Insights / Blockchain causes disruption

Blockchain causes disruption

15 July 2021

Blockchain technology is revolutionising the world. Many people do not yet fully understand the depth and breadth of the disruptions that are coming and going. By blockchain, we don't just mean digital ledgers, but also related products and solutions such as cryptocurrencies, smart contracts and tokenised assets. Not to mention the synergies that are possible when this area comes together with that of Artificial Intelligence (AI) and the Internet of Things (IoT). One of the benefits of all this is that data and value exchanges will be (much) faster, cheaper and with fewer intermediaries.

There are several so-called megatrends that are now occurring in the world around us. One is climate change. Another is called the fourth industrial revolution. A third is the erosion of trust in the global financial system caused by the global crisis in 2008. Combine these with the advent of decentralised ledgers (on which bitcoin, for example, runs) and with smart contracts, and you have a recipe for seismic change coming to the infrastructure of our societies. For today, let's start with a quick look at what we affectionately call the 'crypto space'. 

The crypto space is growing and developing at an incredible rate, a rate that most outsiders are not really aware of yet. The adoption rate for crypto, year after year, is even higher than what we saw in the 1990s with the adoption rate of the Internet. There are subcategories of 'crypto' and they have different use cases, which we will go into more depth in a next installment of this blog. For now, suffice it to say that what they have in common is an added value in the ease with which data (including currency) can be exchanged. Faster, cheaper, with more disintermediation. The first industry to experience this disruption is financial services, and this can be seen in the exponential growth of both bitcoin and the second-place crypto called Ethereum. The adoption of bitcoin, despite regulatory challenges, has been boosted in recent months by some major endorsements. The company Tesla now accepts bitcoin as payment for its electric vehicles. Corporate early adopters are putting bitcoin on their balance sheets. Wall Street and hundreds of commercial banks in the US are now racing to offer their customers crypto exposure. And we now even have the first country to make bitcoin legal tender - El Salvador - which to economists is the closest thing to a clinical trial. We live in interesting times.

All because digital ledgers enable trustless transactions on a network with a (mostly) decentralised governance model, where transactions are immutable and time-stamped. And because they enable smart contracts, which can be programmed to do something automatically (e.g. pay out insurance) when certain conditions are met.

So, right behind Finance, a few other sectors are emerging that are ripe for disruption by digital ledger technology. Think of real estate, supply chains, digital identities (a pioneer in Estonia), land registries, medicine and the insurance sector.

What if home buyers and sellers no longer needed banks? They still need to find each other, but what does this do to the value of real estate agents? Valuers? Notaries, lawyers, insurance claim disputes? To what extent are smart contracts legally binding and enforceable? What consumer protection rules are appropriate? These are issues that the old world is still struggling with as it tries to incorporate these innovations. If we go one step further - what if ownership of real estate (not just houses, but also office parks, hotels etc. etc.) is to be tokenised? Negligible ownership (similar to shares) but tradable with much less friction becomes possible. Perhaps you would like to own 1% of your favourite tourist destination? It may become possible in the near future, but before this becomes mainstream, there are hurdles to be overcome in terms of policy and regulation.

All of the above, of course, is just the tip of the iceberg - this is just a short post highlighting some of the big changes going on in the world around us. What they may mean for you depends on the role you play. Policymakers, regulators, business leaders, or citizens and retail investors, they are all asking different questions about how to navigate the turbulent waters ahead. We are here to help you on that journey of adaptation and transformation.