September 25, 2018

Transparency issues are more evident with the centralized system than with current ICOs

The current trend in recently issued ICOs

A lot of negative publicity has been given to blockchain companies and ICOs in the mass media recently. The question of transparency of the newly established companies, exchanges, and management has been raised again and again. A recent study shows that around 1000 ICOs are already dead, and that half of them go bankrupt four months after token sales. This is quite natural in an unregulated environment as clever financial crooks abuse the newly found possibility to collect money for starting a business and not move a finger to fulfill the promises that they gave. However, if one wants to learn invest successfully, one should also learn to sift the grain from chaff and study companies he/she wants to invest in more carefully. It is useful to know, that even in a fully regulated business arena more than half companies sooner or later go bankrupt.

Lack of transparency with major banks and the ensuing severe consequences

On the other hand, transparency is something that mainstream huge businesses, particularly banks and likewise mass media fail to deliver. Transparency, or lack of it, may actually be the cause of major financial crises around the world and bankruptcies of major well-established corporations. It is so easy to shift blame on the new and forget that the old is opaque and careless in its business dealings. Nothing can prove it better than 2008 crisis when major financial establishments driven by short-term profits made excessive and fraudulent deals in derivatives, created toxic financial instruments and sold them to the public with a blessing from rating agencies that gave those products triple A’s as if they were conservative and safe securities one could invest.

The unregulated market of derivatives and opaque disclosure of banks regarding it

Derivatives market remains the most non-researched, unregulated and nontransparent of all. Yet, most major banks trade assets that are worth trillions of $. The market was huge before the 2008 crisis. What do you think happened with it afterward? It remains unregulated and has grown even bigger. Even by conservative estimates it now exceeds 1 quadrillion $ (more than 1000 trillion $). You may wonder, what can cause bigger impact for global economy, newly founded blockchain ICOs that have collected around $15 billion in 2017-2018, not regulated yet, or more than $ 1 quadrillion unregulated market of derivatives, where major commercial banks play and most of them do not have any funds to back up their losses if those occur. Having in mind that most “too big to fail” banks have trillions worth of assets that they trade there, we may be headed to a far more severe financial crisis that we witnessed in 2008.

Have current regulators been enough efficient?

There seemingly are lots of regulators that are supposed to look over the shoulders of major banks, but as they fail to do preventive work, most investors trust them even less than they trust the banks. Today, close to ten different regulatory authorities regulate banks and apart from getting fines nobody ever goes seriously punished. In the USA some of the regulators are the SEC, but also the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, Consumer Financial Protection Bureau and a few more. Have they made banks more transparent? It does not look like it. Banks have become even more opaque and sophisticated in their annual reports. Even seasoned investors and fund managers have a hard time understanding how banks make profits as the slogans and phrases in their annual reports do not clarify, but rather obfuscate.

Major misdeeds by the “regulated financial sector”

Major misdeeds by banks are regular and go unpunished. We may talk about price fixing at LIBOR, foreclosure abuses, money laundering for drug cartels, tax evasion, help to hide taxes offshore, offer their clients to buy securities that banks themselves sell in the market secretly. AIG would write around 3 trillion $ in derivatives and have no reserve against future claims. Big banks write 10 times bigger amounts than AIG did!

Blockchain technology accomplishes regulatory work better than regulators do

With many other beneficial aspects that blockchain based companies have, transparency is at the heart of it. It may be seen, not only in finance transactions but if financial company transacts over a blockchain platform, you can see all their holdings and all their transactions that they have made so far. None of reputable financial giants or hegemons have had this kind of transparency before. A lot of them often used the funds of their customers as they saw it fit and nobody had any clue about it. This is about to change and new blockchain driven companies will bring far more accountability to the whole system.  No transaction will be hidden and thus company using the technology will express genuine integrity towards their customers and the community.

Debitum Network – a transparent fintech company

A young and ambitious alternative finance company of Debitum Network is a good example of a transparent blockchain driven company that is responsibly using collected funds from ICO and has just delivered a promised product of an alternative lending platform.

The firm has grown out of two respected and experienced companies: alternative finance company Debifo and a high-tech firm Inntec. In three years Debifo has had a turnover of 50 million Euros in factoring lending and Inntec has been one of the fastest growing IT company in Northern Europe. Both co-founders and advisers for Debitum Network have extensive experience in finance and IT.

Financing process with a smart blockchain contract following each step increases Debitum Network transparency. Whatever is written in each block is immutable, you cannot change it and everybody knows what’s there. So, each counterparty in the financing process will know what has been done at a specific stage and each party will be able to check the accuracy of any specific set of information they need.

The management of the company clearly articulates the vision and mission statement to every employee and this makes financial purposes and business goals crystal clear to everyone.  Communication itself within the firm is never sugarcoated and everybody is kept in the loop, which helps employees to see that nothing is really hidden from them.

Final thoughts

In any area of life, “the old” tends to condemn “the new”. However, it often turns out that “the new” has been born out of the deep need for change. Our current financial system needs disruptive and radical changes in order to become more transparent, accountable and reliable. Blockchain driven companies can be the pioneers that will spearhead the change and transform the opaque and outdated financial system into a much better one. Let us embrace the change!

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