The blockchain and crypto industries are still nascent. Thus, changes and developments arise frequently. Now, the blockchain technology has received a major endorsement boost with Japan’s big and established brokerage houses opening up to it. The brokerages opened up to the technology citing a growing recognition in its game-changing potential.
Their decision was not deterred even by the more than a year and a half of setbacks and dismal performances for cryptos and digital assets. On October 1, Daiwa and Nomura who are two of Japan’s leading traditional brokerages announced that they have joined online players. They forged partnerships with Rakuten and Monex in a new integration that will set rules for issuing blockchain-based digital securities.
Supporters believe that the digital system that is known as security tokens has the potential to make the existing method of securities’ transfers obsolete. The new partnership is headed by online broker SBI Securities, Nomura’s arch-rival. Japanese promoters hope that the entry of many large companies into the blockchain space will help boost public confidence in the distributed ledger technology (DLT).
DLT applications range from supply chain management to stock trading, insurance, and currency. Facebook announced its plans to debut its Libra token for international transactions in 2020. That announcement came in June 2019 ranking as the biggest crypto news in recent months. Many believe that Facebook’s entry into this arena will put blockchain back onto the agenda for regulators, governments, and bankers.
Blockchain-based money
The idea of creating a digital competitor to the USD has resulted in a massive backlash from central banks and regulators worldwide. A decentralized monetary unit causes a lot of speculation and raises the question of who will be responsible for regulating it. However, analysts say that since the technology already exists, if Facebook does not do it, someone else will.
All types of blockchain-based money units have encountered many setbacks. Some of these hiccups include initial coin offering (ICO) scams, hacks, and a drop in the value of Bitcoin. Some of the crypto exchanges that were hacked in 2018 include Japan’s Zaif and Coincheck.
For now, the technology is still nascent. Nonetheless, Japanese companies are positioning themselves expecting a potential shift. The new association for security token offerings shows that Japan is not taking anything to chance. Gartner Market Research Company predicts that the business value added by blockchain might grow to $3.1 trillion by 2030 from $176 billion in 2025.
Rakuten, an e-commerce group, also launched a crypto exchange service in August 2019. It launched the service after it took over the platform operator ‘Everybody’s Bitcoin’ in 2018. The move followed an acquisition of the embattled bitcoin wallet and exchange service Coincheck by the Japanese online broker Monex Group last year.
In that context, Monex is reportedly applying to join Facebook’s Libra project as a member of the Libra Association. The Association is charged with governing the social media company’s token. But, according to an official statement from the company, it has not yet been notified about the status of its application.
Developments
On the sector of devices, South Korea’s Samsung Electronics this year unveiled a smartphone that can keep cryptos in a cold storage wallet. That is perceived to be a safer place to hold blockchains since it is not connected to the internet. According to the CEO of bitFlyer and chairman of the Japan Blockchain Association, Yuzo Kano:
“I hope 2019 marks the year when blockchain was finally recognized as a viable technology”
This sentiment was widely echoed in the crypto community with the chairman of the Japan Security Token Association, Go Masuda saying:
“The industry lacked a good use case of blockchain technology. There have been no killer apps since bitcoin [emerged]. Facebook’s foray into cryptocurrency means the industry is now entering a new phase of commercial adoption.”
Japan acts as an international hub for the crypto business. It was the first country in the world to introduce legislation covering crypto exchange in 2017. Additionally, the total number of crypto accounts in Japan increased from 2.8 million in January to more than 3 million in July. The market now shows signs of stabilizing.
A partner at venture facilitator FinMirai and former technology executive at Barclays and Goldman Sachs, Norbert Gehrke, commented:
“We have about 15 million holders of bitcoin today. Facebook has 2 billion users … It’s a huge step toward mass adoption. The next phase of the industry will be big blue-chip players becoming more dominant.”
However, public confidence in crypto markets remains shaky. The BTC price dropped from a record high near $20,000 in December 2017 to almost $3,000 a year later. The news about the introduction of Facebook’s Libra lifted the price to almost $14,000. But, it sank again below $8,000 in September.
Security Challenges
The blockchain and crypto field is still growing but scammers and criminal elements are taking advantage of the unsuspecting investors and taking off with their money. Security continues to be a major concern.
In recent months it is evident that cryptos are prime targets of cyber theft. Hence, investors are advised to protect their security key from the hackers by storing it offline in a dedicated chip. Nevertheless, many investors fail to heed to these instructions of a proven security protocol and they request the exchanges to take care of their assets.
With just an ID and a password protecting the crypto accounts of the customers, hackers always use the accounts to penetrate the exchange. Naoyuki Iwashita who is a professor at Kyoto University is convinced that hackers use this method. He is also a former official of the Bank of Japan.
The fact that most crypto exchanges and custodians are just small start-ups that have limited credibility has not helped or encouraged public confidence in the investment. Even though the blockchains are seen as secure, the threat of there being gaps and lapses in security remains. Gehrke added:
“It’s software. Humans are developing it. You can’t be 100% certain.”
Security would be very much easy if the blockchain members were limited to professionals or businesses that understand this technology and can follow the necessary protocols.
Blockchain Platforms
Currently, many blockchain platforms are increasingly created to solve various challenges and cater to different business needs. Some of the business needs include automatically executing over-the-counter derivatives trades using a computer program without requiring stock exchange services.
Garter Market Research Company has discovered over 100 platform vendors that include the NEM Foundation which is the group behind the NEM cryptocurrency. However, a few alternatives to blockchain have managed to substitute the service that already exists. NEM Foundation’s interim chief technology officer, Jeff McDonald, said:
“There is a good reason why a lot of commercial initiatives never take off from the pilot stage. A lot of initial experiments are around money. People are very careful when it comes to a billion dollars. Many banks have done a test of blockchain, but they are hesitant to dip their foot in the water and go live with a real billion dollars.”
The research group also suggested that most businesses even do not see the benefits of adopting the blockchain technology. According to their previous report, Gartner said that many enterprises are in different stages of blockchain use. They are finding it quite hard to justify when many existing alternatives to blockchain platforms need less development, computing, and tech expertise to accomplish various use cases.
The Future
Gartner is also convinced that 90% of the current enterprise blockchain platform services will need to be replaced by 2021. The replacement is necessary for the platforms to remain competitive, secure, and up-to-date.
After security issues are addressed conclusively, analysts, commentators, and experts believe that blockchain will be used more extensively among businesses as a common platform. Thus, it will enable businesses to connect more easily with one another. The connection will help in the achievement of a greater scale simultaneously reduce the costs of doing business.
Alexandra Tinsman, NEM’s President explained:
“Enterprises are not going to adopt a technology that is not going to ultimately help them with the cost-savings issue. They will use it for cost-savings and efficiency. Thus, if they feel they can save money somewhere, they are going to do it.”
