How Blockchain Is Relevant to the Future of Telcos

At the end of last year, Deloitte published an article that detailed the outlook for the telecommunications industry in 2017. In the piece, the author outlined those areas in which he saw an opportunity for growth, provided advice to businesses wanting to develop within the industry, and made note of sweeping, big-picture trends that he considered to be the most likely advancements within the sector.

What the article did not mention, however, was the potential impact of a subtle, yet revolutionary technology that many experts agree will change the way that companies across almost every sector conduct business. That technology is blockchain, a distributed ledger system that allows firms to conduct transactions and facilitate processes with a greater degree of transparency, efficiency, and security than ever before. In the near future, the telecommunications industry may provide services to customers more effectively and with a greater focus on the protection of personal data—an important quality in a digital age in which the general population continues to grow more concerned with institutions’ ability to keep their sensitive information private.

In order to understand what makes this possible, one must first understand the concept of blockchain technology itself. Originally established as a platform for the cryptocurrency Bitcoin by Satoshi Nakamoto in 2009, blockchain is a distributed ledger that facilitates the transfer of data through a shared database. While transactions on the blockchain are publicly viewable for the purposes of preventing tampering through public accountability and self-certification, the identity and specifics of all transactions made within the blockchain remain anonymous. Blockchain employs the use of encryption and algorithms to document transactions, while offering users more speed, efficiency, transparency, trust, and security than any other technology previously known.

While blockchain offers numerous benefits, there are legal aspects of the technology that have yet to be formally evaluated. Governments have yet to create laws or legal standards that outline regulations to keep the technology in check, nor have they established protocols or consequences in regards to how companies will be dealt with in the event that blockchain fails. While the United Kingdom has elected to operate with a “hands-off” approach to regulating blockchain, it allows companies in industries such as finance to test and innovate within a “regulatory sandbox.” Moreover, the United States have taken greater steps toward regulating blockchain.

Regardless of the country in which a telecom company operates, executives should approach blockchain from a standpoint of cautious optimism, keeping in mind that certain legal issues have the potential to arise as the technology becomes a larger part of the business world. Smart contracts, for example, have the potential to revolutionize the way that firms in many industries conduct business, and yet they must be evaluated for both efficiency and any potential flaws before they are adopted as part of a routine mode of operation. Smart contracts at their core are fixed and do not take into consideration the nuances between the parties, which may impact the strong, trusting partnership between two firms.

In addition, it is important to note the sweeping, positive changes that the technology has the potential to create within the telecommunications sector. One of the most important things that blockchain can do for telecom companies is to streamline internal functions and facilitate the creation of new products. Additionally, blockchain has the potential to open up streams of revenue for telcos in the form of new services, such as mobile wallets and 5G service. Other services that blockchain could enable include the provision of international mobile wallets and the creation of smart cities that operate on a large network of devices connected by IoT.

Many major telcos have already embraced blockchain, and are poised for further investment. In the last two years, firms such as Sprint, Verizon, Orange Silicon Valley, and NTT DOCOMO Ventures have involved themselves in this budding sector through activities such as investing in blockhain startups and launching their own blockchain initiatives. Some have filed patents for technology that will further the industry’s growth, such as Verizon and its patent for a blockchain that stores digital content passcodes.

4 Areas That Can Benefit from Blockchain Technology

Blockchain is one of the most exciting business topics of the year. Beyond its origins as a platform for cryptocurrency, the distributed ledger technology has earned recognition and praise from major corporations in a wide range of industries. A November 2017 Bloomberg article even confirmed that powerful banking magnates such as Goldman Sachs and JPMorgan have found the technology to be highly efficient and reliable for undertaking services such as equity swaps.

Although the banking and finance sectors are a natural match for technology originally designed to facilitate the transfer of cryptocurrency, they are far from the only areas poised to gain from all that blockchain has to offer. Following are four other areas that are also likely to benefit significantly from blockchain technology:

1. Government

In many countries, government processes are well-known for being long, muddled, and marked by the potential for corruption. However, blockchain may hold the key to significant improvements. One major benefit of blockchain is its ability to transform historically paper-based processes into a digital format, which could range from registering land to collecting taxes. The identity verification processes made possible through blockchain could expedite these transactions, along with many others. Countries such as Estonia and Dubai have already taken steps to using blockchain within their operations for the benefit of their citizens. Specifically, the government of Dubai is planning to move all of its documents to the blockchain within the next two years.

2. Voting

Another aspect of blockchain that could positively impact government operations is its potential to allow citizens of modernized countries to cast votes in political elections. In light of the accusations of voter fraud that have surfaced in the United States in the last year, blockchain may play a crucial role in maintaining the integrity of voting systems in the United States and beyond. Voter registration, identity verification, and electronic vote counting can all be conducted and confirmed through blockchain, which could prevent the rigging of election results. Startups such as Follow My Vote, based out of Virginia, have already begun a movement designed to help introduce US citizens to blockchain-based online voting.

3. Charity

While many people find joy in the spirit of giving, they also do not like the idea that their donations may not be going directly to the people or causes that they intend to help. The rise in popularity of rating sites for nonprofits such as Charity Navigator are a testament to this idea. Blockchain provides the technology for donors to track the money that they contribute to charitable causes and ensure that it ends up in the hands of those who will use it for the cause for which it was intended. Through blockchain-based charitable initiatives that rely on cryptocurrency, such as BitGive, those who donate funds can closely monitor where their money is going after it has changed hands through a distributed ledger.

4. Retail

Buyers and sellers in the marketplace could both benefit from the reduced fees associated with retail purchases made through blockchain — the technology cuts out the intermediary between two parties, allowing buyers to purchase directly from sellers without the need for a private third party, such as a bank. In addition, it holds the potential to create value-add services, such as rewards points in the form of digital tokens that can be used at any retailer that also uses blockchain-based technology. For retailers, blockchain helps to efficiently collect and store customer data, and it creates personalized rewards programs designed to motivate customers to return.

What Determines the Value of Cryptocurrency?

In September 2017, the value of Bitcoin reached an all-time high, surpassing $5,000 according to the CoinDesk Index or, by Bloomberg’s slightly more modest estimates, reaching $4,921. As Bitcoin, which is often regarded as the “reserve currency” of the cryptocurrency sector, continues to hover near this record-setting valuation, the cryptocurrency market at large boasts an all-time-high capitalization of more than $170 billion.

Like any form of currency, cryptocurrencies derive their value from universal agreement regarding their worth. However, since cryptocurrencies are digital assets untethered to a central government, financial institution, or physical commodity, the matter of their value is often a topic of inquiry and skepticism.

Despite concerns over their illusory value, the monetary worth of cryptocurrencies is closely tied to the basic economic principles that govern not only monetary systems, but product-based economies as a whole. Cryptocurrencies derive value from their utility and scarcity. The anonymity, security, efficiency, and decentralized nature of blockchain-based currencies make them attractive as both a method of payment and an investment vehicle. Since the public enjoys the ability to pay for an ever-growing number of goods and services using cryptocurrencies, value investors use this information to speculate on the currencies’ future value by comparing them to similar physical asset classes. For example, Bitcoin enthusiasts commonly reference the market capitalization of gold to determine the relative value of Bitcoin. This type of speculation can further influence a cryptocurrency’s value.

Despite their increasing popularity, cryptocurrencies exist in finite numbers. For example, Bitcoin carries a maximum capacity of 21 million units, and as of March 2017, there were 16.2 million Bitcoins in circulation. The usefulness and limited nature of cryptocurrencies have fueled cycles of supply and demand, while their transferability and fungibility enable them to exist as tradeable assets.

While the success of any currency depends on public trust, it is particularly important for those currencies that are not backed by a physical commodity, such as fiat and cryptocurrencies. Public confidence in the value and stability of a cryptocurrency is necessary for it to retain its purchasing power and to enable the decentralized system of governance facilitated by the blockchain to continue to be successful. Therefore, negative media coverage, security breaches, and market-related shifts in public opinion can impact the value of cryptocurrencies. While cryptocurrencies exist outside of national legislative boundaries, some degree of governmental trust is also necessary if they are to remain a legitimate monetary system. Regulatory hurdles will not only damage public perception, but hamper a cryptocurrency’s successful operation in a given jurisdiction. On the other hand, governmental support can send a cryptocurrency’s value soaring to new heights. In April 2017, Bitcoin significantly increased in price after both Russia and Japan moved to legalize it. Moreover, the price of Ethereum surged after it was acknowledged as a form of payment by multiple Asian governments.

The technical infrastructure underpinning a given cryptocurrency can also influence its value, as it plays a role in determining a currency's upkeep costs and rate of adoption. Cryptocurrencies supported by more complex blockchains, such as the large proof-of-work blockchain used by Bitcoin, can present energy requirements equivalent to that of a small nation. And while cybersecurity is a top priority for both emerging and established cryptocurrencies, more secure blockchains require more intensive mining processes which, in turn, lead to higher energy costs.

How Blockchain Could Change the Music Industry

While digital currencies have yet to achieve mainstream use, blockchain—the technology that supports all cryptocurrency exchanges—has continued to gain renown in recent years. The use of blockchain technology has expanded considerably since it was first introduced by its anonymous creator, Satoshi Nakamoto, and according to a recent article on Forbes.com, it is expected to have a significant impact on the work of professionals beyond the financial sector, including those within the music industry.    

Currently, a majority of musical artists must cooperate with large groups of intermediaries in order to secure payment for their work, resulting in a system in which the musician is the party who performs all of the initial labor, but is the last person to see the profits from his or her efforts. Blockchain may be the solution that finally allows artists to upend this process through the use of smart contracts, a technology that uses algorithms to set pre-established rules in motion when a given transaction is verified. These smart contracts would allow consumers to securely pay musicians directly for their music without the need for a middleman.   

The ability to circumvent the middleman in music sales would not only help boost the compensation that musicians receive for their own work, but it would solve a number of frustrating problems that artists face through the existing profit model. For example, the industry struggles to maintain an up-to-date, easily accessible database of copyright information, making it difficult for music professionals to keep track of who owns the rights to recordings and songs. Since blockchain technology functions as both a network and database, artists who store copyright information on the blockchain in the form of a cryptographic digital fingerprint would make their music’s data available to every person who accesses the network. This would allow all music professionals to view copyright information the moment that a song or recording is uploaded to the blockchain, providing more clarity about ownership rights.