October 18, 2017

The Paradox of Unbreachable Privacy Through Pristine Transparency

Financial market participants and laymen alike — hold onto your hats.

"You got supply and you have the demand. You have the problem and you have the solution. You have the currency of the future.” — Ronald Dacey, 'StartUp'

Financial market participants and laymen alike — hold onto your hats.

Transformative ideas that change the status quo or improve upon existing methods or systems are everywhere. Several digital sparks have already upended modern life for the average consumer, and the digital revolution has barely even begun.

Judging by the popularity of services across the digital spectrum in the form of Uber, Airbnb, PayPal, Amazon, and many others, it would seem that there is plenty of room in today’s market for services that improve the status quo.

Uber improves your ability to find a taxi. Airbnb improves the search for accommodation. Amazon improves shopping. PayPal improves payments. They all make what came before them redundant, while building strong businesses on the demand to do things more efficiently, securely, and conveniently.

Technology has a way of making things operate just that little bit easier, and the hope is that cryptography can be harnessed to deliver vast improvements in finance on a global scale. To emulate what Uber is doing for taxi drivers, cryptocurrencies such as bitcoin, have embraced the core theme behind the new digital age: decentralization.

It’s also what smartphones have done for human beings as a species. One gadget that connects you with anyone, anywhere, at any time without the need for a centralized authority to organize bookings or fares — can the same gadget that revolutionizes the search for a taxi do the same thing for your financial independence?

Can technology fundamentally improve the way that we complete financial transactions, store wealth, and exchange goods and services?

If it can, the level of disruption to existing financial and payment systems could be significant, most notably because existing methods of exchanging currencies, goods and services are dreadfully archaic and opaque. From a macroeconomic perspective, financial inequality and disparity are growing on a global scale and generating distortion within financial markets. Despite the rhetoric, the current financial and political systems that dictate how finance operates are highly counterproductive in their attempts to create functioning economies and communities.

Rocking the Boat

Disruption within finance (and other industries) is coming primarily from the Fintech industry — a term coined to describe the application of technology upon finance.

Fintech is responsible for tightening market spreads, making information more widely available at lower prices, improving execution speeds, and much more. The common denominator is that Fintech is focused on improving efficiency in everything that it touches.

Typically, Fintech streamlines existing ways of doing things by doing them more transparently, conveniently, and cost-effectively to boot.

On a macro scale, cryptocurrencies have entered the marketplace to offer a means of digitising assets securely, as a means of improving how assets are valued and exchanged.

Take the synergy of Fintech and cryptography, stitched together by mathematics; the result is a revolutionary step away from the old toward something new.

Fintech meets Cryptocurrency

Lykke, a Swiss-based, London-dwelling Fintech startup, has some very bold ideas about how technology can revolutionize the world — and not without causing some disruption in the process.

Lykke’s development team is building a blockchain-based marketplace that goes one step further than existing cryptocurrencies such as Bitcoin and Ethereum. The premise is to create not only a new medium of exchange based on privacy, strong security, and inherent ownership rights, but also to use cryptography to realise a better way of exchanging anything — literally anything — in real time.

Whether it’s a financial trade of one currency for another or the sale of concert tickets, cryptography has the unique ability to blend privacy with transparency; and now, there is the tech-enabled computing power to make it all a reality.

From theory to reality

Lykke’s founder Richard Olsen, the man who first started the currency-trading venue Oanda in 1996, kickstarted Lykke only last year, but already, Lykke is on the verge of offering trading services in primetime financial hotspots such as London, Cyprus, New York and Singapore.

Private investors have contributed millions of dollars since Lykke’s inception and the future that Lykke envisions is picking up supporters around the world. The company’s initial push to raise private capital generated tremendous interest, which eventually saw Lykke offer its shares — which take the form of digital tokens — to the wider public.

Lykke’s key differentiator is that any transaction it settles automatically provides its intermediaries with a stake in the parent company (Lykke AG), with real-time accounting facilitated by blockchain and Distributed Ledger Technology (DLT).

To demonstrate what Lykke calls “the way of the future”, the company recently launched its improved alternative to the traditional Initial Public Offering (IPO) by raising money through an Initial Coin Offering (ICO).

In November 2016, Lykke raised an additional 1.2 million Swiss francs through the sale of 11 million Lykke coins in 28 days. The process saw the number of Lykke coin-holders more than double. Momentum continues to grow for this out-of-the-blocks startup, with a blockchain strategy that builds upon itself in an organic way.

In its public coin sale, Lykke welcomed 717 new shareholders from 90 countries, who in total invested 1,161,338 Swiss francs with the intention of growing value rather than making a short-term profit. Arguably, this is a mantra that must be adopted by the woefully inefficient financial system that prevails today.

Building upon the success of the initial sale, Lykke presented investors with a 1-Year Forward Offering in February 2017. Buyers received a 20 percent discount on the face value of Lykke tokens in exchange for agreeing to hold the tokens for a period of one year. The cyber community responded in the overwhelmingly positive, and Lykke shattered their own internal record by raising 2 million Swiss francs — substantially more than Lykke had privately anticipated.

Trouble in paradise?

It would seem a huge part of the world’s populace is quickly becoming disenchanted with the status quo in banking, finance, and politics, and their effects on daily lives.

The Global Financial Crisis (GFC) was a case in point — how could so few rotten apples spoil so many barrels? The root answer could well be that information within financial markets is exchanged without transparency and often at a disadvantage to at least one counterparty in every transaction.

Lykke’s business development team is led by Demetrios Zamboglou, an award-winning financial services executive with over a decade’s experience – and supported by a network of developers spread around the world with one unified mission: to create genuine autonomy and accountability through a tech-enabled marketplace that could eventually become the new way of doing business.

Lykke’s core team currently consists of nine members, with two professorships, four Ph.Ds and three award-winning individuals among them, all hailing from financial or technical backgrounds, to develop a breakthrough technology with a genuine chance of changing the world.

There’s even a movie about it…

Synchronicities, coincidences, and chance occurrences tend to occur in their own good time; in Lykke’s case, a team of Hollywood filmmakers led by Ben Ketai, and starring Adam Brody from “The O.C.,” has made a series called StartUp about a team of young professionals from the worlds of technology and finance coming together to form a startup.

StartUp’s characters develop a cryptocurrency that doesn’t just overturn finance under the pretence of revolution but evolves it as part of a long-awaited (and much-needed) transformation in how markets operate in practice.

The parallels between crowdfunded Lykke and StartUp are tremendous and uncanny. It is rather astonishing that Lykke is actualizing the very concept being portrayed by the hit U.S. series. The major difference is that the Gencoin on the show is a dramatized Hollywood story with many eyebrow-raising plot twists, while Lykke is law-abiding startup implementing cryptography for the betterment of all its users.

One of the more pivotal selling points of both Gencoin and Lykke’s marketplace is the empowering impact of accessing the financial system for billions of people currently without a bank account. By 2020, over 80 percent of the world’s population will have access to a smartphone, while only 50 percent currently have a bank account.

There is a growing likelihood that the way to financial independence and self-empowerment will come about via digital means rather than political ones.

The premise underpinning Lykke and StartUp are identical in that both companies see cryptography (and cryptocurrencies) as the technological tool required to assert inherent ownership rights currently being eroded by centralized monetary policy.

Opposites attract

Where StartUp and Lykke differ is not in the what, or the why, or even the when. The only difference is in the how.

Lykke wants to change the world by navigating a legal path through existing regulators such as the FCA, whereas StartUp makes compelling television to trample repeatedly on important laws and regulations. The show’s main characters — Izzy Morales, Ronald Dacey and Nick Talman — source their startup money from dubious investors and nefarious drug cartels. Actors Otmara Morrero, Edi Gathegi, and Adam Brody infuse their performances with idealism and a commitment to change, but with an almost willful ignorance to questions of basic morality. This makes for compelling television drama, but it’s a horrible way to conduct business. It also reinforces the stereotype that cyber-currency advocates are predators, frauds, and organized criminals sailing the Silk Road to illegitimate profits.

In the real world, Lykke has had a record of success in working with traditional financial authorities to expand economic opportunities for all. The company has raised millions online to finance its application with the FINMA in Switzerland, FCA in the UK and CySEC in Cyprus for officially recognised authorisation to operate its business model through Lykke coins and the Lykke Exchange.

If successful, Lykke will become the only regulated marketplace offering cryptocurrency as a means of exchange and trading, and as a store of value.

By instilling transparency and enabling everyone to see everything, Lykke has created an ingenious solution to the problem of information asymmetry: through full transparency, it is possible to generate complete privacy and a high level of security facilitated by peer-to-peer collaboration in a decentralized way.

Lykke’s (and StartUp’s) concept reconciles the growing demand for genuine and infallible ownership rights without a central authority able to inflate or deflate the values of those rights artificially. The way out of centralized authority is a decentralized network without the need for authorities.

Authorities in the form of governments, whether democratically elected or otherwise, have always had an ultimate grip on a country’s money supply and ownership rights. History is laden with moments where ruling elites have augmented the value of goods and services through manipulation of mediums of exchange, or, in modern history, via counterproductive legislation. Currencies have existed throughout history, and they are often controlled and manipulated by various forms of authority, or even by individuals.

Modern governments do it, too.

To counteract and counterbalance the systemically destructive effect of centralized market systems that rely on relative value, Lykke proposes to introduce a decentralized method of valuing goods, services, currencies, and even ownership rights through an objective, secure, transparent, and ingenious method of making economics play fair — the same as the characters on StartUp.

The core theme in Lykke’s philosophy is that the best way of creating a fair system is by instilling wider access to a greater number of people at any given time. Centralized thinking widens information gaps, while decentralized networks shrink them.

If everything is in the open, there can be nothing to hide. If everything is known, there are no unknowns.

This concept is at the very heart of Nature. As famously expressed by Leonardo da Vinci, “Realize that everything connects to everything else”.

By introducing this concept to financial market systems, which currently thrive on misinformation, disinformation, and latent information and which are bracketed by the fact that information is always variably priced depending on its buyer.

Current methods of exchange and valuation are inherently built on misjudgements of what something is actually worth or who it belongs to. Lykke’s idea is to create a simultaneous real-time method of seeing what was bought, sold, and exchanged for what objective value — and it’s all sealed by airtight cryptography that ensures genuine privacy because each action is recorded and displayed without the possibility of a getaway (pun intended).

Conscious security in an unconscious world

One huge cloud that continues to overshadow any digital innovation is security. Can cryptocurrencies, DLT and blockchain as a root concept, ever be considered completely secure?

Both Lykke coins and StartUp’s Gencoins are built on an encrypted set of protocols in addition to several redundancy measures to provide security. In other words, to ensure everyone’s wallets are not being pick-pocketed or artificially deflated, Lykke has developed a full-spectrum DLT Ecosystem that includes two separate operational layers.

The first is a public, open-source layer that is available to all users. It relies on ecosystem-driven governance, which ensures that nothing can hide in plain sight.

The second layer, which is permissioned only for specific users, relies on stakeholder-driven governance. The twin combination is further underscored by an inherent 128-bit encryption, which effectively makes any kind of hack or system arbitrage incredibly unlikely.

Cryptocurrency sceptics worried about security need only think hard about the current security measures being implemented within the current monetary system. Despite billions spent on security, banks and centralized financial market participants such as exchanges have all had issues with security breaches. It could well be that perfect security is simply impossible, so, although cryptocurrencies pose additional security risks compared to the current banking system, those risks are neither greater nor worse than the current rule set, which sees violations on a regular basis.

The crypto-revolution carries risks, but now could be the time to take calculated risks with an expectation for the better, rather than a fear of the worst.

True change begins at home

A friend recently quipped that the current media bandwagon being played out by politicians in tandem with the financial elites is reminiscent of an episode of “Thunderbirds” – unnaturally plastic puppets saying and doing things to please the whims of puppet-masters putting on a show.

The modern 24-hour news bandwagon encompasses political affairs and economic events, and because of the interconnected nature of everything, especially in today’s digitally interwoven times, what is unfolding in the financial arena is having a huge effect on those that have nothing to do with finance or global economic machinations.

In finance, everything is linked to risk, opportunity cost, and profit.

All financial market participants are assumed to have the same incentive of profit generation, accumulation, and improving their own position in relation to everyone else’s. This core philosophy underpins all financial market dealings, and it has encouraged incredible imbalances, inefficiencies, and a warped economic system that serves only the largest market players.

But what if there were a technological means of making this hierarchical system clean itself up from within?

Not by force, but by necessity. Not by compulsion, but through choice.

Through choice, and not mandated by regulatory bodies that have little to no chance of unravelling the complexities of modern finance. Increasingly more people, the majority of whom have no experience in finance or trading, are crying out for a tech solution to the problem of a financial system that is inherently misguided and thereby not serving the interests of all, but merely a few.

Many people have the dream of seeing fairer and truly reliable markets — even Hollywood producers are thinking it — and yet one Fintech startup called Lykke is actually making it happen.

Published by NewsBTC 
Written by George Tchetvertakov