Why Blockchain is Hard

The hype around blockchain is massive. To hear the blockchain hype train tell it, blockchain will now:

  1. Solve income inequality
  2. Make all data secure forever
  3. Make everything much more efficient and trustless
  4. Save dying babies

What the heck is a blockchain, anyway? And can it really do all these things? Can blockchain bring something amazing to industries as diverse as health care, finance, supply chain management and music rights?

And doesn’t being for Bitcoin mean that you’re pro-blockchain? How can you be for Bitcoin but say anything bad about the technology behind it?

In this article, I seek to answer a lot of these questions by looking at what a blockchain is and more importantly, what it’s not.

What is a blockchain?

To examine some of these claims, we have to define what a blockchain is and herein lies a lot of the confusion. Many companies use the word “blockchain” to mean some sort of magical device by which all their data will never be wrong. Such a device, of course, does not exist, at least when the real world is involved.

So what is a blockchain? Technically speaking, a blockchain is a linked list of blocks and a block is a group of ordered transactions. If you didn’t understand the last sentence, you can think of a blockchain as a subset of a database, with a few additional properties.

The main thing distinguishing a blockchain from a normal database is that there are specific rules about how to put data into the database. That is, it cannot conflict with some other data that’s already in the database (consistent), it’s append-only (immutable), and the data itself is locked to an owner (ownable), it’s replicable and available. Finally, everyone agrees on what the state of the things in the database are (canonical) without a central party (decentralized).

It is this last point that really is the holy grail of blockchain. Decentralization is very attractive because it implies there is no single point of failure. That is, no single authority will be able to take away your asset or change “history” to suit their needs. This immutable audit trail where you don’t have to trust anyone is the benefit that everyone that’s playing with this technology is looking for. This benefit, however, come at a great cost.

The Cost of Blockchains

The immutable audit trail uncontrolled by any single party is certainly useful, but there are many costs to create such a system. Let’s examine some of the issues.

Development is stricter and slower

Creating a provably consistent system is not an easy task. A small bug could corrupt the entire database or cause some databases to be different than other ones. Of course, a corrupted or split database no longer has any consistency guarantees. Furthermore, all such systems have to be designed from the outset to be consistent. There is no “move fast and break things” in a blockchain. If you break things, you lose consistency and the blockchain becomes corrupted and worthless.

You may be thinking, why can’t you just fix the database or start over and move on? That would be easy enough to do in a centralized system, but this is very difficult in a decentralized one. You need consensus, or the agreement of all players in the system, in order to change the database. The blockchain has to be a public resource that’s not under the control of a single entity (decentralized, remember?), or the entire effort is a very expensive way to create a slow, centralized database.

Incentive structures are difficult to design

Adding the right incentive structures and making sure that all actors in the system cannot abuse or corrupt the database is likewise a large consideration. A blockchain may be consistent, but that’s not very useful if it’s got a lot of frivolous, useless data in it because the costs of putting data into it are very low. Neither is a consistent blockchain useful if it has almost no data because the costs of putting data into it are very high.

What gives the data finality? How can you ensure that the rewards are aligned with the network goals? Why do nodes keep or update the data and what makes them choose one piece of data over another when they are in conflict? These are all incentive questions that need good answers and they need to be aligned not just at the beginning but at all points in the future as technology and companies change, otherwise the blockchain is not useful.

Again, you may be wondering why you can’t “fix” some broken incentive. Once again, this is easy in a centralized system, but in a decentralized one, you simply cannot change anything without consensus. There’s no “fixing” anything unless there’s agreement from everyone.

Maintenance is very costly

A traditional centralized database only needs to be written to once. A blockchain needs to be written to thousands of times. A traditional centralized database needs to only checks the data once. A blockchain needs to check the data thousands of times. A traditional centralized database needs to transmit the data for storage only once. A blockchain needs to transmit the data thousands of times.

The costs of maintaining a blockchain are orders of magnitude higher and the cost needs to be justified by utility. Most applications looking for some of the properties stated earlier like consistency and reliability can get such things for a whole lot cheaper utilizing integrity checks, receipts and backups.

Users are sovereign

This can be really good as companies don’t like the liability of having user data in the first place. This can be bad, however, if the user is “misbehaving”. There’s no way to kick out the user that’s spamming your blockchain with frivolous data or has figured out a way to profit in some fashion that causes other users lots of inconvenience. This is related to the above observation that incentive structures have to be designed really, really well in that a user that figures out an exploit is not likely to give that up, especially if there’s profit for the user.

You may be thinking that you can simply refuse service to malicious users, which would be very easy to do in a centralized service. However, unlike a centralized service, refusing service is difficult because no single entity has the authority to kick anyone out. The blockchain has to be impartial and enforce the rules defined by the software. If the rules are insufficient to deter bad behavior, you’re out of luck. There is no “spirit” of the law here. You simply have to deal with malicious or misbehaving actors, possibly for a very long time.

All upgrades are voluntary

A forced upgrade is not an option. The other players on the network have no obligation to change to your software. If they did, such a system would be much easier, faster and cheaper to build as a centralized system. The point of a blockchain is that it’s not under the control of a single entity and this is violated with a forced upgrade.

Instead, all upgrades have to be backwards-compatible. This is obviously quite difficult, especially if you want to add new features and even harder when thinking from a testing perspective. Each version of the software adds a lot to the test matrix and lengthens the time to release.

Again, if this were a centralized system, this would be very easy to correct by no longer servicing older systems. You cannot do this, however in a decentralized system as you cannot force anyone to do anything.

Scaling is really hard

Finally, scaling is at least several orders of magnitude harder than in a traditional centralized system. The reason is obvious. The same data has to live in hundreds or thousands of places than in a single place. The overhead of transmission, verification and storage is enormous as every single copy of the database must pay them instead of those costs being paid just once in a traditional, centralized database.

You can, of course, reduce the burden by reducing the number of nodes. But then at that point, why do you need a decentralized system at all? Why not just make a centralized database if scaling costs are the main concern?

Centralization is a lot easier

If you notice a theme, it’s that decentralized systems are very difficult to work with, expensive to maintain, hard to upgrade and a pain to scale. A centralized database is much faster, less expensive, easier to maintain and easier to upgrade than a blockchain. So why do people keep using the word blockchain as if it’s some panacea for all their problems?

First, a lot of these industries that are being sold on blockchain are really overdue for IT infrastructure upgrades. Health care has notoriously terrible software. Financial settlement is still running on software from the 70’s. Supply chain management software is both difficult to use and hard to install. Most companies in these industries resist upgrading because of the risk involved. There are lots of infrastructure upgrades that cost hundreds of millions and end up being rolled back anyway. Blockchain is a way to sell these IT infrastructure upgrades and make them a bit more appetizing.

Second, blockchain is a way to look like you’re on the leading edge of technology. Like it or not, the word “blockchain” has taken on a life of its own. Very few people actually understand what it is, but want to appear hip so use these words as a way to sound more intelligent. Just like “cloud” means someone else’s computer and “AI” means a tweaked algorithm, “blockchain” in this context means a slow, expensive database.

Third, people really don’t like government control of certain industries and want a different adjudication mechanism than the legal framework which is often slow and expensive. To them, “blockchain” is really just a way to get rid of the heavy apparatus of government regulation. This is overselling what blockchain can do. Blockchain doesn’t magically take away human conflict.

The result is a lot of people that are hyped up on the promises without actually understanding the abilities or costs. What’s worse, the actual technical details and costs are abstracted away from a lot of VCs and executives in such a way as to obscure what a blockchain can and can’t do. Everyone under them become afraid to say that the emperor has no clothes and we have the situation that we have now.

So what is blockchain good for?

We’ve already established that a blockchain is very expensive relative to centralized databases. So the only reason you should be using a blockchain is to decentralize. That is, remove the single point of failure or control.

This naturally means that the software or database must not change things around often, if at all. There should be little upside to upgrading and much downside to screwing up or changing the rules.

Most industries are not like this. Most industries require new features or upgrades and the freedom to change and expand as necessary. Given that blockchains are hard to upgrade, hard to change and hard to scale, most industries don’t have much use for a blockchain.

The one exception we’ve found is money. Unlike most industrial use cases, money is better if it doesn’t change. Immutability and difficulty in changing the rules is a positive for money and not a detriment. This is why blockchain is the right tool for the job when it comes to Bitcoin.

What’s clear is that a lot of companies looking to use the blockchain are not really wanting a blockchain at all, but rather IT upgrades to their particular industry. This is all well and good, but using the word “blockchain” to get there is dishonest and overselling its capability.


Blockchain is a popular term these days and unfortunately, this “blockchain not Bitcoin” meme won’t die. If you are a centralized service, a blockchain doesn’t get you anything that you can’t do a thousand times cheaper with a centralized database. If you are a decentralized service, then you’re probably fooling yourself and not thinking about the single points of failure that exist in your system. There wouldn’t be a “you” at all in a truly decentralized service.

Biggest joke in this entire article

Back in the early 2000’s, there was a push by a lot of executives in the tech industry to use Java and XML. Despite these two things being tools and not actual products, many executives insisted on their use, no matter how poor the fit was to what their engineers were trying to achieve. Blockchain is very much like that. Focus on the problems you’re solving and the tools will make themselves readily apparent. Focus on tools that you want to use and you’ll end up making Rube Goldberg machines that don’t do anything particularly well.

In a sense, current conceptions of blockchain are trying to do the impossible. They want the security of a decentralized system with the control of a centralized one. The desire is the best of both worlds, but what they end up getting is the worst of both worlds. You get the costs and difficulty of a decentralized system with the failure modes of a centralized one.

Blockchain is used way too much as a buzzword to sell a lot of useless snake oil. The faster we get rid of the hype, the better off long-term we’ll all be.

It all started here…

On 30 April 1986 Italy connected to the Internet for the first time. From the University Center for the electronic calculation of the Cnr of Pisa (Cnuce), a signal was launched that reached the station of Roaring Creek, Pennsylvania. The project was realized in synergy between Cnr-Cnuce, Italcable and Telespazio; the Satnet Atlantic satellite network was used for the connection. Perhaps the group of pioneers who opened the new frontier of communication to our country, did not imagine how what he had done would have changed history.

November 1991…The then Minister of Scientific and Technological Research, prof. Antonio Ruberti, accelerated the process of building a single national network (with TCP-IP protocol) through a ministerial loan of 5 billion lire, which served to build  a national backbone of 2Mbit /sec to which every university office and research institutes was connected.

Few years later, in 1994, in the center of Milan … near the Castello Sforzesco, two young guys were trying to figure out how to better use the fantastic capabilities of a brand new Macromedia Shockwave program…the result was our first animated Home Page equipped with a rotating star and the name of our company in the center…Wow!…..we were on the wave of success …(by the way … Shockwave for Director of Macromedia, then acquired by Adobe, no longer works because of the incompatibility of the new browsers, but you can take a look around ….. some links still work … wow..wow )

one of our first customers Milano In got 10.905 hits in few weeks… but, unfortunately we were not in the States….no one took the courage to invest in our start up…


SegWit, some consideration


What is Segregated Witness?

Segregated Witness, often abbreviated to SegWit, is a proposed update to the Bitcoin software, designed to fix a range of serious issues.

SegWit is a proposed update to the Bitcoin Core, developed by its long-standing team. Bitcoin Core is currently the most popular Bitcoin reference client, in use by the majority of the businesses in the industry.

Originally, the update was aimed at solving transaction malleability, a well-known weak spot in Bitcoin software. Although this vector of attack is not the most damaging to the users, it has been exploited in several instances already, highlighting the need to patch it.

However, SegWit offers a range of other advantages and by now the focus of attention has shifted from fixing the transaction malleability to solving the problem of Bitcoin scaling. As we have explained in the eponymous article, and in many others, Bitcoin is currently experiencing massive scaling problems, which are only getting worse with time.


What is SegWit’s solution to the Bitcoin scaling problem?

SegWit increases the Bitcoin’s block size limit and allows the implementation of the second-layer solutions for further improvement.

Current issues of Bitcoin scalability arise primarily from the insufficient block size. Consecutive blocks of transactions are what the Blockchain is comprised of. The Blockchain, in turn, is the ledger of all transactions that have taken place in the network up until now – the lifeblood of the cryptocurrency.

The problem here is that currently, blocks have a hard-coded limit of one megabyte. This is not enough to account for the hundreds of transactions that the users are trying to send every minute.

Consequently, a lot of those users have to wait in line until their transaction can be confirmed; sometimes for hours or even days. As the size of the network grows, so does the transaction intensity, whereas the block size limit stays the same, which means that the problem is continuously getting worse.

SegWit’s solution to this is twofold. First of all, it enables an immediate increase of the block size limit to four megabytes. There’s one caveat here: four MB is the absolute maximum, while the actual block size will depend on the network conditions. It is predicted by experts to be in the range of about two to 2.1 megabytes immediately after SegWit’s activation.

Secondly, by solving transaction malleability, SegWit eliminates what used to be a minor problem for Bitcoin itself, but a major barrier to implementing second-layer solutions on top of it. One of those solutions is the proposed Lightning Network. It is expected to allow for a massive increase in the network capacity by moving the bulk of transactions off the Blockchain for quick processing.


Why hasn’t SegWit been activated yet?

SegWit is set to activate as soon as 95 percent of the network measured in hash power signals support for it.

If the support for a new set of rules is insufficient, it may result in a contentious fork, where a significant part of the network goes ahead and switches to a new client but some decide to keep using the old one. That leads to a simultaneous existence of two cryptocurrencies with different sets of rules competing with each other for users.

Such scenario may lead to unpredictable outcomes and is quite likely to have a powerful negative impact on the value of both currencies, at least in the short term. In order to avoid a contentious fork, the developers of SegWit have set a specific rule in the software, that it will only activate if it receives almost unanimous support of the network – 95 percent.

Currently, the level of support is hovering at around 32 to 33,8 percent and it has never been above that. The level of support is so low because there is a large block of users opposing the update on various bases.


What are the main arguments against SegWit?

The key points against SegWit can be roughly divided into three groups: technical, political and ideological.

Some have argued that SegWit, in its current state, will not be able to solve the problems it promises to solve. One of the primary arguments here is that the block size increase proposed by the update is not nearly enough to satisfy the growing needs of Bitcoin’s user base.

The majority of the experts seem to agree about the high technical competence of the authors of SegWit, as well as the solidity of the technology itself. However, it is nearly impossible for a person who is not a programmer to evaluate the authenticity of the arguments proposed by both sides.

The fact that the debate is now not purely technological but has a political aspect too only complicates things. A large number of people working on SegWit are also employed by a company called Blockstream, whose primary product is sidechain solutions.

Some from the community claim that this creates a conflict of interest, as the developers are incentivized to obstruct attempts at increasing the block size, in order to artificially increase the demand for sidechain solutions, such as the Lightning Network. There is no definitive proof for this claim but a large part of the community has still chosen to believe in it and is opposing SegWit as a result.

The main ideological argument, leveled against the update, is that it does not provide scalability while preserving a sufficient degree of decentralization of the Bitcoin network. As has been said earlier, SegWit solves the long-term problems with Bitcoin’s insufficient transaction capacity only insofar as allowing for implementation of second-layer sidechain solutions, such as the Lightning Network.

The problem some people see here is how the sidechains work. In order to not rely on the highly congested Blockchain, they move the coins to a second-layer system. There, all transactions are processed by a trusted third party, without having to broadcast them across the entire network, which saves a lot of resources and time.

But a trusted point of authority in charge is exactly what Bitcoin was meant to remove from the monetary system. For some, that is an unacceptable compromise, no matter how little power the third party wields in solutions such as the LN and others.


Who supports SegWit then?

A wide range of individuals and companies have endorsed SegWit at some point in the past and when it comes to businesses implemented software support for it.

Over 100 of the industry’s most prominent companies are known for a fact to either plan, work on or have implemented support for SegWit in their businesses. The entire list is here.

In addition, many prominent individuals known for their work in the Bitcoin community have made clear their support for SegWit on Twitter, and various other platforms. Among them are Andreas AntonopoulosSamson MowCharlie Lee and others.

Of course, the most direct support comes from the miners. At the time of writing, more than 33.8 percent of them are signaling their explicit approval of SegWit.

The current support level can always be checked here.

The Technological Convergence of Blockchain and AI to power the 4th Industrial Revolution

Gilbert Verdian

He’s actively working to advance technology in the areas of AI, Cybersecurity, Blockchain and Fintech.

Gilbert has lived and worked all around the world in the UK, Australia, Asia, Europe, and the US. Throughout his career he has been working extensively within Financial Services and Government. He has an MBA from the University of Technology, Sydney.

The more data Artificial Intelligence has the more accurate are the outcomes and predictions. Due to the foundations of internet architecture and underlying nature of the Internet, we are limiting the type of data algorithms have access to and how they access them.

The centralised approach of the Internet limits how we transfer, authorise and access data across networks. It is very difficult to duplicate multiple copies of terabytes/petabytes of data across internet networks to access and process data.

The decentralised interconnectedness of blockchains provides a new way to connect data without the overheads of trust, security and controls. Blockchains provide human-to-human or machine-to-machine trust without any of the parties needing to know or trust each other.

The consequences of existing Internet architectures is fundamentally going to change. For the first time, we can honour the original vision of the internet but based on blockchain technology, for all peers to trust each other.

For the first time we can honour the original vision of the Internet to create an open trusted network for people, machines and data to operate, but without the original flaw of having to know everyone in the network.

For the first time we can trust the network without the need to know and trust each other.

The original vision of ARPANET was a closed network where every member (node) knew exactly who the other party was. With the immense expansion of the internet, more and more networks and people started connecting, naturally everyone no longer knew everyone else. The internet became and stayed untrusted.

We had to build firewalls, harden operating systems, create internal networks that sat behind external facing gateways just to protect internal users and data. We had to build controls on top of controls to detect, protect, respond to threats.

The history of two technologies of the core of the next human advancement have take their own paths and evolution to reach the next stage. I foresee the evolution of technological and human evolution converged.

Up until now we have been working in advancing and evolving our current technology in silos. The advancement of machine learning and AI has stemmed in the various Bayesian, Symbolists, Connectionists and Evolutionaries tribes working almost in isolation to advance their particular areas of work.

Artificial intelligence was borne out of the need to win a war. Computing in principle was not developed to break code, computing was simple and calculations were made to solve mathematical and computational challenges.

In trying times, such as war, the motivations and incentives became a catalyst to make the evolutionary step such as nature when animals became amphibious

We foresaw the thinking computer. The Turing test was developed to validate the ultimate goal and progress in people not knowing the difference between man and machine.

That has been the holy grail that has been sought by computer scientists to accomplish what was envisaged all those years ago and we’ve made progress.

Today we have developed mechanisms and machines that are capable of accomplishing such complex transactional calculations which were impossible to achieve.

The advancement in field of machine learning stemmed through a rapid progress of statistics, data science and analysis fuelled by the gush of big data collected for anything

We have collected zettabytes of data by observing the interactions of the natural and logical worlds. Data is everywhere and we have woken up to understanding how we collect and now make use of it.

Think of all the intricate interactions in nature, every single movement, motion, action, reaction creates a data point that we’ve only just started to learn to catalogue and collect.

Topped with the advancement in data analysis methods we have created new ways to wholly analyse vast amounts of data in a simplified and accurate way. The idea of machine learning was only recently exploded using an evolution of pre-existing methods.

We have identified ways in which data can be analysed using the evolution of Bayesian statistics, fuzzy logic etc and developed into new ways such as Neural networks, recurring and convoluted NN, regression, clustering and segregation

This has lead to new ways in doing analysis that can be supervised, semi-supervised or unsupervised in the fields of machine learning and deep learning

Our technology and approach has resulted in new technology such a vision, autonomous driving, prediction and even learning (Go). We’re just at the beginning of what we can accomplish.


The technology behind Blockchain stemmed from cryptography and security. The mechanisms of private key infrastructure have long been used in security for authentication and authorisation.

Blockchain provides us the map and ability to map and understand data, transfer of data without the need to trust or know the other parties.

The technology provides immutable proof that transactions or data stored in a ledger are valid and can be trusted as truth between parties. This validation is done through mass computing power, called miners, used to calculate and validate the cryptography within in block is secure and the integrity of it linked to previous blocks – creating a chain. This is the consensus algorithm used to accept the validity of the data and crypto.


For AI to be effective, it needs a constant stream of data to process to improve its algorithms, accuracy and outputs.

For the first time, we are opening up and providing unrestricted access to huge datasets for processing without the limitations and restrictions of internet architectures.

We can create new AI agents that are no longer restricted to closed internal networks or clouds but able to openly and autonomously traverse blockchain networks to identify and access data.

We’ve seen a few early attempts of this in the DAO and Ethereum smart contracts that attempted to run autonomous code backed with crypto currency to perform tasks and potentially accumulate further currency. They failed not only to the immaturity of its application and code, but due to the limitations of its environment. The code was not truly free in the sense of the word but it was bound and restricted to its surrounding environment

But the true Turing test of Autonomous AI on Blockchain is the ability for the agent to live entirely autonomously on a decentralised internet.

In order to achieve this fundamental change in our architecture, we have to tackle the challenge one piece at a time. We can’t make a complete change to the internet overnight without disrupting the nature of the networks.

Our unique approach has been to overlay on top of existing and future blockchains, that themselves sit on traditional internet foundations. We need a virtual decentralised internet that works on top of the existing architecture and provides a new way to connect and interact.

We have the same issues in the blockchain space as we did with the early internet networks. We have independent closed networks that don’t connect to each. As soon as the internet networks connected, thanks to the adoption of TCP/IP (transmission control protocol/internet protocol) as the Standard to enable flows between networks created the modern internet of today.

We are experiencing the same challenges today with blockchain. As soon as we connect the various closed blockchain networks to each other we will see the emergence of a new blockchain internet.

It was this idea that I used to create the genesis of the blockchain ISO Standard TC307.

What we have done in Quant is create a blockchain operating system called Overledger which sites on top of existing and future blockchains. The system allows for the ability to reach and write of data between various blockchains respecting the rules of each blockchain, such as consensus.

We’re excited to be able to shape the evolution of the two foundational technologies of AI and Blockchain and help foster innovation to develop new and revolutionary.

Fintech (according Wikipedia)

Financial technology (FinTech or fintech) is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.[1] The use of smartphones for mobile banking and investing services[2] are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial and technology companies trying to replace or enhance the usage of financial services existing financial companies.


After reviewing more than 200 scientific papers citing the term “fintech,” the most comprehensive scientific study on the definition of fintech concludes that “fintech is a new financial industry that applies technology to improve financial activities.”[3]

FinTech is the new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet.[2]

Key areas

Financial technology has been used to automate insurance, trading, and risk management.[4]

The services may originate from various independent service providers including at least one licensed bank or insurer. The interconnection is enabled through open APIs and supported by regulations such as the European Payment Services Directive.[5]

Global investment in financial technology increased more than twelvefold from $930 million in 2008 to more than $12 billion in 2014.[6] The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London‘s workforce is employed in financial and technology services.[7]

In Europe, $1.5 billion was invested in financial technology companies in 2014, with London-based companies receiving $539 million, Amsterdam-based companies $306 million, and Stockholm-based companies receiving $266 million in investment. After London, Stockholm is the second highest funded city in Europe in the past 10 years. Europe’s FinTech deals reached a five-quarter high, rising from 37 in Q4 2015 to 47 in Q1 2016.[8][9]

In the Asia Pacific region, the growth will see a new financial technology hub to be opened in Sydney, in April 2015.[10] According to KPMG, Sydney’s financial services sector in 2017 creates 9 per cent of national GDP and is bigger than the financial services sector in either Hong Kong or Singapore.[11] A financial technology innovation lab was launched in Hong Kong in 2015.[12] In 2015, the Monetary Authority of Singapore launched an initiative named Fintech and Information Group to draw in start-ups from around the world. It pledged to spend $225 million in the fintech sector over the next five years.[13]

2016 fin_invest

Awards and recognition

Financial magazine Forbes created a list of the leading disrupters in financial technology for its Forbes 2016 global Fintech 50.[14]

A report published in February 2016 by EY commissioned by the UK Treasury compared seven leading FinTech hubs. It ranked California first for ‘talent’ and ‘capital’, the United Kingdom first for ‘government policy’ and New York City first for ‘demand’.[15]


Finance is seen as one of the industries most vulnerable to disruption by software because financial services, much like publishing, are made of information rather than concrete goods. In particular blockchains have the potential to reduce the cost of transacting in a financial system.[16] While finance has been shielded by regulation until now, and weathered the dot-com boom without major upheaval, a new wave of startups is increasingly “disaggregating” global banks.[17] However, aggressive enforcement of the Bank Secrecy Act and money transmission regulations represents an ongoing threat to FinTech companies.[18]

In addition to established competitors, FinTech companies often face doubts from financial regulators like issuing banks and the Federal Government.[19]

Data security is another issue regulators are concerned about because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data.[20][21] Leading global Fintech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations.[22]

The Federal Trade Commission provides free resources for corporations of all sizes to meet their legal obligations of protecting sensitive data.[23] Several private initiatives suggest that multiple layers of defense can help isolate and secure financial data.[24]

Any data breach, no matter how small, can result in direct liability to a company (see the Gramm–Leach–Bliley Act)[25] and ruin a FinTech company’s reputation.[26]

The online financial sector is also an increasing target of distributed denial of service extortion attacks.[27][28]

Marketing is another challenge for most FinTech companies as they are often outspent by larger rivals.[29]

This security challenge is also faced by historical bank companies since they do offer Internet connected customer services.[30]




How to set up an ICO White Paper

On October 27, 2017, disruptors in the cryptocurrency field gathered at the San Francisco Ethereal Summit. Sponsored by ConsenSys, the summit provided a diverse mix of panels and workshops that demystified the “initial coin offering” (ICO) or “token generation event.”

At the “How to Launch a Token” panel, token generation event veterans Galia Benartzi (co-founder of Bancor Protocol), Matt Liston (CSO at Gnosis) and Piotr Janiuk (co-founder and CTO of the Golem Project) guided Ethereal participants through a hypothetical: founding a hat company and funding the development through a token. Here are some of the key points that they discussed.

Step 1: Determine if the token model fits for the new company

Imagine the whole process backward: What layer does the company involve — application, platform or protocol? Design the decentralized concept first and then discern if a token is necessary.


  • Is the project based on a decentralized model? If not, equity funding is a viable option –– no need for a token.

  • What is the token’s utility within the network? How are customers involved in the network? For example, is the token facilitating and incentivizing collaboration between the community in the network? If so, tokens (similar to shares and equity in a normal company) are a great way to distribute participation among stakeholders.

Tokens work best when fueling network effects around ideas –– when there are benefits to being an early adapter/stakeholder.

Step 2: Find a strong legal team and a favorable regulatory environment

Regulation in the cryptocurrency space is in its infancy and varies greatly around the world.


  • Find a competent lawyer with an understanding of the space that can give risk parameters. It is important to minimize risk for the project.

  • Select a government that defines clear boundaries and has a forward-thinking mentality.

Although blockchains and cryptocurrency promise decentralized disruption to all industries, anarchy would be unfavorable to all. All companies must comply with the law.

Step 3:  Work on the prototype phase

Establish a white paper, set up the concept on the testnet and prove the concept.


  • White paper: describe your network, protocol and model. White papers should strike the proper balance between being math-heavy and marketing-heavy. The goal is for users and stakeholders to understand exactly what the network is doing.

  • Prove that your concept works and expose its source code. Everything should be 100 percent transparent to the public.

  • Trustless (trust forced through code) and transparent networks are critical to long-term success. Secure and validate data by rewarding “oracles,” people who provide trustworthy answers and validate that events did in fact occur. On the flip side, penalize those who lie to the network.

Trust and transparency are paramount for any company that is considering funding its development with a token.

Step 4: Connect with the community

Generating interest for the token and setting the foundation for strong community support before finally launching a token generation event to the public is crucial.


  • Develop a public-relation strategy. Share as much as possible. Post videos, host AMAs, etc. This process can be grueling, but it is necessary to establish a global presence and field questions.

  • Prepare for a fast-paced environment. Communication builds authenticity and credibility with supporters around the world.

  • Listen to outside perspectives and criticisms.

Because token generation events allow for decentralized methods of funding, the company’s diligence process should be decentralized to match.

Tokens generation events are complicated and don’t work for every business type. However, they unlock a new economic driver: permissionless venture capital.

by Erik Kuebler