My name is Matthew Spoke. I am the Founder & CEO of Nuco. We are a Toronto-based enterprise blockchain software company. We have been around for about seven months now.
What is Nuco?
Nuco is a software company that focuses on building blockchain for networks in enterprise companies. We essentially piggybacked off of some of these open source protocols and decided that this would be an interesting technology to apply in the context of what could close the network of known participants, such as banks, hospitals, insurance companies, you name it. The same general purpose infrastructure that Ethereum is to the public domain, we wanted to build a version of that intended for a close network of participants.
A simple example that people often point to is in financial services, being able to create a close-payment network, for example, between a group of domestic banks. In Canada take the five biggest Canadian banks and, say, they wanted to create a faster payment or settlement system, they might decide to do that on the distributed network rather than creating an intermediary organization for that.
Outside of finance, we have also done some proof of concept in as remote use cases as healthcare or IoT. In healthcare we did a proof of concept around pharmacies and clinics existing on a network together so that they could track the issuance of prescription drugs and verify that the prescription was legitimate, that it wasn’t being used at two different pharmacies, and so solving this idea of fraud in the prescription world. That’s another example.
Blockchain Enterprise Model
The market that I look at when I think about spreading around is the enterprise market. We have two focuses. When we say enterprise we say, for example, the Fortune 500 companies that are the incumbents in these industries, and the banks and the insurance companies that don’t want to be disrupted by this new technology. The other category of enterprises is the new software companies that are in fact the disrupters, the ones that are coming in, our generation of the PayPals of the world that are going to be like the new bank or the new insurance company. So we’re trying to make sure that what we’re building is relevant to both of those groups. But today when you look at running any type of proof of concept or eventually going to production on a network like Bitcoin or a network like Ethereum, a lot of the challenges have to do with performance of those networks, like how many transactions can you process, the regulators wanting to have some sort of control as to who participates in these transactions, so can you close off these networks. There is also scalability and security and all these kind of high-level bucket items. Ethereum’s recent challenges have pointed out the fact that it’s probably a long way from being able to process real financial services transactions in a regulated environment. So we’re trying to solve all of those things with a built-for-purpose infrastructure that is intended for these enterprises users.
There has been a healthy amount of proof of concepts in prototypes and labs and RnD that is happening. Everybody seems to be coming to a similar list of limitations. We hear it from every customer we talk to, it’s always about performance, security, scalability, integration requirements. The blockchain world operates in a little bit of a vacuum, so the companies a blockchain. But in reality those blockchain networks are going to have to integrate into your sales forces, your Oracles, your SAP systems, or others. These are the real-world implications that have not been solved yet, because everybody has done their first proof of concept to say, hey, I don’t want to tokenize something that might represent like a stock or a prescription drug. How do I implement that into an existing process is the next step that people haven’t figured out yet.
We made a pretty conscious decision upfront that we were going to hire talent locally in Toronto. We wanted to grow a team that had the synergies of being in the same room together. So we opened an office here, we made sure that the people we were recruiting could physically be in that office, especially because we’re bringing on people at different levels of experience with this technology. We found that they could learn a lot faster by sitting next to somebody who might be slightly more experienced than them. But that means that we were limiting our pool of talent to graduates from universities that are around the Toronto area, and we’ve got some great schools, but it’s still limiting to a certain extent.
The second thing that became evident to us is we were not only looking for blockchain talent, we were looking for talent that was smart enough and well established enough to learn how a blockchain infrastructure changes the way you build software. But we emphasize and prioritize coming out of an academic institution, like the Master’s level, or having spent some time working in a large established industry, because then you can marry these two concepts together. For example, what does mature software look like if you come from a bank, and how do I employ that lens of maturity to the way I’m building a blockchain system. There are still a lot of naïve assumptions in the blockchain world, like the Bitcoin rhetoric five years ago was like we’re going to disrupt the banking industry. But a lot of the people that were building those applications didn’t actually understand how the banking industry works, so some of their assumptions were extremely simplistic. We’re trying to make sure that we marry the best of both worlds.
I think it has potential with some markets where it is proving to be politically important, like when you look at what happened recently with the currency scare in India. So it’s very, very important in some economies. I don’t think that it has really proven why it is necessary for more established economies where there is a sense of trust in your government, where there is a sense of trust in your banking system. I’m not sure.
I think Bitcoin is still very much the gold standard currency, not only because it carries market cap, but because it was built single-purpose as a currency mechanism and it does really, really well at that. Ethereum was never intended to be inherently like a currency mechanism, so I don’t think it will ever match the capabilities of Bitcoin as a currency system. I think you could easily see in future — maybe not even that far out, maybe five to ten years from now — where Bitcoin is one of the dominant currencies in exchange around the world. I know there have been some central banks that have started talking about not only issuing their own currencies on blockchains but also looking at Bitcoin as a reserve currency that they would maintain. Just like if you are not the US Federal Reserve, you maintain US Dollar reserves Central Bank of Barbados or the Central Bank of Argentina, or whatever. Bitcoin could probably fill that role in the next few years.
Fortune 500 companies vs Startups in Blockchain
There are not only big businesses and small startups, but there are also these large enterprise startups, like the R3s of the world, the digital that really carry a lot of the characteristics of a large enterprise but are dabbling with new software. The criticism I have is that a lot of these companies — from the labs at these organizations or these really large startups — they’re trying to take some characteristics of blockchain but leave others, pick and choose, and then you end up with a technology that is cool, it’s new, it’s potentially more digital than what it’s replacing, but it’s only incrementally improving processes. So you’re not really fundamentally changing the paradigm on decentralization. I was reading — and I won’t quote them because I don’t want to be too critical — the white paper of a recently open source project where in the section they talk about consensus they start talking about centralized notaries that exist on these networks to apply an approval process on a transaction. This means that you’ve digitized the system, but you’re still relying on centralized and you defeat the purpose of this whole decentralized consensus. And there is a lot of that going on. These decentralized databases or distributed databases have become synonymous with blockchains, which I don’t think is completely true, and it’s unfair. There is only one characteristic of — and that is almost becoming a lot of the these software companies, these bigger ones are saying we found the right approach to build decentralized databases and that’s what we call a blockchain. So they’re watering down the technology.
I think we are starting to see from even early stage discussions about it at different levels of government, whether it’s central banks or innovation divisions in governments, that they’re paying attention, though I think they’ll be the slowest to actively do something. The counties where they stand the most to gain from changing a process or establishing more trustworthy infrastructure tend to be countries that have comparatively less developed economies. This is why you hear of land registry systems being tested in Honduras and Georgia, but you don’t hear about them happening in the US or the UK. We have small little bits of the problem, but not big enough to require a whole overhaul of the system. I think governments are being supportive, even if it’s just part of their encouraging innovation. And Canada is a good example.
Are Governments Getting Involved?
The reality with the government is that it is not like they’re waiting for new technology to get more efficient. There have been more efficient technologies that the governments have not implemented for years, even decades. I just recently applied for a health card, and literally, you just have to print out a new piece of plastic, and it takes like eight weeks for me to get that in the mail. It does not take eight weeks to go through a printer. So it’s not about the technology being available, it’s just the inherent slowness. But we did a hackathon a couple of weeks; we provided our software like a platform people could build on, the Right Tech hackathon, which to me shows a really cool shift. This is the Ontario Securities Commission, which is a regulator of probably the second largest stock market in North America, the Toronto Stock Exchange, and they’re hosting a blockchain hackathon on how do we rebuild these industries. So that’s encouraging.
There is a lot of white space right now; there are a lot of companies competing over the same high level of use cases, but what is really going to happen is you’re going to have people land on an idea that seems really like out there. The new Uber project on Ethereum, Arcade City, is a great example of not public stock market, not currency movement, not all these high-level use cases that we always hear about in the news, but completely left-field. It’s a copying a model that exists, but it’s more consumer-facing. So more people are coming up with interesting applications like that, which are maybe a little bit more science fiction like in the sense that Uber seemed crazy before we started using it. Arcade City takes it one step further where you’re not even trusting Uber. There are a lot of applications in that white space. Ethereum is a really cool place to start because it’s so easy for people to get up and running with an idea. People are raising money in completely new ways. They’re building companies in completely new ways. So it doesn’t take much. If you’re somewhat of an established developer, you can pick up within a couple of weeks a cool prototype of what you want to build, because Ethereum has made it pretty simple to do that.
Check this out on Nuco.io, or Twitter @Nucofuture. You can find us on LinkedIn and everywhere else, but those are probably the two most relevant.