As part of our “feet on the street” approach to research, this week we are in Aspen, CO attending Fortune’s Brainstorm Tech Conference. Below are our highlights:
Large tech feeling bullish about Blockchain technology: Blockchain’s truly decentralized nature can improve security and privacy and thus offer a lot of uses to companies. The technology may be immature and unproven but IBM has already developed applications beyond payments and digital currencies, according to Bridget van Kralingen, the company’s senior vice president of global industries, platforms, and Blockchain. While data has become increasingly important, it has become more vulnerable to theft too. Recently, IBM partnered with the government of Australia to protect and secure citizens’ data using Blockchain applications. Australia is also working on pilot projects with IBM to boost efficiencies and reduce costs concerning supply chain management and cross-border trade communication.
Our Take: Near term, we believe investors and large corporations are still looking for real world uses beyond Cryptocurrencies. Widespread adoption of Blockchain will likely come from consumers instead of businesses. But we think the future is bright, especially as large institutions like IBM use the technology, which helps attract more investment and innovation.
Crypto skeptics still waiting for real-world commercial applications: We attended a fairly insightful panel discussion between Crypto skeptics and believers. At a higher level, panelists debated around the practical applications of Cryptocurrencies and Blockchain technology. The general consensus was that Blockchain offers significant potential to improve inefficient markets hobbled by large numbers of people, especially “middlemen” or intermediaries that slow transaction times or increase transaction costs. However, the panelists also agreed that it will be another 24-36 months until we actually see these applications. Crypto experts expect protocols to replace the ERC-20, which has been plagued with some technical problems, could emerge by the end of 2019 and allow developers to start building decentralized apps on these new platforms.
Our Take: Blockchain technology may be immature but companies and people are already putting it to good use beyond payments and digital currencies. While CryptoKitties get a lot of media attention, we believe applications to monetize such virtual collectibles and valuables could give way to tokenization of physical but illiquid assets.
Still unclear regulatory environment, particularly in the United States: At the conference, we heard from investors and entrepreneurs that a patchwork of different regulatory bodies, particularly in jurisdictions outside the United States, are slowly developing a framework to regulate the industry. Adele Faure, assistant general counsel for Robinhood, said federal regulators must protect investors from fraud but not stifle innovation or development of new technology— not an easy balancing act. Furthermore, regulators should create infrastructure that encourages capital formation. Faure cautioned that the recent rhetoric from the Securities and Exchange Commission could prompt innovation to flee the country, hurting U.S. investors and technologists alike.
Our Take: We believe a constructive approach by regulators coupled with better understanding of the crypto technology will help unlock demand from institutional investors, both from the buy side and the sell side. While speculators might attribute the ongoing crypto bear market to the launch of derivatives trading in December last year, we view recent developments at the SEC and the Chicago Board Options Exchange as progress.
Growing ecosystem support for Security Tokens: Several conference attendees expressed optimism about security tokens. Indiegogo founder Slava Rubin believes tokenizing illiquid assets and reducing transaction costs represent a multi-trillion-dollar opportunity. He said recent developments in real estate development projects tokenization demonstrate the potential of security tokens. As the regulatory environment for cryptocurrencies improves, we believe the broader infrastructure to help connect issuers and investors is starting to take shape.
Our Take: We believe that there’s a growing arms race to develop compliant trading solutions among crypto startups. Coincidentally, we think large amounts of institutional money is collecting on the sidelines, as opportunistic crypto investors look to exploit future demand for security tokens.
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