High-profile cryptocurrency exchange FTX recently reached an ignominious end, becoming the latest crypto lender to file for bankruptcy in the past few months. Senior reporter Ross Henry Law spoke to Marcus Schmalbach, chief executive of Ryskex, to explore whether the spectacular collapse of FTX marks the end of crypto and to identify some of the alternative use cases for blockchain technology.

The widely reported collapse of FTX, the $32 billion valuated cryptocurrency exchange, is just one in a series of recent bankruptcies in the market.

The ongoing slew of collapses has led many to question whether crypto is on the way out. Marcus Schmalbach, chief executive of Ryskex , a provider of a blockchain-based ecosystem for alternative risk transfers and insurance solutions, feels like the “party is over” for cryptocurrencies.

With FTX the latest to damage market sentiment in cryptocurrency, Schmalbach hopes that practitioners in the finance industry will start realising new use cases for blockchain technology, with the ‘hype’ of cryptocurrency and NFTs having shrouded other potentially more valuable business use cases for the technology.

“The first thing to say is: the blockchain itself is still unhackable - and this [FTX] was just a fraud case,” says Schmalbach. “FTX is the bankruptcy of a large crypto player, but it has nothing to do with the blockchain itself; however, it will have a massive impact on the trust of those in the blockchain space.”

Post-FTX, the value of Bitcoin fell by 20 to 25 per cent. “Once again, this has nothing to do with the FTX bankruptcy,” Schmalbach says, “but you see that the trust in the holistic picture of blockchain and crypto got damaged by the bankruptcy of FTX.”

Schmalbach is now hoping that the finance industry will begin to look past the use of blockchain technology solely as a means of facilitating crypto exchanges.

“I fully understand if the traditional industry participants who feared the blockchain in the first instance, are now annoyed about hearing about the power of the blockchain when the conversation has seemingly now switched from cryptocurrencies to the creation of digital art (NFTs),” he says.

Schmalbach believes that the future of blockchain is going to depend on a “new pain point” which could lead to a new way of thinking about blockchain.

“The pain point which originally drew attention in 2008-2009 was the Global Financial Crisis,” he says. “People were annoyed with banks, and so back then it was easy to create a good story around a brand-new solution such as blockchain.”

He continues: “I’ve seen great use cases running on the blockchain, and I would say the party is now over for the first big use cases like cryptocurrencies and NFTs, and now we need another good story or pain point where innovations such as smart contracts can deliver genuine value.”

Based on blockchain technology, smart contracts are computer programs that run automatically as the parties to an agreement fulfil its terms. Their usage has the potential to evolve business as, by their nature, smart contracts remove the need to interpret contractual performance.

“The FTX scandal currently no longer dominates the daily press, but this will return when it comes to sentencing,” explains Schmalbach. “Accordingly, the crypto world continues to turn - a little slower but steadily.”

In light of the FTX scandal, though, Schmalbach no longer anticipates a 2023 boom in crypto, NFTs, or initial coin offerings and believes these solutions are coming to an end.
“Smart contracts are becoming increasingly important and we at Ryskex have meanwhile been able to sensitise various financial market partners to rely on parametric/index-based solutions in which a smart contract plays a decisive role in shaping the future,” he adds.

Parametric insurance is another area Schmalbach believes has a future on the blockchain. Functioning in a similar manner to smart contracts, parametric insurance is a coverage that pays the insured a pre-determined amount on the occurrence of a pre-defined event, as measured or declared by a neutral third party on whom the insurer and insured agree.

Citing further possible use cases for the blockchain, Schmalbach says: "The blockchain could be used for new operations around bringing money to the people and storing money to address systemic risk and governance."

He also suggests trying to link the blockchain with carbon credit as another potential use for the technology.

“Green is the next bubble, and a great opportunity for blockchain to evolve and create a real value to the world with less focus on 'bachelor level' ideas like creating digital art and cryptocurrencies,” he said. "Everything which is linked to carbon emissions can somehow be done on the blockchain to fight fraud."

Schmalbach adds that areas like this are hopefully where the blockchain will be able to bring in real value which is then linked into the B2B market.

"Hopefully this will then give the banking and reinsurance markets a real understanding of the value of blockchain, and that the blockchain is not a technology that can only be linked with digital art or cryptocurrencies,” he continues. “This comprehension within the B2B market is highly necessary; if you want to implement a technology successfully in the long term, you need the B2B market on board."

Schmalbach shares that clients he speaks to are often surprised to learn that the likes of parametric insurance solutions could utilise the blockchain.

“Many people think they know what blockchain is, but in the end they don't,” he says.
Noting that more education is needed around blockchain, he continues: “This makes me sad, as it shows that the real potential of the blockchain has never been transported and brought to the B2B market, due to it currently being inextricably intertwined as a cryptocurrency technology and trading platform.”

Ultimately, he explains, financial institutions shouldn’t fear blockchain.

“it's not about cryptocurrency, it's not that the blockchain wants to sell you digital art; the blockchain just wants to assist and facilitate fraud-free business and assist with business use cases which are already there or in the making,” he says.

Emerging from the shadow of faltering crypto exchanges and the general misconception that it’s solely a technology which facilitates crypto exchanges, now might be the time for blockchain to come into its own and demonstrate its value proposition for as-yet under-realised applications which could drive value throughout the finance industry and beyond.

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