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As Blockchain Technology Grows, Which Companies Remain “Disruption-Proof”?

Established companies that conduct millions of transactions have a lot to worry about in the future of blockchain technology. Decentralized information platforms are poised to disrupt these businesses. While that’s a plus for blockchain developers, it could hurt these organizations’ revenues.

Yet some companies are in a better position to withstand the changes that blockchains will bring than others. They are said, in the parlance of investor Warren Buffett, to have a “wide moat.” That means their business models better insulate them from competition and disruptive change.

According to Jim Sinegal, a senior equity analyst with Morningstar, an investment research and management firm, a handful of companies will benefit from maintaining their centralized data systems, meaning that blockchain technology may be less likely to impact their business — at least in the short term.

Sinegal and a team of Morningstar analysts examined a wide range of firms in a research report to see which ones would be most vulnerable to blockchain disruption. Surprisingly, some of the most data-intensive titans may have the widest moats.

Those companies that would incur mammoth costs in switching to a blockchain system, for example, might be better off with their current networks, Sinegal observed. They may already be operating at scale and can spread costs along to millions of customers. These companies include Amazon, Costco and Microsoft.

“Decentralized systems could have a hard time building networks rivaling the big centralized players,” Sinegal said. “A decentralized application won’t initially have the same scale in marketing and distribution as a Visa or Amazon.”

Some of the widest moats may be held by companies that use data in a centralized way. They have what Sinegal called “network efforts.” You have to work through their system to reap benefits. They include companies like Alibaba, American Express, eBay, Expedia and PayPal.

“Network moats are powerful because they are often difficult to form and to disrupt, and because they rapidly lead to efficient scale in many cases,” Sinegal noted in the report. “Forming a new network business typically requires large amounts of funding and a brilliant business plan.”

While blockchain-based cryptocurrencies can potentially take business from financial service companies and banks, the majority of blockchain transaction times are still snaillike compared with those of credit card companies. And crypto volume is miniscule compared with established credit card and other payment systems.

“At present, bitcoins essentially rely on word of mouth to gain consumer users, and only a few small startups are actively attempting to sign up merchants,” Sinegal said. “Merchant acceptance is rumored to be falling, not growing. Thus, the new payment paradigm has a steep hill to climb if it is ever to threaten Visa and Mastercard.”

Still, it’s unwise betting against the potential of blockchain technology to lower costs across the board through distributed databases.

If financial transactions can be done efficiently on a large scale through a blockchain, the cost advantages could be significant. The average merchant discount fee is 2.3 percent. If blockchain applications can offer similar service at lower costs, they will eat into that revenue. Even more value can be added if blockchain technology offers higher security and greater protection against fraud.

“Decentralization via blockchain [technology] offers several potential benefits to customers,” Sinegal wrote. “For example, [Bitcoin] offers more privacy, greater transparency, more security, and lower costs (at least in theory) than centralized methods of payment processing.”

The path for widespread use of major blockchain-based digital coins may be getting clearer as an official for the U.S. Securities and Exchange Commission (SEC) said in a speech this month that bitcoin and ether are not securities, which are strictly regulated by the SEC. Cryptocurrency offerings are frequently used to raise money for blockchain ventures.

In “cases where there is no … central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created,” that digital asset is “out of the purview of U.S. securities laws,” according to William Hinman, the SEC’s director of the division of corporation finance. He was speaking at the Yahoo Finance All Markets Summit: Crypto. Hinman, however, noted that token offerings for blockchain company funding may be securities.

Hinman’s comments echoed an earlier statement by SEC Chairman Jay Clayton that cryptocurrencies like bitcoin are not securities.

Although it’s unclear whether Hinman’s view will greenlight more blockchain initial coin offerings — and threaten more mainstream companies engaged in digital commerce — it can be seen as a positive signal for blockchain developers. But it’s uncertain how this will impact the global industry as other regulators across the world are eyeing cryptocurrency regulation.

2019 Investments in Crypto and Blockchain Startups at $850 Million

Source: Reuters

According to data compiled by Pitchbook for Reuters, venture capital investment in crypto and blockchain startups has reached $850 million so far this year.

EEA Launches 'Token Taxonomy Initiative'

The Enterprise Ethereum Alliance has announced a "Token Taxonomy Initiative" to develop universal definitions for tokens to encourage their interchangeability across blockchain platforms. Members of the initiative include Microsoft, R3, ConsenSys, IBM, EY, Accenture and Intel.

Gemini Adds Support for SegWit

Source: Gemini

Gemini Trust, a New York-based cryptocurrency exchange, has announced support for Segregated Witness (SegWit) addresses and transaction batching. As a result, customers can now use SegWit addresses for bitcoin deposits and withdrawals, ideally improving processing times and lowering bitcoin withdrawal fees.

Nestlé and Carrefour to Share Product Data With Consumers Via Blockchain

Source: Nestlé

Food producer Nestlé and retailer Carrefour will equip the packaging of a French instant mashed potato product with a QR code that provides blockchain-based data about its origins to consumers. The pilot was developed in conjunction with IBM Food Trust.