Nation-States and Block-Chains: Vying for the Cutting Edge

Nation-States and Block-Chains: Vying for the Cutting Edge

Deloitte proposes that the Swiss Confederation has a key role to play in the continued development of blockchain.

In a new whitepaper, Deloitte makes this case based on Switzerland’s “special position as a global innovation centre.” There are six sides to Switzerland’s position: its FinTech infrastructure; its start-up attractiveness; its legal system; its wealth and growth; its repute as a knowledge hub; and its lead in data security and protection.

If the government of Switzerland does decide that it wants to play this role, it will have three tasks: educating the public about the applications of blockchain both for individual entities and for the nation’s economy as a whole; steering open debate in and through appropriate forums; and working with the legal profession “to adapt and issue laws and regulations to promote this new technology,” Deloitte says.

Switzerland is especially prominent in the insurance and financial sectors, and these happen to be areas where distributed ledger technology has many foreseeable applications: for example, automated blockchain processes, assisted by smart contracts, could issue expert opinions based on claims history in the property and casualty space, reducing the room for fraudulent claims.

Currencies, Utilities, etc.

In finance, UBS has run a two-year experiment on the use of a DLT-based trade finance system, and now seems ready to implement it “for rationalizing import-export transactions on a global level.”

UBS, Deloitte, BNY Mellon and other financial institutions have joined together to create the Utility Settlement Coin, a series of cash cryptocurrencies that allows transactions to be settled quickly and integrated into local markets.  The idea is “to reduce risk factors such as counterparty, settlement and market risk and improve capital efficiency while at the same time reducing costs.”

The Deloitte authors also see applications for utilities, such as the use of DLT-based trading platforms “for distributing solar energy between various parties, with transactions authenticated automatically and invoicing carried out by the technology.” They link to an October 2016 report by David Groarke of Indigo Advisory, which says that in Europe generally “a vibrant ecosystem of vendors and progressive utilities are jointly exploring applications.”

The authors of the Deloitte study say that this could be but the beginning. They quote Daniel Grassinger, the co-founder of FinTech concern nexussquared, “It is important to take advantage of the solid basis that currently exists for Blockchain and establish Switzerland as a Blockchain location over the long term.”

Zug and a Rail Company

The city of Zug, a German-speaking municipality in the center of Switzerland, has become a hotbed for blockchain-related start-ups which are collectively, in Deloitte’s description, “proactively shaping the rapid development of Blockchain applications for redesigning transaction processes.”

The canton of Zug has adjusted taxes for start-ups, building on this status.

Meanwhile, the SBB, the country’s largest railroad, lets customers withdraw bitcoin at any of its ticket machines, so long as the customers have a Swiss mobile phone number, a security code, and a bitcoin wallet.

Deloitte suggests that “to secure [its pioneering role], the rail company should not only sell bitcoin but also integrate blockchain technology more heavily in its service offering and combine it with existing services.”

Deloitte also looks at the issue of standardization. Innovation is almost an antonym of standardization, but at some point an innovative industry does have to pass through a standardizing phase in its growth, just as the market for physical home media witnessed a terrific battle between Blu-Ray and HD DVD as each sought to establish itself as the de facto standard after talks for the peaceful creation of a unified format collapsed in 2005.  (Blu-Ray had won the battle by 2008.)

Fortunately for the blockchain industry in Switzerland and elsewhere the ISO has established a technical committee for blockchain standardization. Unfortunately for the Swiss perhaps, it was Australia that “was rewarded for its pioneering role to date with the chair of the committee, while Switzerland is only involved as an observer.” This incident establishes that Switzerland will not become the center of this global industry by default. It will have to be fought for.

Note on the Authors

There are three authors of the Deloitte report: Jan Seffinga (partner consulting, Zurich); Lyndon Lyons (senior manager, consulting, Zurich) and Andreas Bachmann (manager, consulting, Zurich).

 

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