Blockchain and AI

By definition, a blockchain is a distributed, decentralized, immutable database used to store encrypted data. In its purest form, AI is used to describe the theory and practice of creating machines capable of carrying out tasks that require intelligence.

It goes without saying that each technology has its own individual degree of complexity, but the combination of the two may be beneficial to both.

AI, blockchain and data

It’s fair to say we find ourselves in an AI revolution of sorts and this is mostly due to the progress being made in the field of Big Data.

The handling of data is an increasingly hot topic and businesses dealing with it – for commercial reasons or otherwise – have a legal and moral responsibility to safeguard it. Blockchain and AI can make a substantial impact in the way this is handled.

The emergence and abundance of data has helped catalyze blockchain as a viable data storage solution. Unlike cloud-based solutions, the data on a blockchain is broken up into small sections and distributed across the entire computer network. There’s no central authority or control point, and each computer, or node, holds a complete copy of the ledger – meaning that if one or two nodes are compromised, data will not be lost.

All that takes place on the blockchain is encrypted and the data cannot be tampered with. Essentially, this means blockchains are the perfect storage facility for sensitive or personal data which, if processed with care with the use of AI, can help unlock valuable bespoke experiences for consumers.

A good example of this is the healthcare industry – where data is being leveraged to detect, diagnose and prevent disease – or the way in which prevalent streaming services such as Spotify or Netflix use data fed into their platforms to provide recommendations for their customers.

Tracking power

Decisions taken by AI systems can be difficult for humans to comprehend, but blockchain can shed new light on this by helping us track the thinking process, and understand decisions.

Being able to record AI’s decision-making process on a blockchain could be a greater step towards increased transparency. In this instance, blockchain would serve the same purpose as the board, with the exception that the information written on the latter can be modified or erased whereas on the blockchain it would be immutable and permanent.

(an excerpt from a longer text on: 

https://thenextweb.com/hardfork/2019/02/05/blockchain-and-ai-could-be-a-perfect-match-heres-why/)

Microgrids and Blockchain

A revolution in energy generation is happening. The days when millions of people’s electricity needs were met by a handful of large coal, nuclear and gas-fired power stations are waning.

People are increasingly installing solar panels on their rooftops or investing in other renewable energy devices. 

But something else is happening to the grid as energy generation changes – the rise of microgrids. These smaller grid systems are linked to localised power sources, often referred to as “distributed generation” sources. For example, a handful of buildings in a city with their own solar panels might be connected to nearby residences.

In areas that don’t have any connection at all to their national grid, installing solar panels and a battery can be an easy way to bring a basic amount of electricity to a village, for example. This is often initially used for lighting and the charging of mobile phones – ubiquitous in Africa.

These microgrids face a daunting prospect, though. One day, an expanding national grid will want to connect up these self-powering villages. But what will the microgrid operators do then? Will their customers simply be poached?

Instead, it might be possible to use accounting software such as distributed ledgers to keep track of what electricity residents are consuming, and from where. That way, the operators of the national grid and the microgrid can be paid accordingly.

If blockchain or some similar technology could provide that accounting system, it could turn the national grid from being the enemy of microgrids in a lot of places to being their friend.

If providers used distributed ledgers that they alone had access to for their batch of customers – a “permissioned blockchain” – then holding such data might be cheaper and easier. Essentially as a switching customer, apart from it being a really smooth process you won’t necessarily notice the difference.

Blockchains could allow grid operators to have a more informed overview of the resources they manage. An operator might need to reduce the supply on the grid for a few hours, for example. But asking a power station to turn down their supply will cost them money. 

Intelligence like that could one day be available via a blockchain. There’s a lot of buzz around distributed ledgers at the moment, but those championing their use in the energy sector say they are an ideal solution to a genuine problem. That is, the shared nature of energy resources and the difficulty of tracking the large volume of transactions – from energy supply and demand, to actual sales.

Whatever underlying system we come up with to manage the grids of the future, it will have to be efficient and adaptive. The story of how energy generation has evolved in recent years already demonstrates why: it's clearly what people want – and it’s probably how we’ll go greener, too.

(the text excerpted and adapted from text on 
https://www.wired.co.uk/article/microgrids-wired-energy)

What is P2P Lending?

Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. Since peer-to-peer lending companies offering these services generally operate online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions. As a result, lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower. There is the risk of the borrower defaulting on the loans taken out from peer-lending websites.

Also known as crowdlending, many peer-to-peer loans are unsecured personal loans, though some of the largest amounts are lent to businesses. Secured loans are sometimes offered by using luxury assets such as jewelry, watches, vintage cars, fine art, buildings, aircraft and other business assets as collateral. They are made to an individual, company or charity. Other forms of peer-to-peer lending include student loans, commercial and real estate loans, payday loans, as well as secured business loans, leasing, and factoring.

The interest rates can be set by lenders who compete for the lowest rate on the reverse auction model or fixed by the intermediary company on the basis of an analysis of the borrower's credit. The lender's investment in the loan is not normally protected by any government guarantee. On some services, lenders mitigate the risk of bad debt by choosing which borrowers to lend to, and mitigate total risk by diversifying their investments among different borrowers. Other models involve the P2P lending company maintaining a separate, ringfenced fund, such as RateSetter's Provision Fund, which pays lenders back in the event the borrower defaults, but the value of such provision funds for lenders is subject to debate.

The lending intermediaries are for-profit businesses; they generate revenue by collecting a one-time fee on funded loans from borrowers and by assessing a loan servicing fee to investors (tax-disadvantaged in the UK vs charging borrowers) or borrowers (either a fixed amount annually or a percentage of the loan amount). Compared to stock markets, peer-to-peer lending tends to have both less volatility and less liquidity.

In many countries, soliciting investments from the general public is considered illegal. 
Crowd sourcing arrangements in which people are asked to contribute money in exchange for potential profits based on the work of others are considered to be securities.

Dealing with financial securities is connected to the problem about ownership: in case of person-to-person loans, the problem of who owns the loans (notes) and how that ownership is transferred between the originator of the loan (the person-to-person lending company) and the individual lender(s). This question arises especially when a peer-to-peer lending company does not merely connect lenders and borrowers but also borrows money from users and then lends it out again. Such activity is interpreted as a sale of securities, and a broker-dealer license and the registration of the person-to-person investment contract is required for the process to be legal.

(excerpt from Wikipedia text on https://en.wikipedia.org/wiki/Peer-to-peer_lending)

What is RegTech?

Heralded “the new FinTech” by Deloitte, “RegTech”  has rapidly risen to prominence in 2015, from total obscurity. But what exactly is Regulatory Technology (RegTech)? And why has it become the next big thing?

At risk of sounding too simple, RegTech is pretty much what it says on the tin: the use of new technology to facilitate the delivery of regulatory requirements. Or, in slightly more words, RegTech is technology that seeks to provide “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory solutions (Deloitte).

Is RegTech the new Fintech?

In itself, this marriage of regulation and technology is not new. But it is becoming more and more crucial as levels of regulation rise and focus on data and reporting increases. It also addresses a gap in a financial services market that is being disrupted at a speedy pace by FinTech – Financial Technology. In a range of areas, dynamic FinTech has been driving a more efficient and more effective way of doing things. The extension of this disruption to regulatory practice is the next logical step.

We can expect this disruption to make regulation highly data acquisitive and to involve the use of real-time information, and the incorporation of algorithms and analytics. London is increasingly being seen as the home of RegTech with a range of leading global RegTechs  based in the capital.The FCA recently engaged in its own crystal ball gazing, suggesting areas where RegTech might be about to effect substantial change.

It envisioned “new approaches” to “streamline AML checks” (that would enable firms to differentiate themselves) and the use of social media and biometrics to transform how customer due diligence is done, how anti-fraud measures work and how banks “filter the wheat from the chaff when deciding whether to make a suspicious activity report”.

The automation of due diligence, using data that can be tailored to a firm’s risk-based approach, is at the forefront of this RegTech revolution. 

(text from: https://complyadvantage.com/blog/what-is-regtech/)

Green Finance and Blockchain

Climate finance is not getting to the people who need it most – vulnerable communities on the front line, hardest hit by the impacts of climate change but least able to respond.

Local communities know what works and have ingenious and sustainable solutions for adapting to climate change. But cut out of the funding picture, they have almost no say in how or where the bulk of the money is spent.

One major blockade is perceived risk: donors and investors do not have confidence in local level institutions’ (such as small business, local government authorities) financial systems, in their ability to spend money effectively and are wary of having no means of holding them to account. The distance between international and local actors makes it harder for funders to know what is happening "on the ground".

Emerging technologies may help to circumvent this barrier. It’s been hard to miss the blockchain hype – decentralised ledgers that make the transfers of funds or assets between people or organisations fully transparent. Blockchains can record transactions of anything of value such as money, land, or identities, as well as assurances of impact or change delivered by an investment.

And being a decentralised system, costly intermediaries become redundant as investors, governments or communities can transfer funds or other assets directly between each other faster and at less expense.

Digital “smart” contracts are programmed to automatically trigger payments when certain conditions are met.

Gainforest is using smart contracts to incentivise small-scale Amazonian farmers to preserve the rainforest. Farmer ’caretakers’ receive rewards for preserving patches of rainforest over a 3-6 month period. The reward is crowdfunded by private individuals or institutional donors and the size is determined by the difficulty in preserving the particular area of land.

When remote sensing satellites verify a particular patch of forest is still standing, the smart contracts enable payments to be sent automatically to the farmers. Since satellites independently verify the status of different patches, these transactions are significantly more transparent and can be trusted by donors. And with no ’middle-men’ transferring funds, administrative costs are cut dramatically.

Bitland in Ghana is using blockchain technology to create an immutable, transparent record of land ownership using drones, remote sensing and field-level research to enhance the data. Clear, public records of who owns what can help tackle corruption, illegal land grabbing and costly local border disputes that thrive on poor data and incomplete or unavailable written records.

Clear records of ownership can transform local peoples’ access to finance – as they can prove ownership of their land and secure credit by borrowing against it.

(an excerpt from blog text on: https://www.iied.org/can-blockchain-unblock-climate-finance)

FinTech and Cybersecurity

FinTech is a growing industry. Its success lies in offering alternatives to conventional financial solutions through cryptocurrencies, online loans, and robo-advisors. Though it’s a rich tapestry of services that make up the FinTech world, they’re united by one challenge: cyber security. Its unfettered growth on online platforms makes this industry uniquely vulnerable to security breaches.

Regulations can’t keep up with advancements.

The innovations of the fintech world are happening at lightspeed and few competitors can keep up — including regulating bodies. Part of the fintech platform’s success relies on this rapid pace. Unlike their slow and laborious counterpart in the country’s biggest banks, startups can adapt and change on a dime to evolve alongside its users’ needs and expectations.

They’re quick and flexible partly because they aren’t subject to the same regulatory rules as traditional financial services. The household brands of Chase and Bank of America are subject to the Basel Accord, a supervisory mandate that ensures sustainable growth for conventional institutions. There are no such regulations controlling the way FinTech startups conduct their business.

Good governance is profitable for most startups. Security that protects customers from breaches is a selling point — one that appeals to security-minded individuals worried how their personal banking information will be handled by relatively new and unknown companies. Proof that they’re taking the appropriate steps to defend its customers is just as important as the other features that set FinTech startups apart from their traditional counterparts.

But as the gap between startups and financial regulations widen, there grows a risk for careless entrepreneurs to sidestep security altogether. As of yet, no official legislature is stopping them. These companies could prioritise getting to market as fast as possible, even if that means they have to sacrifice cyber security in order to do so.

Some FinTechs follow a self-regulatory framework

While many champions of FinTech believe strict regulations would stifle the innovation powering the industry, others are already employing a self-regulatory framework to their platforms, so they can ensure risk-management and data privacy.

In collecting and storing personal information, client-facing FinTech companies have to protect their customers first and foremost.The challenge then is the way they protect this data. Though they’re disrupting traditional financial channels, many of them have adopted bank-level security measures and fine-tuned them for their digital platforms.

State-licensed lenders, like MoneyKey for example, use industry standard secure socket layer (SSL) encryption and Verified Site Certificates to encrypt any information transmitted between customers and their servers. Acorns, a FinTech company that automates savings, is protected by SIPC insurance and 256-bit SSL encryption. Meanwhile, Chime, a FIDC-insured online banking service, uses 128-bit AES encryption similar to the security used by the US’ biggest banks.

Perhaps not for altruistic reasons

Failure to offer these security measures promises imminent failure for careless FinTech companies. The very nature of their convenient, online platforms makes it easy for its customers to leave. And, don’t forget, these companies service a plugged-in population who, with a few taps of their fingers, can leave an online review. Enough bad reviews can tarnish the company’s reputation.

Potential customers shopping for mobile banks or direct lenders won’t click on a company if reviews warn them not to. When public trust in a startup wanes, it directly affects its bottom line.

Though they may not be held to the same regulations as traditional banks, they must follow privacy laws. If they don’t, they can suffer costly legal issues.

(an excerpt from longer text on: 
https://www.information-age.com/cyber-security-challenges-emerging-fintech-startups-123471506/)

Some of Impacts of FinTech on Financial Markets

Technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients. At the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies ("BigTech"), could materially alter the universe of financial services providers. This could in turn affect the degree of concentration and contestability in financial services, with both potential benefits and risks for financial stability. 

Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. Notwithstanding these clear benefits to financial stability, heightened competition could also put pressure on financial institutions’ profitability. This could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies. 

Various FinTech services are being used by substantial shares of retail clients in specific markets, particularly in China. Yet to date, FinTech firms have typically found new niches –e.g. platforms for P2P lending, crowdfunding, and cross-border payments – and underserved clients, such as small businesses or people who lack a credit history. In other cases, they have cooperated with incumbents or BigTech firms. Cooperation gives FinTech start-ups access to clients (for example, through selling white-label and co-branded products) while, depending on the jurisdiction and the business model, potentially reducing their regulatory compliance burden. In turn, incumbents get access to innovative technologies and products and can gain advantage by being the first ones to offer their clients new products and services. 

One area that may see more competitive pressure from FinTech is lending, particularly to underserved segments of the population. A range of new lending platforms, including P2P and marketplace lenders, have appeared in jurisdictions around the world. These platforms often have access to online methods of client interaction; new data sources and methodologies for analysing data (such as machine learning); and new business models. In theory, this can create competitive pressure for incumbents, and force them to streamline their own loan underwriting processes and employ better and faster data analytics systems. So far, competitive pressures on incumbent lenders in most established market segments appear limited. Available data suggest that despite rapid growth, FinTech credit is still small as a proportion of overall credit in most jurisdictions, including China, Korea, and the UK. Credit quality of P2P lending platforms has also been a concern. 

On the other hand, cooperation between incumbents and FinTech firms has been observed in a number of markets. Often, incumbents outsource to FinTech firms some of their lending business, while FinTech firms benefit from access to incumbents’ client base and reputation. Lending platforms have also entered segments where they have no competition from the incumbents, e.g. among unbanked clients (providing online services to those who cannot apply for loans from traditional players) and underserved segments (small businesses, subprime customers, and clients with insufficient credit history or lower job security). Partnerships are also common in the payments space.

Clearly many FinTech firms offer products that potentially challenge the traditional business models of financial institutions. However this may play out in a number of different ways, which will have different implications for financial stability.

i. They may partner (or be taken over) by financial institutions, allowing the financial institutions to improve their service level or efficiency. 

ii. They may provide a service which is complementary to those provided by existing financial institutions. This could improve the attractiveness of the existing service, e.g. payments ‘front-ends’ that utilise existing networks and maintain (or increase) existing transaction flows. Or, for instance by using open banking services, they may facilitate stronger competition between financial institutions by increasing transparency or making the switching of providers easier. While these services may complement those offered by a financial institution, they may have some detrimental effects on the financial institution, by replacing or weakening the institution’s traditional customer relationship.

iii. They may compete directly with existing financial institutions, reducing margins in the affected segments and reducing the financial institution’s capacity to cross-subsidise products.

(an excerpt from FSB - Financial Stability Board - document "FinTech and market structure in financial services: Market developments and potential financial stability implications", which can be found on 
http://www.fsb.org/wp-content/uploads/P140219.pdf)

Blockchain Technology and Securities Market

Much of the attention the blockchain and cryptocurrency markets received in 2017 and 2018 has waned as Bitcoin’s price has fallen about 75% from its peak. One area within the space that is growing in favor despite the broader negativity is securitized tokens.

In this case, the word securitized refers to turning blockchain tokens into legally compliant securities rather than, as some of us with finance experience would naturally infer, a bundling of assets (or tokens) to be sold as securities.

The value of all publicly traded stocks is on the order of $300 trillion. That measure doesn’t include privately traded stocks or any other security, like bonds (which exceed stocks in value) and derivatives. Reversing the nomenclature, the business of tokenizing securities has the potential to be big business.

Still, one would ask why anyone would want their securities tokenized. The logic is one that seems to me to conflict with many of the principles espoused in the crypto community, where libertarian ideas about eliminating central banks and diminishing the role of government in financial markets are pervasive. The logic for tokenizing securities is to make securities more self-regulating.

Blockchain technology allows for smart contracts that can be used to prevent ordinary investors from purchasing securitized tokens that they are not qualified to own. They can incorporate compliance with complex, international know-your-customer (KYC) and anti-money-laundering (AML) rules.

So, the technology that at times has seemed to befuddle securities regulators could now be used to with their blessing to help protect investors by enforcing securities laws.

One key premise of the technology is that assets that have traditionally been illiquid could become marketable, as the technology addresses the challenges of tracking the ownership even of fractional interests as well as by preventing anyone who shouldn’t from owning the security token.

(an excerpt from longer text on 
https://www.forbes.com/sites/devinthorpe/2019/01/18/how-blockchain-technology-will-improve-securities-markets/)

FinTech Entering Retail Sector in India

The word FinTech always sets off discussions about payments, banks and digital wallets. It’s even more so if you add retail.

Both for merchants and consumers, the biggest change came in the form of payment wallets that made transactions a much easier process without using cash. But now, the time has come for another change. Wallets are now common and Indian start-ups are already working on the next-level solution that will make not just the merchant's but also the consumer’s life easier in the retail space.

Pay With a Touch of Your Thumb!

Fingpay, which is a product of Tapits Technologies Pvt. Ltd, will allow customers to pay with just a biometric authentication process. So, there will be no need to look for cards or take out your phones to make a payment. All one has to do is swipe their thumb on a point of sale device and the payment is done.

Track Your Receipts!

For a retailer — be it a Kirana store or an e-commerce website — managing financial receipts is a big deal. Sometimes receipts are lost, sometimes you have to retrieve a long-forgotten receipt. Keeping in mind that doing these tasks manually will take a lot of time, start-ups are bringing about a change.

There are many start-ups in the Indian tech space that help you keep a track on your receipts and manage them. And coming to your help is a start-up that’s called Don’t Scratch Your Head (talk about being literal). They help you manage your inventory, sales channels and also connect multi-channel enterprise companies.

Self-checkout Please!

With Amazon coming up with Amazon Go — a retail store that enables self-checkout — it wasn’t long before Indian start-ups facilitate the same for our desi retailers! Say goodbye to those long queues at super- crowded shops by just checking out on your own. Perpule brings about payment solutions while managing self-checkout and queue management. The start-up, which has been founded by ex-Goldman Sach employees, has even received a funding of $650,000.

No Data? Offline, FTW!

With increasing risks in the cyberspace and credit cards or debit cards getting compromised, the next big thing was with offline payments. This would also help people in areas with little or no access to the internet, opt for cashless payments. From money transfer to digital payment, Safe2 Pay, an Indian start-up, lets one pay even with just a text message. They even let you generate a QR code for each transaction, which lets you pay securely for each buy.

(text from https://www.entrepreneur.com/article/296660)

Will Banks Adopt Blockchain for Payments?

When Bitcoin first emerged on the scene as an alternative to traditional banking systems, few would have imagined that banks would use the underlying technology to improve their internal systems. Today that dream is much closer to being realised than it was ten years ago. In the past ten years, a lot has changed from the attitude of investors and institutions, and at the very least the word blockchain is familiar to anyone who has not been living under a rock. In line with that change, here’s a look at how banks are planning to use blockchain systems in their operations.

The basic idea is that Blockchain based transactions are faster, more secure and cheaper as compared to the methods that banks use for operations. Cross-border payments, which can take anywhere from 2-5 days to clear, and are a clear example of this problem. Ripple has already demonstrated that it can process transactions many orders of magnitude faster than the current system at a fraction of the cost while ensuring a very high level of security. Another advantage of Blockchain is the transparency of its transactions. Blockchain Technology allows all the operations and balances to be seen by all users on the network, making it virtually impossible to be manipulated or tampered. All of this makes blockchain based payment systems very attractive to banks who would save a lot of their operating costs.

The problem remains in the adoption, as these banks are covered from head to toe in regulatory red tape, making them very slow moving beasts. A real-world blockchain based payment network would require years of extensive testing before it is released to the public because banks are responsible for maintaining the trust for people. However, it is good to see that such payment channels are actively being developed both by various banks and also by several other blockchain startups. For instance, BitPesa is a company in Kenya that is working to provide a way to send payments between people without requiring any bank. Other more established players like Ripple are already working with numerous Japanese and Thai banks to create efficient cash transfers through the application of Blockchain Technology.

The vast majority of payments that banks handle today are done between human being and machines or human beings and other human beings. In future, however, as more and more devices become smarter, the bulk of the payments are going to be M2M or Machine to Machine. For example, self-driving cars would make payments to automated parking places, tolls, and fuel stations. Most of these transactions are going to be very small, so it would not make financial sense to keep using the same outdated techniques to process those payments. This is where Blockchain Technology combined with smart networks comes into effect.

Banks are centralised organisations which are susceptible to a wide variety of hacks and security breaches. In recent years, several such breaches have led to the identity theft of millions of people across the globe. By contrast, Blockchains are nearly impenetrable and require access to a majority of nodes in the network for a successful attack. That is why there is no surprise that most major banks are looking at blockchains to make their payment processing more secure. MasterCard and Visa are already developing their blockchain based payment networks and have filed for several patents for the same. American Express has also added Blockchain Technology to its payment system and has filed a patent related to Blockchain that could provide a solution for improving the speed and functionality of its existing card networks. Meanwhile, a consortium of banks in Europe is funding Blockchain research to develop industry standards to enhance collaboration between different blockchain systems. With the advantages that blockchain provides, it is no surprise that banks are rushing to employ its benefits and the future looks quite promising for blockchain based payments.

(text from

https://www.blockchain-council.org/blockchain/why-banks-are-looking-for-blockchain-based-payment-systems/)