The Blockchain is not Bitcoin & You Should be Aware of its Strategic Business Value
This article was initially published on November 30, 2018. At the time, the advisor was not affiliated with iA Private Wealth Inc.
You have heard of Bitcoin’s meteoric rise and probably its fall from grace as well. However, have you heard about the technology behind Bitcoin that is driving multinationals to invest billions in its technology and of which it is estimated that 10 per cent of gross domestic product (GDP) will be stored in by 2027? The blockchain is a revolutionary concept, but not all companies that employ it will gain value. Learn how you can spot business value for blockchain uses.
What is Blockchain?
The blockchain is a decentralized digital distributed ledger technology (DLT) that records, monitors and verifies transactions by a network of users instead of a centralized authority. Each computer on the network holds a copy of the ledger, and to add a transaction consensus protocols are used to validate them. New blockchain ledgers are incorporating smart contracts that can include conditions/rules in order to complete a transaction. Once conditions are met, a resulting operation can be completed. Real-world applications are still being explored but include insurance claim payouts, supply chain management, and even employee payroll processing. It could automate a number of business processes.
The blockchain was originally invented to record transactions for the cryptocurrency Bitcoin but has since been adopted for commercial applications, called use-case, and development by some high-profile international companies. Its strength lies in its enhanced security and the fact there is no single point of failure for the system.
The Current State of Blockchain
Blockchain has come to be referred to as DLT and has been expanding rapidly in recent years. It was estimated in May 2018, that there were over 5,000 DLT projects underway with 5,000 – 10,000 global employees dedicated to its development already. According to IHS Markit (NASDAQ-INFO), its business value is set to increase from USD 2.5 billion in 2017 to $2.0 trillion in 2030. Fifty of the world’s 2,000 largest public companies are in some stage of exploring, developing or deploying blockchain technology.
Where Does DLT Hold Value?
However, not all business-use cases hold value, and it is not always apparent in new technologies. McKinsey & Company’s report claims two major need areas that blockchain fills are with six distinct use categories. The report recognizes that in the short-term the most strategic value for the technology is in cost reduction by removing intermediaries in record keeping and storage, creating, by their estimates, 70 per cent of the short-term value. The three most suited industries to capture this value are financial services, government and healthcare.
Accenture’s Digital Strategy Framework discusses the next stage of blockchain development as the transformative stage where token economies will transform how, when and why businesses interact with stakeholders and consumers at large rewarding certain behaviours to affect real change and improving revenue generation.
Investor Takeaway
The key takeaway for investors today, is that you do not have to invest directly into a blockchain company to reap the rewards of the technology (often these are small companies, hence riskier), as 50 of the largest public companies in the world are already exploring and using DLT solutions. Furthermore, the real value in blockchain at this point in time are in cost reduction strategies that will benefit three main industries the most: financial services, government and healthcare.
Feel free to contact Thierry Tremblay or Nick Shinder of Shinder Tremblay Private Wealth with iA Private Wealth regarding any questions you may have on this content.
Disclaimers
This blog is solely the work of Nick Shinder and Thierry Tremblay for the private information of their clients. Although these authors are a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and these authors are not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of these authors alone, and they have not been approved by, and are not necessarily those of, Echelon.
Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
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Sources:
https://www.echelonpartners.com/img/pdf/An-Investors-Guide-To-Bitcoin-Basics-Echelon.pdf
https://www.echelonpartners.com/img/pdf/Echelon-Bitcoin-Article-2.pdf
https://medium.com/coinmonks/enterprise-blockchain-where-is-the-business-value-ead60bbd2cb2