Wednesday, January 18, 2017

Why participate in Cambridge's cryptocurrency and blockchain benchmarking study?

Below is an edited transcript of remarks I delivered at the Bitcoin and Blockchain Leadership Forum meeting on 9 December, 2016.

The Cambridge Centre for Alternative Finance, which is part of the Judge Business School, was started in January 2015. We define alternative finance as any new financial instrument, channel, or system that emerges outside of traditional financial services and capital markets. This includes crowdfunding, peer-to-peer lending, new forms of credit analytics, and the areas I focus on, cryptocurrency and blockchain.

The Centre has approximately ten people working full time; we’re very multidisciplinary, coming from fields such as finance, economics, sociology, geography – we even have a physicist on staff. I started at the centre in early 2016 and I was brought in to build our research program on cryptocurrency and blockchain/distributed ledger technology. Like many of my Centre colleagues, prior to moving to academia I worked in various private sector roles, including technology, investment banking, and start-ups.

In terms of funding, the Centre has raised approximately $3 million to date, primarily from private organisations such as the CME Group Foundation, Visa, KPMG, and other firms. We’re starting to diversify our funding base and seeing more support from government bodies. For example, the UK Financial Conduct Authority recently partnered with us to work on alternative finance research. The funds we have raised help support our teaching at the Judge Business School – we were the first UK university to offer a blockchain course as part of Cambridge’s Masters in Finance – as well as our research.

To date, our primary research outputs have been a series of alternative finance benchmarking studies, which are free to download from our website. They’re empirically driven studies that focus on presenting new data that describes what’s happening in alternative finance. For example, what are the aggregate financial flows? In what sectors and locations are we seeing the most movement? Why has there been so much recent growth in peer-to-peer real estate lending?

This last area is of particular interest to some policymakers and regulators, who have informed us that they do not have much visibility into the real estate lending taking place through alternative finance channels. You may recall that it was a sudden decline in real estate prices, driven in part by changes in the lending environment, that triggered the 2008 financial crisis.

Collecting data helps us to develop and inform research questions, such as what is the relationship between alternative finance activity and economic growth? This question is not only interesting from an academic perspective, it may have significant policy implications. Many policymakers are thinking about how to balance a desire for increasing economic growth with regulating alternative finance, and our research has shaped the policy discussion around this topic.

However, we are not able to address such research questions unless we have strong participation from you in our research surveys.

It’s important to make clear that the data published in our studies is aggregate data, not individual organization data. For example, we show country level data, or sector level data (e.g., data for all wallets, or all exchanges) but never _____ organization’s individual data. We take data privacy and confidentiality very seriously and work hard to ensure that our research does not threaten trade secrets or security in any way.

We are currently running our first global blockchain and cryptocurrency benchmarking study. On the blockchain side we’re looking at permissioned distributed ledgers and non-monetary use cases, such as provenance, as well as public sector blockchains (e.g., central bank digital currency) and what’s happening with distributed ledger technology in U.S. states like Delaware. For cryptocurrencies we’re examining exchanges (specifically security), payments, wallets, and mining.

There are many good reasons for organizations to support this research by completing our surveys. Firms can benefit from the wide exposure these reports receive as we offer all participants the opportunity to have their logo included in the report. This study will also help with the formation of key performance indicators. 

But perhaps the biggest reason for cryptocurrency and blockchain firms to participate in our benchmarking study is that this study can help the industry constructively engage regulators and policymakers. Many regulators are keen to learn more about the alternative finance sector without burdening companies with invasive and time consuming data requests. Benchmarking is a time honoured way to achieve this goal, and participation in this study is a way to signal to the world that the blockchain and cryptocurrency space is maturing.

Thank you for supporting this research by completing our surveysYou can find more information about the study, including a video of my study kickoff presentation at Shanghai Blockchain Week, in a prior blog post here. Please also feel free to get in touch by email if you have any questions. 

-Dr Garrick Hileman, Cambridge Centre for Alternative Finance