Pleasure and Pain: the Challenges of Running a Blockchain Company

There’s no doubt blockchain is a revolutionary technology changing what is possible in many areas of modern life. However, there are both pleasures and pains in being early adopters and forming a company based on blockchain technology. Security and flexibility are offset by regulation and fraud. These are considerable pros and cons, benefits, and detractors from being a blockchain company in today’s business landscape.

The Blockchain Pains: Regulation

There are factors which simply make life difficult for blockchain-based companies with many choosing their geographic location carefully as a result.

One does not need to look far to see government imposition of harsh legislation related to the technology. Much of the world remains generally unreceptive when it comes to cryptocurrencies and blockchain companies. The approach by some jurisdictions to Initial Coin Offerings (ICOs) is particularly hostile.

When the U.S. Securities and Exchange Commission (SEC) chair Jay Clayton stated that he considered all ICOs to be securities rather than commodities, and therefore subject to the organization’s regulation, Clayton brought an ICO boom to a screeching halt.

While Clayton and others at the SEC have subsequently modified that stance, the regulatory tendency to fear what is new and legislate accordingly can spell trouble.

It also remains to be seen how Switzerland will regulate the blockchain industry. The Swiss government has been exploring the possibility of introducing legal amendments to facilitate the development of blockchain technology, which pundits believe could include changes to ICOs. Time will tell what changes will be implemented. Nonetheless, such decisions add to the regulatory uncertainty faced by blockchain businesses in different parts of the globe.

The Blockchain Pains: Banking

Regulatory red-tape often has a knock-on effect on the financial sector: an area which has been notoriously fickle when it comes to working with blockchain companies and cryptocurrency exchanges.

For example, one of South America’s most reputable cryptocurrency trading platforms was blindsided by a decision by Colombian banks to freeze funds into the exchange last year.

Colombian banks Bancolombia, BBVA Colombia and Davivenda spontaneously decided to close customers’ accounts on trading platform Buda in July in a move the company labeled as spontaneous and without warning. The financial blockade came on the back of similar problems for the exchange in Chile earlier in 2018.

It mirrored a similar financial freeze in late 2017 in Australia when the nation’s largest four banks halted customer accounts and transfers into CoinJar, CoinSpot, CoinBase and BTC Markets. While these examples surround cryptocurrency holdings and transfers, they certainly relate to the financial confusion and apprehension faced by blockchain-backed funds.

In other cases, there is tension between government and banking approval. For example, Financial Director of Zurich, Switzerland Heinz Tännler called upon the Swiss Bankers Association (SBA) to help blockchain companies open up new bank accounts in July of 2018. However, that call was likely in response to Swiss banking apprehension toward cryptocurrency business due to the nation’s finance industry concerns surrounding anti-money laundering and Know Your Customer (KYC) guidelines, Finnews reports.

Back on Wall Street and blockchain is starting to find friends within the sector. Financial services giant Fidelity made a huge step into cryptocurrency when the 72-year-old firm announced the launch of a separate company, Fidelity Digital Asset Services, in October. This arm of the company would handle cryptocurrency custody and trade execution for institutional investors.

Regional differences in banking rules do exist and remain important considerations for startups and professionals working in the blockchain space. But the good news is that behind both banking and regulation challenges there is also opportunity. For example, regulation brings amendments and changes for companies in the sector but overall increases trust and reliability by kicking out unreliable and fraudulent players from the market. The good news is it isn’t all doom and gloom for blockchain businesses.

The pleasure of blockchain: Decentralization

It should almost go without saying that one of the best parts of being a blockchain-based company is the decentralized nature in which the technology can allow one to work. Prior to the advent of the blockchain, there was no way to secure and validate ownership in a digital asset or verify a transaction in such a trustless, public manner. Rather than spending money on lawyers or third-parties to verify transactions, blockchain can prove transactions can have taken place in a seamless manner.

This means spending fewer overheads on outside sources to prove transactions and spending less time waiting for manual checks and balances. Simultaneously, this shifts power away from a single institution to a community, enabling greater transparency.

The pleasure of blockchain: Flexibility

Decentralization simply leads to more flexibility. This is a definite bonus for companies utilizing blockchain in their everyday transactions: they are more secure, with lower overall fees and less supply chain downturn. Companies using blockchain are able to improve business-to-client transactions while simultaneously being less prone to hacking, fraud or theft.

Such benefits can be seen across the board in a variety of business across industries. For example, Blockverify uses blockchain to verify supply chain counterfeit products, diverted goods, stolen merchandise and fraudulent transactions; while Deedcoin tackles the real estate industry by connecting buyers and sellers with real estate agents who accept a lower commission.

These are considerable administration wins which make the overall business operations far more flexible. Increased efficiency, traceability and security of transactions between clients and other businesses are impressive results of blockchain business use.

Somewhere in the middle: Environmental

Not everything in blockchain is black and white. There remain many moving parts of development as the technology gains further adoption. One area to note is environmental. Bitcoin mining uses about as much electricity as the nation of Austria with the specialized, power-hungry mining rigs expected to account for one two-hundredth of the world’s energy use by the end of 2018. Such power usage of blockchain and its associated applications will be worth watching over the next few years.

By the same token – and pardon the pun – certain cryptocurrencies are working to ensure clean and green power use. Projects like the Eco Coin – where users can earn and spend the token on sustainable actions and goods – or the Gear Token – which utilizes advances within blockchain technology to ignite investment back into green and renewable energy projects that promote environmental sustainability – are but some examples of the technology being used for environmental good.

Somewhere in the middle: Perception and reputation

Meanwhile, in terms of valuations, it’s safe to say 2018 was a rollercoaster ride for cryptocurrency. Bitcoin experienced an astounding price drop, with prices falling as low as $3,520 in November and wiping out all gains from coins purchased this year. A roughly 40 percent drop over two weeks, the worst price drop since April 2013, refreshed old doubts about the soundness of Bitcoin as an investment vehicle.

The fluctuations experienced by Bitcoin and other cryptocurrencies undoubtedly hurt the perception of the technology overall. However, at least when it comes to using blockchain for value storage, this issue could be solved by stable coins. These types of digital currencies are pegged to real-world or algorithmic backing to prevent extreme price changes. This could go some way to restoring public faith in the technology, as could education.

Bitswift founder Paul Busch noted that the abstract concept of blockchain makes it hard for some people to understand – and therefore trust:

“Putting trust into a system with no name or face for many people is “unreal,” especially when they don’t understand the technology. Also, the amount of bad press and attention Bitcoin gets will hinder and delay adoption.”

Ethereum co-founder Vitalik Buterin echoed this view:

“The main advantage of blockchain technology is supposed to be that it’s more secure, but new technologies are generally hard for people to trust, and this paradox can’t really be avoided.”

Moving forward, better education and public understanding will be paramount to uptake for blockchain’s use within companies or cryptocurrencies. Whether or not the pleasures outweigh the pains of blockchain will be a decision for every individual company. However, there is no denying the technology is changing what is possible for businesses and their processes across the globe.

Max LyadvinskyMax Lyadvinsky is co-founder and CEO of Bloomio an early stage crowdfunding platform connecting startups with individual investors. He is an entrepreneur and angel investor with expertise in fundraising and scaling startup teams, envisioning future technology trends, developing product strategies and innovating disruptive technologies.  The Bloomio Study, the State of Equity Crowdfunding is available here.

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