A great number of predictions are being made about blockchain, and how the technology behind Bitcoin will revolutionize the world. While the ever-growing cryptocurrency is perhaps the most popular application of blockchain technology, there are a plethora of ways it can impact various sectors.
Due to the decentralized ledger style of blockchain, which provides safety and speed, it can impact most of the sectors of the current economy.
Banking is an obvious target – settlement resolution can completely change the way we deal with transactions. Auditing is a less obvious target, which for the most part can be eliminated by this new technology.
Being unaware of the potential threat of blockchain can be dangerous for companies and investors alike.
AlphaSense is my preferred tool for understanding complex topics and macro trends due to the vast database of information that it provides. The dataset now also includes information from private companies, which is especially useful when researching blockchain, because a significant number of players in this space are not yet public.
Threat or opportunity?
Looking at the trend chart below on the search term blockchain in AlphaSense, it is clear to see that mentions of blockchain have sharply increased over the last couple of years. By comparison, blockchain was mentioned only 26 times in early 2015, while it amassed over 2,000 mentions in October and November of 2017.
In order to efficiently gauge the interest of each sector and to assess their view of the technology, I used the AlphaSense Industries filter to sort through the mentions by sector. Here are my findings:
Perhaps the clearest opportunity for blockchain is in the financial sector. Many institutions have expressed their view that blockchain may disrupt several features of the financial markets.
The most discussed was settlement resolution. This could affect many industry players – from exchanges and clearinghouses to investment banks. Given the potential widespread effect, several players built R3, a consortium which is focused on testing blockchain. This effort is mentioned by several investment banks as well as custodians, such as State Street.
On top of this, Nasdaq ($NDAQ) has been frequently commenting on their financial framework, which experiments with the settlement solution. ASX (ASX.AU), the Australian exchange, has shown similar efforts.
During a call for the first half of 2016, ASX was asked about the potential threat blockchain poses to the exchanges. The CEO answered that clearing may be impacted the most because blockchain has the potential to push the settlement terms to T-now, or T0, which means that there will be no need for a clearinghouse. The transactions will be instant or nearly instant.
ASX CEO mentioned, however, that this is still far away from happening because the markets are not connected enough to withstand such rapid movement. Therefore, this is not going to happen overnight or even in several years. A similar argument was also presented by Bank of NY Mellon, who mentioned that the technology is a long way from being mainstream.
Lastly, large institutions, such as central banks, who can also be found in AlphaSense search results, are starting to issue numerous educational reports about blockchain that should lead to more discussion about the pros and cons.
The IT sector certainly understands its potential to benefit from the growth of blockchain. Among the bigger firms, IBM ($IBM) has been frequently commenting on their efforts exploring various blockchain applications such as food, healthcare and transportation.
During a Citi Global Conference in 2017, IBM mentioned that the most exciting opportunity is in the settlement procedure. However, IBM stated that companies such as Maersk, who have complex administration processes that could be simplified, may also be beneficiaries.
SAP ($SAP) and Infosys ($INFY) were the second most frequent commenters. SAP mentioned benefits of blockchain for the Internet of Things (IoT). Blockchain can support the network of devices and increase efficiency and speed of its execution. Infosys mainly spoke about the use of blockchain in the supply chain of food companies.
MasterCard was asked about the potential threat of blockchain on a quarterly call and during a conference. The credit card company could be threatened if the settlement process and digital currencies are adopted faster and therefore, circumvent the existing payment systems.
MasterCard replied that the threat might not be that significant as of now because the technology is still in its early days, and it lacks security. During their Q4 2016 call, the CFO also stated that a similar threat to their credit card business was present when mobile payments were booming, but that the threat failed to materialize and blockchain is likely to go the same route.
The energy sector did not comment on the technology until 2016. This might be due to the lack of straightforward applications. The larger firms did not even voice their opinion about the potential threats or benefits. However now it seems that Petroteq Energy Inc. (PQE.CA) is focused on developing a blockchain solution aimed at the supply chain of the oil and gas (O&G) industry. The effort of the company was detailed in a NewsWire editorial.
The food industry is also not frequently commenting on blockchain, but several recent mentions point to various opportunities for the sector which revolve around food traceability. A similar application to the O&G effort to track supply chain.
In June of 2017, Wal-Mart ($WMT) mentioned during their annual shareholder meeting that they are piloting such effort with a program in China that traces pork. Wal-Mart also recently joined forces with IBM and Nestlé to further explore the technology.
More obscure applications of blockchain has been mentioned in this sector by Artprice (PRC.FR), which is creating solutions for the art market. Overstock ($OSTK) is also frequently experimenting with the technology. Its subsidiary, tZero, is focused on several financial applications. The company is also going to do an initial coin offering (ICO) for the subsidiary. Overstock is the first larger company that will try to raise capital through this new avenue.
What I found intriguing is that some institutions have commented on blockchain with a significant head start. These early adopters could be interesting to follow as they could have more experience with the technology.
One of the famous early adopters were the Winklevoss Brothers who wanted to start a bitcoin trust that would be registered with the SEC. In the registration statement from 2013, they clearly spelled out the benefits and drawbacks of blockchain and the potential of the technology.
Trend Micro Inc, a Taiwan-based company focusing on security software has built a presentation about the deep web, bitcoin and blockchain in connection with Silk Road and cybercrime in late 2013.
However, perhaps the most intriguing early mention was from Prosper Marketplace which is a peer-to-peer (P2P) lending company in the U.S. In its prospectus filing it describes what the loans originated on the platform were used for and in June 2011, when one bitcoin was just $15 and roughly over a year old, there was one request for a loan that would support a “Bitcoin Venture” described as follows:
AlphaSense can be used to efficiently track the filings of these lenders in order to understand various trends that might not be visible to the broader financial community. The platform can offer granular microdata which can aid analysis.
To commend the larger institutions, the European Central Bank released a report about Bitcoin in October of 2012, but did not overly mention the underlying technology.
It seems that while blockchain has been touted as a potential disruptor in many areas, the most prevalent sectors where the topics are discussed are still IT and finance. The other sectors have done little with blockchain to date, although firms such as Wal-Mart are trying out benefits of the technology in connection with their supply chains.
The IT sector is obviously well positioned to take advantage of the developments and help the other sectors with their efforts. IBM has been especially active in the space. In finance, there is a split opinion about blockchain it potentially poses a threat to the exchanges, clearinghouses and custodians.
However, it’s widely noted that the adoption of blockchain is likely to be slow, and there will be ample time to address any issues. Therefore, optimistic outlook prevails.
As per the usual last step in my research process, I easily save my search on AlphaSense and set an email alert through which I will be able to stay on top of what is happening in the blockchain world.
1. Morgan Stanley Global Insight: Blockchain in Banking: Disruptive Threat or Tool?, April 20, 2016
2. Future Thinkers: 19 Industries The Blockchain Will Disrupt
3. Cisco’s The Network: How the Blockchain will Transform the Stock Market, September 27, 2017
4. Deloitte: Blockchain Technology A Game-Changer in Accounting?
5. Wikipedia: R3 (company)
6. NetworkNewsWire: Blockchain to Enable Frictionless Transactions, Transparency to Each Complexities of Global Oil & Gas Industry, November 15, 2017
7. New Food: How the Blockchain Can Save Our Food, April 23, 2017
8. Forbes: IBM Forges Blockchain Collaboration With Nestle & Walmart in Global Food Safety, August 22, 2017
9. European Central Bank: Virtual Currency Schemes, October 2012