Crypto is only mostly Garbage

John J. Schaub 

Mar 30, 2022 

I recently sat on a panel talking to Capilano University entrepreneurship students and the topic of crypto currencies and NFTs came up as it does in pretty much every Fintech adjacent conversation these days. I was asked to give my assessment of crypto companies as someone in the Financial Services sector who is actually building products, my off the cuff answer was '95% Bullshit, 3% Meh and 2% Game Changing the problem as always is knowing which are products are in the 2%'. The issue is that when a sector is so high profile and so full of utter nonsense it is very easy to be cynical and dismiss the entire thing and miss products that will in the end have real impacts. Given this I thought I would put in writing some predictions about the crypto and blockchain use cases that I feel have real potential to change the world.

Capital Markets - Most people who discuss the impact of crypto on capital markets seem to be focused on speed of settlement and operational improvements. While these things could certainly be improved they are really not a big enough benefit to justify the effort involved in developing and supporting a blockchain based solution. That said there are a few use cases in the capital markets space where Crypto and NFTs have real promise and to my thinking Smart Contracts are the most interesting of these. Smart Contracts allow issuers to create assets that behave differently according to specific conditions which opens up a vast swath of opportunities for both issuers and holders. Imagine a board of directors having the ability to issue a dividend where the size of the dividend depended on how long you had held the stock or even more exotically the dividend could be issued only to shareholders who owned the companies product or who did not also hold stock in specific competitors. There are of course massive headwinds to implement this sort of functionality and my suspicion is that most boards would be lost as to how to leverage these capabilities but the potential exists and if it got traction game changing potential certainly exists.

Insurance - A fairly significant portion of the costs of any insurance policy come from the costs of managing claims and insuring that those who should receive a payout do and those who should not do not. A recent innovation in insurance known as parametric triggers aims to simplify the process and drastically reduce the cost by tying the insurance payout to a straightforward trigger event that can be independently verified. So for example a parametric trigger might be setup such that an earthquake event above a certain size in a certain geography triggers a payout. By reducing the overhead of claims adjusting to essentially zero the insurance product can be made far more affordable. 

The combination of smart contracts and parametric triggers is a blindingly obvious one and will be a game changer in my opinion. As an example it is entirely conceivable that orange growers could issue a smart contract which will pay the owner a sum if freezing conditions do not occur in a given period of time. This is effectively an insurance product that can be bought and sold on the open market with zero overhead costs. It needs to be clear that by no means will crypto based solutions operating on parametric triggers replace all types of insurance but they could go a long way in vastly reducing the overhead for certain products and allow insurance markets to exist where they are currently cost prohibitive.

Real Estate - As someone who early in their career spent a lot of time deep in the world of Real Estate data let me assure you that the system that exists today is an unfathomable mess. The current system of tracking the ownership, details and debt associated with a given property is a patchwork of unconnected solutions that have been developed ad hoc over centuries. Because of this lack of clarity the Real Estate sector even in developed nations is frequently seen as a haven for laundering the proceeds of crime and the true ownership of a given piece of property is not always 100% clear even to the government taxing that land. The situation in the developing world is far far worse which makes the process of investing into these developing economies even more challenging then it would be otherwise.

This situation has drawn increasing scrutiny with Real Estate values spiralling upward in much of the world and the push for a truly transparent record of ownership will very likely come from the regulators rather than the market. If you are thinking an NFT based blockchain solution is the ideal solution to tracking property ownership you are not alone. My feeling is that because of the high value and low volume of Real Estate transactions this area will be one of the first where an NFT solution becomes a defacto standard and once built will be the model upon which other ownership tracking solutions are built. 

Media Royalties - The current system of paying royalties to content creators is horrifically flawed as has been covered in detail elsewhere. As a simple example of just how bad the situation is look at the recent case where criminals managed to fraudulently claim ownership of a number of songs and scam Youtube out of millions of dollars. If a corporate behemoth like Alphabet (owner of YouTube) with an army of lawyers and analysts cannot navigate the current content royalty system without losing millions it is obvious that smaller players stand essentially no chance. And making matters worse the damage done to the platforms pales in comparison to the losses suffered by the individual artists who every day lose out on money they are rightfully owed.

The solution is obviously an ownership tracking system that was tied directly to web usage data so a content owner was automatically paid every time their content was utilised regardless of where it was posted. A solution of this type would be game changing and would go a long way to alleviating copyright concerns allowing sites to more freely post content knowing that the correct rights holders would be paid accordingly. This system will be far from trivial to create but given the huge potential uses there is more than enough incentive to build it.  

Human Identity Management - Birth, Death, Education and Health Records - My feeling that human identity management represents a viable path forward for blockchain is driven by my work in FinTech in the developing world. In the developed world there already exist solid but not perfect systems for birth and identity verification with education and health records being passable and I doubt there is enough incentive to move the system forward without a truly enlightened government stepping up to do so. In the developing world however the situation is far worse with many global citizens being unable to do something as simple as provide an identity document to open a bank account for example and as such there is a far bigger incentive to build a new and better system from scratch. 

A single unified record of each individual's personal history with access controlled by that individual would do wonders to fight fraud while at the same time improve the lives of everyone. Imagine living in San Francisco and travelling to London where in the event of a medical emergency doctors could access your entire medical history instantly. A unified identity system would make that entirely possible. The same system would allow a refugee to prove their identity and credentials and more quickly set themselves up in a new country. 

There are other use cases such as ticketing, donation tracking and of course collectables which I also feel have viability as well but lack real world changing potential in my opinion. <a href="https://www.johnschaub.ca/contact" target="_blank">If you'd like to chat about Crypto, Blockchain or just FinTech in general don't hesitate to reach out particularly if you are working in one of the spaces above</a>.