Sanja Petkovic and Arnab Sinha are management consultants at Accenture, the Netherlands, where they specialize in blockchain within banking and digital payments, respectively.

In this opinion piece, Petkovic and Sinha discuss how financial firms in the European country are approaching blockchain, and how trends in the technology are shaping their work and progress.

Dutch organizations and banks have been at the forefront of European blockchain initiatives since 2013–14.

Driven by the dire need to improve return on equity (RoE), these initiatives experimented on the technology's potential to enhance efficiency, trust, transparency, reach and innovation in the banking model.

It is therefore quite telling that, bolstered by the learning from the past three years, the summer of 2017 is seeing all the leading Dutch banks making significant headways in realizing their blockchain agendas.

Early in July, 2017 two leading Dutch banks – ABN AMRO and Rabobank joined SWIFT's blockchain proof-of-concept (PoC) initiative for the Global Payments Innovation (GPI) service. At the same time, ING successfully completed the testing of blockchain-powered trade confirmation platform in partnership with Calypso and the R3 consortium.

While the Dutch have traditionally been known for their innovation (Netherlands ranks third in Global Innovation Index), this success story in blockchain is often attribute to a focused coherence between policy, collaboration and supervision, propelling the Dutch banks to the forefront of multiple global initiatives. This article aims to highlight some of the key blockchain-related themes observed in the Dutch banking landscape over the recent years, the outlook for 2017–18 and reflects on few key learnings from their success.

Dutch banks have made significant strides in blockchain adoption and are exploring opportunities across business lines

Research suggests that most large Dutch banks have intensified their blockchain initiatives in 2016–17 and are evolving from the paper-based exploratory phase by mobilizing proofs-of-concept across different business lines.

ING worked on 27 proofs-of-concept in six business areas: payments, trade finance and working capital solutions, financial markets, bank treasury, lending and compliance and identity. Tangible key performance indicators (KPIs) were used to validate the results and suitability of these proofs-of-concept. For instance, the PoC on trade finance showed considerable gains in an otherwise paper-based process, resulting into potential cost savings of 10–15% and revenue uptake of 15%.

On a similar vein, ABN AMRO has launched a pilot to explore how the blockchain application "Torch" can allow parties involved in a real-estate transaction to seamlessly record and exchange information. The bank also explored how blockchain might solve issues in financial auditing and compliance, in Financial Recovery and Restructuring (FR&R).

Rabobank focused its initiatives on cross-border payments and micropayments, while SNS Bank moved out of traditional banking areas to test out the use of blockchain in addressing inefficiencies in healthcare system.

Collaboration is driving momentum

Close collaboration continues to be an absolute necessity for exploring the opportunities using blockchain. The search for the right blockchain technology and appropriate use cases led the Dutch banks to partner with other banks and fintechs, or in joining regional and global consortiums.

In 2016, ING worked with partners inside and outside the bank, including consortiums such as R3, the Dutch central bank, the Dutch Payments Association and the European Banking Forum. The bank also partnered with Société Générale and trading house Mercuria to test a live oil trade using blockchain.

ABN AMRO collaborated with Dutch university (TU Delft) and Port of Rotterdam and 14 other parties to explore blockchain opportunities in logistics. This $2.2 million project focuses on the delivery of three concrete use cases: supply chain financing, inventory financing and circular economy. Meanwhile Rabobank worked with accelerator programs like Startupbootcamp, Footbytes, Rockstart and Nexus labs, and with technology providers like D+H.

These developments were followed by the coordinated and open network approach envisioned in the Dutch market through the formation of the National Blockchain Coalition (in March, 2017), representing  possibly one of the leading government-driven efforts to develop and create the "conditions for reliable and socially acceptable blockchain applications."

Preferred platforms emerge

Also emerging have been specific platforms that are now favored by these institutions.

Over the last 18 months, many proofs-of-concept were built leveraging the ethereum or Hyperledger technologies. These are among the most mature technologies for the permissioned blockchain where external actors are allowed, and as such have been widely accepted by the Dutch banks.

Also, smart contracts, programmable contracts defined with computer code which can facilitate, verify, execute and enforce the negotiation or performance of contract terms automatically, are making an impact as leading blockchain use cases. They are built on top of the blockchain solution itself.

ING, ABN AMRO and Rabobank are using smart contract solutions to reap the benefits of "less paperwork" and thereby reducing transaction processing costs.

Outlook for 2017-2018

While 2016-17 focused on exploration and proofs-of-concept across a wide range of business lines, it is likely that in 2017–18, the Dutch banks will concentrate their efforts on selected operating areas and use cases and narrow down on solutions ripe for commercialization.

The coming year will see notable advances in blockchain use by the Dutch banks – evolving from the concept phase to full blow solutions. All leading Dutch banks will have blockchain prototypes ready and will also have these solutions tested for performance and scalability. It is likely that some of these solutions will be launched as pilots (typically for payments, supply chain and trade finance offerings) and the initial concrete steps for commercialization will be taken.

This evolution is in line with Accenture predicted maturity journey for blockchain, which foresees regulatory certainty steering early adoption in 2017, followed by a growth phase between 2018–24 and the technology becoming mainstream in 2025.

In essence, while we are still few years away from broad market adoption, 2017–18 is likely to be the year when blockchain in banking can move from promise to real solutions.

Takeaways for blockchain initiatives

An assessment of the ongoing initiatives, proof-of-concepts and the resulting success stories provide a clear indication that blockchain readiness among the Dutch banks is considerably higher compared to many European and global markets.

This is often attributed to the vibrant startup scene in the Netherlands, where technology output is driving the economy.

At the same time, there are larger trends at play among technologists, and these could provide headwinds. These include:

Parting thoughts

While the idea of blockchain and its challenges are still being explored, the potential impact of the technology on bank bottom lines are increasingly becoming evident.

An Accenture-McLagan research estimates that blockchain based database systems can reduce 70 percent of central finance reporting cost, lower 30–50 percent of compliance cost and can further provide 50 percent potential cost savings on business operations.

Such compelling numbers will provide sufficient justifications as global banks prioritize their blockchain agenda for 2017–18.

Blockchain has often been termed as the "biggest thing since the internet" and while its adoption in traditional environments (after the bitcoin initiative) has been gradual and incremental, there is still every possible sign that the technology can be truly transformational and banks can harness its potential to disrupt the "status-quo."

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Two years ago, average bitcoin transaction fees were less than a penny. Today, they have surged to nearly $6 on average.

In short, the reason behind this rise lies in bitcoin's limited transaction space. As demand has grown over the years, that space has started to fill up, so miners, in an effort to make the most money per block, are prioritizing transactions with larger fees.

But, it's difficult to choose the right fee.

Sometimes users pay too little and their transactions get stuck, while others overpay based on lousy fee estimates. In a worst-case example, Coinbase lost thousands of dollars earlier this year when paying fees roughly 100 times what they needed to pay.

While many wallets didn't originally let users choose fees, believing transactions would always be available at no or low cost (indeed this remains a contention driving the scaling debate), wallet providers have come a long way, allowing users more flexibility in choosing their fees.

Today, most wallets allow users to not only select their own fees, but add a dynamic fee estimation that helps them decide what fee to add to get their transaction through the fastest. As shown by rising transaction fees, there's a growing need for them to consider such solutions.

Bitcoin Core contributor and Chaincode co-founder Alex Morcos, for one, has spent the past three years improving the estimation tools in Bitcoin Core, the network's default software.

In Bitcoin Core's upcoming software release, version 0.15.0, his upgraded algorithm is being made available for use. The advanced tool is the latest to demonstrates how wallets are giving users more control over their fees.

Automated preferences

Fee estimation algorithms need to take many factors into consideration.

For one, there are transaction "cycles" – the transaction load is heavier during the weekday, and lighter at night and on the weekends, not to mention, there are more random, unpredictable fluctuations in transaction load.

While there's always been an option for the algorithm to look only at the most recent fees to determine what fee a user should add, the problem is that these cycles can change quickly and drastically.

Say it's a weeknight, and the algorithm notices that transactions with lower fees are going through quickly, but, suddenly a bunch of transactions are broadcast at the same time, clogging up the network. If a user had taken the algorithm's advice and added only a small transaction fee, they might now have their transaction bypassed for a while.

The possibility of a random change in conditions is specifically what Morcos has been tackling.

Users might have different preferences for the best way to deal with this. Some might want to risk their transaction getting stuck. Others might not.

With Morcos's addition, the Bitcoin Core wallet tries to address this by offering two fee modes, "conservative" and "economical."

The conservative option looks at transaction fees on a longer time scale, which is "less susceptible to rapid changes in fee conditions," as the release notes explain. The advantage is that the fee might be more likely to go through, but on the other side, the fee might be a bit higher than it needs to be based on market conditions.

Meanwhile, the economical mode looks only at the most recent blocks. This might lead to lower fees, but the downside is, if those conditions don't persist, the transaction might get stuck or take a longer time to confirm.

Ecosystem issues

Users might enjoy this improvement to Bitcoin Core, which some argue is the most secure and trustless way of making transactions with bitcoin. But using Bitcoin Core comes with a very big downside: as it's well-over 100 GB, it takes up to weeks to download, something that only die-hard bitcoin supporters are likely to do.

In that way, it might come as a relief that other wallets are coming up with their own fee estimation tools.

One of the most popular wallets, Blockchain.info, offers a dynamic fee suggestion algorithm that suggests a fee. If users decide to choose their own custom fee, a warning pops up to tell users if they may be selecting a fee that the wallet believes is too high or too low.

In another example, hardware wallet Ledger now offers three tiers of fees, which depends on the number of blocks the user wants their transaction to go through in. "High fees" aim for transaction confirmation in the next block, "standard fees" aims for three blocks, and "low fees" aims for six blocks.

So, what to make of all these different fee algorithm choices?

"It's hard to say which is the 'best' from a scientific standpoint without doing extensive backtesting," BitGo engineer Jameson Lopp argued, adding that based on transaction fee graphs from bitcoin data site p2sh.info, Mycelium and BitPay still use "pretty bad" estimations, and Blockchain.info's was bad up until just a month ago.

In Morcos's opinion, it's good that each wallet is coming up with its own mechanism for choosing their own fees based on their own business goals.

He argued Bitcoin Core's need to appeal to almost every type of bitcoin user could make its estimation data less attractive for specific cases.

"We don't know whether they are more price conscious and would rather pay half as much and take a small chance of a long delay or are more time conscious," he said.

Beyond fee estimation

There's still room for improvement, though. While Morcos has been tinkering away, creating a better fee estimation tool, he believes no one algorithm will ever be able to take all the factors involved in deciding fee prices, especially since fees depend on how many transactions there will be in the immediate future, something that's obviously impossible to predict.

"Fee estimation will always be an inexact science," he said.

And this is why Morcos thinks the "best approach" is to rely on tools that go beyond estimation, such as replace-by-fee (RBF) or child-pays-for-parent. Embedded in Bitcoin Core, RBF transactions are a certain type of transaction that can be replaced with a higher fee when they get stuck.

In that way, users don't have to "get the fee perfect on the first pass," Morcos said.

With these options now available, fee tools, it seems, are evolving rapidly in an attempt to give users more control.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase. 

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It's the biggest sell-off since mid-July.

At press time, the total value of all publicly traded cryptocurrencies was $166 billion, a figure that was down more than 7 percent from a high of nearly $180 billion last night.

That's when bitcoin, surging on technical improvements and growing investor optimism, topped $5,000 on the CoinDesk Bitcoin Price Index for the first time.

The decline was similar to what was observed on bitcoin, with average global prices declining from a high of $5,013.91 to a low of $4,619.97, a more than $250 decline.

Overall, it was the largest sell-off in the cryptocurrency markets since July 15, when the total value of the asset class plunged roughly 12 percent from $72 billion to $63 billion. However, that decline was part of a multi-day sell-off that saw prices drop more than 25 percent on what was then concern over bitcoin's technical roadmap.

At press time, market observers seemed split on how to read the market movement.

In remarks to CoinDesk, some stated it might be too early to say the market has peaked given the recent upswell in institutional interest and the finite nature of new cryptocurrency creation.

On the latter point, some went so far to speculate the decline could be a "bear trap," one that quickly opens the door for larger gains.

"Since bitcoin is getting a lot of media attention lately a lot of people are looking for a moment to enter the market," Bram Ceelen, founder of cryptocurrency brokerage AnyCoin, told CoinDesk.

Others pointed to declines in July and May as evidence the market has still retracted, even during its 2017 rally, and that further declines were possible.

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The total value of all cryptocurrencies has dropped 11 percent since Saturday, declining from a high of nearly $180 billion to under $160 billion today. 

But that might not be cause for alarm, according to one bullish analyst. 

In fact, Ronnie Moas, the founder of Standpoint Research (known for his prediction that the cryptocurrency asset class will one day be valued in the trillions), contends that the price break is rather the work of larger traders who want to build up even bigger positions in cryptocurrency.

"When people panic and start selling, they are going to come in quietly and start buying again. So it's buying 50,000 then dumping 20,000, for example," he said, adding:

"They are trying to shake people out of the trade – so that they can get their hands on more bitcoin at lower prices."

Such statements echo commentary from yesterday, in which market analysts, most of whom are long-term bullish on the technology's prospects, put forth the claim the current market conditions might fit the definition of a "bear trap" meant to open up buying opportunities.

Even if that's not the case, Moas said it's important to remember that just six weeks ago bitcoin was trading at $1,800 – and it's at $4,400 now, meaning the price has risen over 140 percent in the last month and a half.

"It's a healthy correction. You need to keep this 11% correction in perspective," he said.

Overall, Moas sees the decline as a way to encourage new wave of buyers who have been sitting on the sidelines to act. "Anybody who didn't want to chase bitcoin at $4,800 is now getting their opportunity to step in and buy right now," he said.

But, Moas added one major caveat to his bullish sentiment. Because market prices are moving so far so fast, market dislocations are causing execution risks for investors.

Moas explained that he went to a major exchange to buy more bitcoin yesterday. He put in an order that got filled at $4,633. Immediately after he submitted the order, he went to another exchange to check the price, and saw that it was trading at under $4,500.

When he contacted the exchange, they told him that they would get back to him in a few days with an answer.

"You really need to know what you are doing here," he concluded.  

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Regulators in China have reportedly made up their mind to crack down on initial coin offerings (ICOs), the nascent funding mechanism through which blockchain projects have now raised more than $1.8 billion.

According to a report from Caixin, although the official statements have not been published yet, regulators have deemed ICOs to be violating fundraising laws, a determination that could lead to harsh regulations on the blockchain use case.

On the news, a conference devoted to ICOs in Beijing, scheduled on September 2, has been cancelled.

The decision is notable as it comes at a time when global regulators are considering their position on ICOs, and the People's Bank of China, the country's central bank and financial regulator, has been chief among this group.

Quoting an anonymous source, Caixin reported that researchers in PBoC have been studying ICOs and have reached a conclusion that many are covers for illicit activity.

The report states:

"More than 90% ICO projects could be violating illegal fundraising or fund fraud laws. The percent of project that is actually raising funds for investments is less than 1%."

Adding to that, the source pointed out that authorities and legal experts reached a conclusion that many ICOs are just "wearing a vest of legitimacy," while in essence, they are illegal fundraising.

Notably, even if the ICOs are cleared of suspicion on illegal fundraising, the source says, they could be violating fraud laws. 

However, the report is inconclusive on whether regulators see value in using cryptographic tokens for startup funding, though the source suggested possible distinctions and carve-outs could be made.

"Cracking down ICOs helps to target the leading sheep of a flock, meanwhile, there will be some exemptions for people who are just following the flock," the source said.

CoinDesk will continue to monitor this developing story.

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Blockchain architecture startup Blockstack has a vision for a truly free and open internet.

It’s a vision built on the idea that users shouldn't get locked into a particular application, but instead be able to choose from a myriad of applications without sacrificing control.

Co-founder Muneeb Ali recently discussed how major internet players wield too much power over users, and this is exactly what Blockstack was created to disrupt.

While the vision sounds rather utopian, the company has been able to convince developers that building decentralized applications on its platform can solve the problems – namely the liability of holding huge troves of customer data vulnerable to hacks – inherent in traditional digital services.

Patrick Stanley, growth partner at Blockstack, told CoinDesk:

“Apps are being developed at a much quicker rate than we had thought. We’ve already got over 200 applications for building apps on this platform so the interest is there to build these applications and, especially, to get funding for them."

Stanley said this is partly due to the platform's ability to allow developers to move between different blockchains, but it also has a lot to do with the infrastructure –from security mechanisms to a forthcoming payments plug-in – the company has built to allow developers to focus on their core business.

Another part of the equation is Blockstack's recent efforts to try and seed entrepreneurs with capital to build.

In August, the company announced a $25 million venture capital fund, backed by firms including Lux Capital and Rising Tide Capital, to invest in developers, and plans to launch a kind of "XPRIZE" program to award developers for potentially revolutionary blockchain services.

While the company isn't ready to divulge details about the delegation of the awards and investor money, developers currently building on the Blockstack platform give us insight into what kinds of projects it can accomplish.

OpenBazaar

One of the more high-profile services associated with Blockstack, decentralized marketplace OpenBazaar is not actually built on Blockstack, but one of its key features relies on the platform.

OpenBazaar uses the Blockstack platform to name its merchants' stores with user-friendly identifiers, explained Sam Patterson, co-founder of OB1, the startup founded to maintain OpenBazaar.

Patterson continued:

"Just like a bitcoin address is a random string of characters, an OpenBazaar store is a random string of characters. That’s not particularly user friendly, no one’s going to be able to remember that."

Instead, through Blockstack, merchants can take the string of characters and map it to a user-friendly handle, such as Ski Shop.

Before OpenBazaar chose Blockstack, though, it considered other options, but all were limited, said Patterson. The marketplace thought not only about building its own system, but also tried ethereum's naming system and several others.

According to Patterson, "It usually comes down to they’re not decentralized enough or they’re not user friendly enough or they haven’t been around long enough for us to be comfortable using them."

OB1, which has raised $4.2m in total funding, is prepping version 2.0 of the marketplace, which will be "a complete overhaul" that users can hopefully start beta testing by the end of August, Patterson said. It will be built in IPFS to limit disruption to stores when they go offline and will include Tor capability.

Casa

Built totally on Blockstack, Casa is a decentralized home-sharing protocol allowing users to book rooms with bitcoin payments.

For Casa, the decision to use Blockstack was all about scalability, said founder Jeremy Welch, adding the platform is more accommodating compared to other networks as it relates to potentially dealing with millions of users.

Welch told CoinDesk:

"The Blockstack team is designing and building to scale apps to hundreds of millions of users, which no other blockchain tech can even come close to handling right now. Ethereum network is extremely congested with ICOs alone, much less a fully functioning app."

Plus, Blockstack already has an existing user pool of early tech adopters.

The startup, which was created by Bedkin, has raised funding from early stage investment firm Precursor Ventures and will launch the protocol publicly next month.

Afia

Afia is a platform to help people better manage their personal health data.

Its creators say the application gives the individual greater control of their medical records by storing them in a personal, encrypted cloud storage.

"Because the users bring their own storage through Blockstack’s Gaia storage system, we don't have to worry about public information being lost or held by third parties," said Ani Agajanyan of Afia.

The cloud storage can only be decrypted with the individual's Blockstack ID private key, making the system compliant with the Health Insurance Portability and Accountability Act (HIPAA), which outlines data security and privacy provisions for medical information.

The platform also removes the need to fill out the same information for each new service provider a user interacts with, and gives users much greater control over how and when the information is shared.

And because Agajanyan hopes that app will "last forever," Blockstack, with its virtual chain technology, where an app does not rely on a single blockchain, was a perfect choice.

Guild

Guild imagines a future for open source blogging that is completely decentralized and server-less, allowing it to remove the restrictions put in place by other centralized blogging networks.

It's like a decentralized version of Medium, a project that seems particularly alluring to the backers of Blockstack XPRIZE that have already been revealed (Guild will be taking part in the program).

Albert Wenger, a partner at Union Square Ventures has confirmed he'll be looking to fund a blockchain-powered blogging platform through the project, and early Twitter investor, Naval Ravikant is interested in funding a blockchain alternative to the popular micro-blogging site.

For Guild developer Jay Hwang, the company's choice to go with Blockstack, and build decentralized apps, is all about giving user's control.

"Creating a decentralized blogging platform allows for users to post any blog they want, no matter how controversial it may be," he said, adding:

"And because it is stored where the author specifies and not on Guild's servers, Guild has no power to remove blogs they don't approve of or agree with. This takes away power from the monarchs of today’s internet and gives more power and control to the individual users.”

Ongaku Ryoho

Following the trend, decentralized media player, Ongaku Ryoho is looking to allow users to control all their data.

The app connects music with user's chosen cloud storage, and allows artists to upload their music without platform fees, as well as make it available to download.

The music industry, and it's various middlemen have been in blockchain entrepreneurs' sights, with a Slovenia-based startup, Viberate attracting the attention of high-profile investors, Charlie Shrem and Pinterest chief scientist, Dr. Jure Leskovec.

But Steven Vandevelde of Ongaku Ryoho said the startup is differentiating itself with this idea of control.

He told CoinDesk:

"There aren’t many [music apps] out there where you are actually in control of all the data, and by all the data I really mean all of the data, from the user data, like favorites and playlists up to the music files.”

In terms of why it chose Blockstack, Vandevelde said, "I like how they think about data and identity, and how they are shaping those ideas into reality. Even though it’s still early, it was really easy to integrate the authentication layer with my app.".

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has ownership stake in Blockstack and OB1. 

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