While Bitcoin is the most well-known digital asset, it is only one of many asset classes that are helping to transform financial services around the world.
While change is unavoidable, the magnitude and scope of that change are not. Blockchain — the technology that underpins Bitcoin (BTC), Ether (ETH), nonfungible tokens (NFTs), and other digital assets — has brought the financial industry to a fork in the road.
What will the financial future look like?
For the past ten years, we have been at the forefront of cryptocurrency, protecting large and small investors alike while allowing them to invest in this exciting new frontier of finance. The knowledge we’ve gained here allows us to anticipate what’s ahead.
A variety of outcomes are possible during this historical period, but one thing is certain: the efficacy and innovation of technology will have an impact far beyond traditional financial sectors.
The mature digital assets industry is on its way.
When compared to the contracts, transactions, and records that currently define our economic, legal, and political systems, blockchain provides a faster, more efficient, and more secure structure for financial transactions. The Harvard Business Review put it succinctly: “[The old financial structures] are like rush-hour gridlock trapping a Formula 1 race car.” The way we regulate and maintain administrative control in a digital world must change.”
Technologies have changed the way we complete financial transactions from generation to generation. The modern credit card has been around since the late 1950s, the first proper internet sale was completed in 1994, PayPal was founded in 1998 and went public before being sold to eBay in 2002, and Satoshi Nakamoto began the blockchain revolution in 2008. Today’s financial titans are no longer on the sidelines. In addition, 55 of the world’s top 100 banks have some level of exposure to this novel technology.
Following hacks against cryptocurrency exchanges, including an 850,000 BTC theft against Mt. Gox, Japan issued the first international regulations in 2016. Because the success of any financial market is dependent on predictability, security, and overall market efficiency, regulators are still debating the direction and viability of their involvement with cryptocurrencies.
To encourage participation, regulators and businesses want to ensure that investors have certain safeguards in any marketplace, digital or otherwise. Consider the Federal Deposit Insurance Corporation (FDIC) for US banks or eBay’s Money Back Guarantee. Market participants may be exposed to both long-term and short-term risks in the absence of regulation.
Regulators also ensure that markets follow the same set of rules. As Commodity Futures Trading Commission (CFTC) Commissioner Dan Berkovitz stated in June:
“It is unconscionable to allow an unregulated, unlicensed derivatives market to compete with a fully regulated and licensed derivatives market.” Importantly, it is not just regulators and governments who will determine the future; it is up to us, investors, leaders, and general consumers, to decide how we want to use digital assets in the future.
Language evolution for useful digital assets
Language evolves in tandem with more large investors seeing blockchain’s long-term value proven out over time as they begin to diversify major holdings to include crypto, increasing the association between these new assets and legacy assets that have held historic value — such as gold, bonds, or central bank-backed fiat.
You are judged by the company you keep in business, so we won’t get that “hearty embrace” unless we adopt the language of financial services and regulators more broadly.
As the market matures, the language used in the cryptocurrency industry will evolve as well. Regulation and widespread adoption will alter how the media and the general public perceive and discuss digital assets.
Crypto will retain its distinct personality as it matures — don’t expect HODL, FUD, and “to the moon” talk to go away — but it’s critical that a broader cohort of blockchain investors feel at ease in the space.
It may seem insignificant, but our focus on fusing the languages of crypto and institutional finance has allowed us to work with a diverse range of institutions over the last decade, including neobanks, fintechs, and brokers, as well as banks, hedge funds, and family offices.
Nonetheless, it is not unreasonable to consider crypto as a commodity rather than a digital currency — in 2019, U.S. Federal Reserve Chair Jerome Powell told Congress that Bitcoin was a “speculative store of value” similar to gold. But Bitcoin isn’t the entire story; it’s just the most publicized. The industry must shift its focus away from a single use case for technology and toward money, investments, financial management, and smart payments.
The industry is much larger than any single token.
Over the last decade, we’ve discovered that customers are increasingly drawn to assets that have utility and can solve complex problems.
Different digital currencies have various applications. As an example:
Tether (USDT) would be ideal for salary payments because it is linked — tethered — to US dollars, avoiding the volatility of Bitcoin. Brave’s Basic Attention Token (BAT) is charting a course for the future of online content by paying users of its browser in BAT for viewing ads. These users can then use the BAT in their digital wallet to tip anyone on the internet. And the Audius governance token (AUDIO) makes a compelling case for crypto playing a larger role in the future of the music industry, providing artists and fans with security, exclusive feature access, and community-owned governance.
A common misconception among the general public is that blockchain is about solving problems, not taking over the world or replacing fiat or banks. While Bitcoin is the most well-known digital asset due to its brand recognition and early arrival, it is only one asset class among many.
So, what does the future hold?
The Senate passed an infrastructure bill earlier this year that included an amendment that brought new scrutiny to the crypto industry, opening the door to regulators.
A more mature marketplace that protects its consumers and values transparency, predictability, and honest communication will benefit investors, digital asset exchanges, smart technologists, government officials, regulators, and everyone in between. Similarly, the majority benefits from understanding which digital assets have actual value and which exist solely to enrich the wealthy.
We’ve been around since the beginning and have witnessed the ebb and flow of trends. But, as we’ve seen, what survives at the end of the day are always brilliant ideas that solve our time’s emergent problems.
Yes, change has arrived. Over the last few years, the mature digital assets industry has begun to emerge, bringing with it a synergy of language that has become more sophisticated and invited a broader audience to our table. This new audience’s assets and insights, in turn, will provide rich confidence across industries. That trust will lead to the adoption of blockchain technology to solve problems that no one ever imagined blockchain could solve.