Why Blockchain will Drive the Next Generation of Tech Giants
Distributed ledger technology has the potential to transform global businesses with faster payments and sophisticated automated processing. Investors looking for the next generation of technology giants are paying close attention.
For many observers, blockchain and distributed ledger technology (DLT) has become synonymous with the volatile world of cryptocurrencies. Yet the real potential of this technology goes far beyond enabling speculative investments on meme-coins or play-to-earn online games.
There are already signs that DLT companies could well become the technology giants of the next few decades.
The emerging DLT trend generated 40 ‘unicorns’ in 2021 – bringing the global total to 47. During the same year, funding for global companies developing or based on this technology was up 713% on 2020 at US$25.2 billion. Overall, there were 1,247 funding deals – an 88% gain from 662 in 2020.
While the markets for cryptocurrencies and non-fungible tokens are unregulated and volatile, placing them in the riskiest bracket of investment assets, DLT itself has many other applications in more established industries.
Essentially a secure, decentralised database with advanced automation features, DLT has the potential to improve – if not revolutionise – entire industries.
The terms ‘DLT’ and ‘blockchain’ are often used interchangeably, but there are differences. Importantly, both DLT databases in general and blockchains in particular can run smart contracts: digital contracts that are executed automatically when pre-set terms and conditions are met.
In financial services , DLT has the potential to be a game-changer for both institutions and individuals. Replacing expensive intermediaries and brokers with secure smart contracts would reduce costs and improve speed, while the technology can also be used to bring new products to market, such as tokenisation to create a liquid market for illiquid assets. BNP Paribas and French energy group EDF completed a proof of concept tokenisation transaction in July this year, structuring and distributing a private debt financing for a solar energy project through tokens.
In Asia, BNP Paribas has signed up as a pilot with the Hong Kong exchange (HKEX) in the prototype analysis, design and validation of a DLT solution. The project will look to reduce fail trades in a T+0 market, and provide clients real-time information access.
The financial sector is also embracing DLT to fulfil compliance functions to store and track ‘know your client’ data, in an effort to tackle money laundering and tax evasion activities.
DLT has an exciting future as an enabler of cross-border payments and trade financing. Being decentralised, a DLT is ideally suited to operate across national borders, and many initiatives are underway to create a scalable, low-cost global payments network.
A universe of uses
The applications for DLT and blockchain technology go far beyond financial services, extending to virtually any sector where security, transparency and efficiency are important. Singapore, one of the world’s major ports, has worked with banks and other related organisations to create a DLT-based system to automate the complex cross-border imports and exports. The Networked Trade Platform (NTP) is a one-stop trade platform that recreates a near-complete trade infrastructure, digitally. Customs, importers, trade finance organisations and shipping companies can access a transaction in real time and fulfil their roles simultaneously, rather than having to wait for others to finish first.
In the construction sector, which is heavily regulated and requires coordination across an extensive ecosystem of stakeholders, DLT can provide an efficient method of verifying identities, work quality and progress against schedules. It can also be used to track materials, ensuring they are from the correct source and of the required quality. Payments to suppliers can also be triggered through smart contracts, creating a transparent audit trail.
Investing in DLT
Apart from companies that are investing in use cases and proof-of-concept projects to digitalise their own businesses, DLT provides several opportunities for individuals’ investment plans. The simplest way to gain exposure to the growth potential of DLT is to buy the shares of established companies that are themselves investing in DLT.
Examples include multinational food and beverage producer Unilever, which is using blockchain to overcome supply chain inefficiencies and to trace the ingredients of its consumer food products. Brewing giant Anheuser Busch InBev is developing DLT-based systems to achieve similar results, while in the travel sector, Singapore Airlines has developed a DLT system to run its customer rewards programme. Microsoft, Intel and Samsung have invested in a decentralised future, betting that their existing businesses will future-proof themselves by providing DLT-based solutions.
A long way to go
It is early days in the blockchain revolution. Many details of how the new decentralised world are still being discovered and developed, and there will be blind alleys. But for those averse to the dangers of cryptocurrencies, there is plenty of scope to participate in the build-out of the DLT universe – and have a stake in what could be the most significant technological leap in a generation.