce blockchain assurance. This assurance would help bridge the gap of

skepticism in internal audits departments. Skepticism in the IA departments arises from multiple

factors. One such factor consisting of the newness of blockchain technology because there has

been no verified testing of blockchain whereas the systems currently in place have been around

for decades. Another factor being the controls that run blockchain and the lack of IT expertise in

the field of blockchain. Approximately 86% of financial service companies' executives said that

they lack blockchain skills necessary for development (Smith). The first stage in assurance

would be to define and evaluate the specific use of blockchain. This would vary case by case

seeing as all financial service companies are different in how they operate and the investors

involved. The proceeding stage would involve an assessment of the technological overhaul

required to implement blockchain through a given consensus mechanism, or proof of work

verification. Following this stage would be the need to develop a unique system-specific

blockchain network to solve for the specific role a given business needs performed. In

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summation, the final stage would be to consistently assess the effects of the changes upon

implementation and review the successes as well as continue developing adjustments (Curran).

Blockchain will prove to be an asset in changing the structure of how effectively financial

services companies operate in the future. The first step in implementation is to gather assurance

in blockchain within companies in the financial services sector. As blockchains are successfully

implemented into the workings of companies there will be reevaluations of the processes and

relationships deemed necessary in the field. With such reevaluations will come to innovate ways

and implementations of blockchain to solve both complex and small business processes that will

generate positive change in the effectiveness of networks, processes, and applications in the

world of financial services.

Fraud and Illicit Activities

Often it is misconstrued the real understanding of "blockchain fraud" in the media.

People often cite few cryptocurrencies fraudulent activity or attempted hacks as reliable

arguments to why blockchain does not work on the global scale. Rather these fraudulent

activities most commonly arise with the given cryptocurrency platform, not the actual blockchain

technology that forms the foundation for these platforms to run. To understand the benefits of

blockchain and the future of the technology these fraudulent activities must be addressed to deter

the use of such stories being cited as relevant detractions to blockchain technology.

In summary from prior sections, cryptocurrencies are mere applications of blockchain

technology. Blockchain technology forms the foundation upon which these cryptocurrencies can

operate, not the other way around. Think of it like a home that requires two construction

companies to build. One company builds the foundation of the home and their work is finished,

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the other company builds the rest of the home from the foundation up. The foundation of the

house is built to the highest standard and follows all necessary laws. If upon buying the house

the owner finds out there is a leak in the ceiling would that be the fault of the company who

made the foundation or the fault of the company who built the roof. It would clearly be the fault

of the company who built the roof. This same thought process of placing responsibility must be

used in placing blame upon what is responsible in the case of choosing between blockchain or

cryptocurrency platforms.

The first realization that must be understood is the fact that often fraudulent activity

arises on cryptocurrency platforms from outside parties. This, in part, has to do with the lack of

government regulations in place on cryptocurrency exchanges that safeguard investors. The

exchanges are vulnerable to hacking because there are no safeguards or government-backed

securities. The New York attorney general's office did an investigation into cryptocurrencies and

determined that many exchanges lack appropriate safeguards, putting consumers at risk and

referred three exchanges to the New York Department of Financial Services for possibly

operating unlawfully in New York (Vigna). These cryptocurrency exchanges have not taken the

necessary precautions to monitor and stop fraudulent activity when trading or restrict the use of

trading bots. There are also more conflicts of interest in these virtual exchanges. Normally these

exchanges would be closely monitored by the SEC if they were in the stock realm. There are

also no standard methods for auditing virtual assets and the platforms lack transparency (Vigna).

This makes it much more difficult to find out if they are responsibly holding their clients' assets.

Bitcoin is just one of the cryptocurrencies that have been directly affected by the

question of market integrity surrounding cryptocurrencies. The SEC has consistently rejected

applications for bitcoin-based exchange-traded funds (Vigna). They did this because there was

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not enough transparency. Without the full understanding of these exchanges, they were afraid

that the price would be manipulated. The same report published the New York attorney general's

office, also provided investors with eight questions that exchanges should be able to answer

(Vigna). The questions are about controls to keep abusive traders off the platform, plans for

security measures against hackers, plans for insurance plans against theft, plans for stopping

insider trading, and plans for independent and transparent audits. All of this is necessary to keep

the consumer safe. The report says that customers should avoid any platforms that cannot answer

these questions.

Unethical practices in cryptocurrency price valuations are much similar to those of

stocks in the time before federal regulation. Investors used to ride their own stocks up and down

to influence a herding type of behavior to increase their overall returns before federal sanctions

were put into place (Lefevre IX). Investors used these practices as a consequence of consumer's

lack of knowledge in investment opportunities. The same trends can be seen with

cryptocurrencies and often consumers are taken advantage of because of a lack of knowledge on

their part. Nowadays there are regulations in place to prevent this in stocks, but there is yet to be

any government regulation on cryptocurrency exchanges.

Just as with stocks consumers should always beware of the deals and price offerings they

enter. There must be an analyzation and assumption of risks when trading cryptocurrencies. The

key takeaway for blockchain skeptics here is that the physical blockchains forming the

foundations for cryptocurrencies are not the issue when it comes to crypto exchange scams.

Moving forward with cryptocurrencies, investors should expect markets to become safer as

government regulations come into play on these exchanges. Although something to be wary

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about as an investor there is no reason for eminent fear of security in the theoretical blockchain

technology itself as it begins to be implemented into many new markets and industries.

Government Involvement

Government involvement in blockchain technologies is still in nonexistent in many

markets and industries. As discussed in the prior section there is no government involvement in

the cryptocurrency sphere of the world. This lack of involvement and regulatory sanctions has

the potential to leave more and more consumers victim of fraud. Governments around the globe

should begin to involve themselves with cryptocurrency markets and exchanges to safeguard

their citizens.

Gary Gensler, a former Commodity Future Trading Commission chair, has vocalized his

concern with unlawful cryptocurrency exchanges. More than $10 billion have been raised

through ICOs and a large portion of those ICOs raised funds in unlawful manners (Orcutt). He

highlights the benefits of blockchain based technology but includes the fact that there must be

some form of government intervention before such technology can reach its full potential.

Investors should expect some form of regulation in the form of investor protection to come in the

future as cryptocurrencies begin to attract attention as securities. Another question must be

asked in the future of cryptocurrency investment returns being subject to taxation.

While cryptocurrency is a major field in which the government should implicate itself, there are

benefits of the government adopting its own uses of blockchain technology. As seen in

blockchains application to financial services implementing blockchain can result in the reduction

of costs and effective elimination of intermediate processes that are incurred with

documentation. Maybe such blockchain technology could be used in documentation of citizens

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and immigrants to provide for transparent census calculations and to effectively create a ledger

of protected citizen information. These smart contracts used in blockchain may have a place in

the military with weapons testing. Or to provide transparency in elections while still protecting

the information of all citizens. Or maybe blockchain could be used to allow for national access

to records involving property ownership, justice department documents, or possibly all public

records. The potential for blockchain being implemented into government operations is

seemingly immense.

Blockchain has started to be adopted in American government to more effectively collect

taxes. Ohio has become the first state to collect cryptocurrency to pay taxes (Erb). As of right

now only businesses in Ohio can use this but hope to make it so all taxpayers can use

cryptocurrency in the future. It works by businesses signing up to pay with cryptocurrency online

and make online payments for any of the twenty-three-business tax and there are no transaction

limits. Ohio is not using this money to invest in cryptocurrency, but instead immediately have a

third-party company convert it to dollars. This is important because it sets a precedent for others

to follow. If this is successful, there may be potential for other states to begin accepting

cryptocurrencies in the form of tax payment.

Not only is blockchain in the process of being tested for use in paying taxes, but also

being explored for how it could enhance voting. This was just tested for the first time in West

Virginia allowing internet voting by blockchain in primary elections (Desouza and Somvanshi).

Voting through the internet could make voting safer and more effective. This is because it would

eliminate any chance of fraud, make it more convenient for people to vote, increasing voter

turnout, and keep transparency throughout the voting process. It would also make elections more

efficient because it would minimize the cost of elections and it would allow for a more

28
streamlined counting process for votes. The voters identified by biometric tools such as a

fingerprint scan on a mobile device. Each vote helps form the chain that is to be independently

reviewed by a third party. If blockchain is used all the data of the election would be recorded on

a public file that still offers anonymity.

Blockchain is not currently used for voting on a large-scale level as of right now because

there are still barriers to overcome before standardizing this way of voting. The issues are with

the security of the election process, security of the voter's computer, denial of service attack,

voter coercion, the ability to be audited, authentication, and inconvenience for the local election

official (Desouza and Somvanshi). For blockchain to be successfully implemented in American

politics it will need to be tested, be at optimum cost, and have a large scalability. There will also

need to be an increase in public support for government-based blockchain applications.

Predictions for the timing of such support are not conclusive enough to relay a general idea. In

the time it will be analyzed the pursuit of blockchain technology by the government.

Application of Technology across Industries

Blockchain technology has room for implementation in many industries other than just

that of financial services. Blockchain has been tested in implementation into healthcare. This, in

theory, would provide for distributed access to patient records for hospitals as well as ensure for

the privacy of patients. Other fields in which blockchain could see further developments are in

Real Estate and law, more specifically contract law.

In the field of contract law, there are clear advantages of blockchain technology in its use

of smart contracts. Bryant University legal studies professor Ronald Washburn, who has studied

law for over 20 years, said that even experienced legal professionals have difficulty

29
understanding the totality of blockchains application to the law. He cited that in the future there

will have to be a full legal evaluation of the processes of blockchain to implement regulations on

such things as cryptocurrencies and how they are taxed and dealt with by the government and

legislative body. Professor Washburn also mentioned that there is something to be done with the

use of smart contracts and smart templates to ease administrative duties and lower costs.

With room for expansion into the field of law as well as healthcare, Real Estate, and

supply chains the applications of blockchains across industries seems endless. The future

industry leaders and cutting-edge industry technology across all fields may all be based on

blockchain technology. As blockchain inserts its vast impact on the financial services realm, the

effects are being felt across industries as well.

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 Conclusion

Current State of Blockchain

Blockchain technology is beginning to hit mass consciousness around the US and rest of

the world. As financial services companies begin to ramp up implementation of blockchains

there will be a mirrored increase of media attention surrounding the technology. The

applications of blockchain are becoming more and more diverse as complex chains are

developed for a numerous amount of business and world problems. Industries that can serve to

grow from blockchain implementation will continue to adopt blockchains in new and inventive

ways.

Still in its infancy stage of life, blockchain and the implementations of blockchain have

great room for expansion. Benefits of blockchain are increased security, increased transparency,

a permanent ledger, and reduced costs. These benefits have cross platform/industry importance

on the effectiveness of businesses on small and large scales. As more and more industries

involve themselves with blockchain technology more creative and diverse applications of

blockchain are being invented.

There are some drawbacks to the growing implementations of blockchains across all

industries, especially the financial services industry. One drawback being the complexity of the

technology and the difficulty that arises with understanding and implementing such tech into the

processes of firms. Other problems arise in the regulatory implications placed upon blockchains

and the current lack of government involvement in blockchains that would help to add a degree

of safety in operating such technology. Energy consumption is of highest concern in effectively

implementing successful blockchain technology. The total consumption of energy by the

31
computers that enable the operation of blockchain is a major challenge facing blockchain

technology’s sustainability for future success.

Future of Blockchain

As for the future of blockchain in the world of business and technology it is extremely

bright. The application of blockchain across industries and business practices is growing in

efficiency and demand. Potential implementations for blockchain on a per case basis of

businesses is virtually endless. As years progress expect blockchain technology to filter its way

into markets and industries that are currently not anticipating the use of such tech. The future

will also bring about more government involvement in blockchain. These involvements being

felt in the regulations enacted to set standards for the growth in commerce that is and will

continue to rise in economies as well as governmental implementation of blockchains to improve

the efficiency of governments.

In moving forward towards a greener ecosystem expect substantial research to be done in

order to achieve more cost effective and green energy consumption methods associated with

operating high functioning, scalable blockchains. As seen with the energy usage of Bitcoin

miners there is a growing problem of the efficiency of energy usage in implementing blockchains

of this degree. Often the supply of energy for the use of applications like Bitcoin comes from

coal-fired power plants (Bitcoin Energy). Although there is hope of cleaner energy sources as

the world as a whole progresses towards clean energy methods.

Overall the future of blockchain on the world is very promising. From enhancing

commerce to providing real time healthcare solutions there is a growing demand for blockchain

on the corporate, government, and consumer level. As blockchain develops more in-depth

applications on a case by case basis expect competition to fuel the expansion of possible impacts

32
blockchain could have on business practices as well as everyday life. In sum, the future of

blockchain is brilliantly bright.

Should you Support or Oppose

Blockchain currently is and will continue to change the world in which we live. Support

of the blockchain initiative is key in unveiling the true totality of its possible impact. In future

years you will have no choice but to accept the technology of blockchain and how it is

implemented all around the world.

Just as people gain trust in institutions over time there will be a windfall of skeptics that

find support in blockchain technology. News of trusted financial institutions like Wells Fargo

being involved in scandals like they were back in 2015 will educated skeptics on the importance

of the difference in perceived trust in institutions and proof of trust. As such news reaches mass

media people will gain traction in the path towards support of a proof of trust in blockchain

technologies.

In the field of concern with energy consumption the future will bring about more

renewable energy methods. As well as look to companies such as the cryptocurrencies

harnessing geothermal power in Iceland as a source of energy. The continued pace of the world

as well as blockchain will follow the path to cleaner, alternative energy sources.

Blockchain is still in its rudimentary stages of development and application. With

prospects of growth on all views of the horizon, the technology will only continue to grow with

time. Innovation and competition will propel blockchain to new heights. Global demand for

more efficient business practices will increase the need for blockchain based technology. The

possibilities of implementation remain endless. There is a growing demand and use for

blockchain in many emerging markets and industries as well as already established functions of

33
commerce. In the field of financial services, it is with unequivocal necessity to embrace the

technology of blockchain and its endless possibilities of application. It is now that you must

either express full support, going all in on the field of blockchains implementation into the

financial services industry or bear victim to outdated ways in which the industry operates.

34
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