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Here’s Why Digital Assets Are Here to Stay

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What You Need to Know

  • Digital assets' underlying technology, called blockchain, offers massive benefits.
  • Current methods of commerce do not provide these benefits.
  • It’s time to incorporate digital assets into your investment management strategy.

Are you among those who believe Bitcoin and other digital assets are nothing but a fad, a modern-day set of tulip bulbs, Beanie Babies and Pet Rocks?

It was once easy to claim that those newfangled “horseless carriages” would never gain mass adoption, either, but at some point, even the most die-hard detractors started buying cars.

So too will it be with today’s naysayers of this technological innovation — as amazingly advanced as early automobiles once were to those beloved four-legged steeds.

This isn’t hyperbole. You need to understand why digital assets are here to stay. And the reason is simple: The underlying technology, called blockchain, offers massive benefits that current methods of commerce do not provide, including:

  1. Decentralization. There is no single point of potential failure, no single location or target to harm, and no single individual or entity — government, corporate or terrorist — that can threaten the network, either maliciously or through incompetence.
  2. Transparency. Everyone with an internet connection can see everything on the network. This democratization of data is both revolutionary and radically resistant to collusion. Thanks to instant traceability, provenance is assured, and supply chain weaknesses are easily identified.
  3. Immutability. Once placed on the network and verified, the data is permanent. It cannot be changed, duplicated or deleted.
  4. Limitless. We can append to existing records, providing new information — such as the fact that the deed of a house has a new owner.
  5. Trustless. All data is authenticated, eliminating the need for participants to rely on trust, which can be fleeting.
  6. Security. Information is stored across millions of computers worldwide, rather than a single server, making it difficult for hackers to view or access data. Privacy can be maintained by anonymizing personal data and adding permissions to access information.
  7. Speed. Current methods of commerce are expensive, time-consuming, and subject to human error, leading to legal costs. Blockchain lets transactions be completed faster and more efficiently, at lower cost.
  8. Automation. “Smart contracts” allow transactions to be processed without human intervention, accelerating payments.

These benefits translate into thousands of commercial uses. Here are just a few:

Personal remittances. The average cost to send money from one country to another, according to the International Monetary Fund, is 6% (and up to 20% in some sub-Saharan African countries). It also takes five days to complete the transaction. Blockchain technology lets users send money cross-border in minutes, even seconds, at virtually no cost — and you can do it 24/7.

Programmable money. Also called smart contracts, allow money to be transmitted only when the counterparty satisfies preset conditions — such as delivering your pizza. Those conditions could be based on time, temperature, weather, presence or absence of heat or moisture, the outcome of a political or sporting event, or some other condition. With smart contracts, your money is sent but not received until all conditions have been satisfied, using the blockchain as an escrow account.

Micro payments. One issue preventing many industries from success is the inability to make payments in tiny amounts. In 2020, Bob Dylan sold the rights to his music catalog to a publishing company. What if that company decided to sell those rights to investors? It’d be cool to own a share of “Mr. Tambourine Man.” Just imagine getting your cut of the royalty every time the song is played on the radio or Spotify!

The problem is that your cut would be tiny. Dylan’s 600-plus-song catalog sold for a reported $400 million. Each song is therefore worth an average of about $667,000. Say the songs are sold for shares priced at $1,000 each — that’s about 6,700 shares of “Mr. Tambourine Man.” When the song is played on the radio, it earns a 9.1-cent royalty. If it plays 12 times a year, each of those shares would therefore be entitled to a payment of $0.0016.

Like I said, tiny.

Not only is there no currency amount for this — pennies are only two decimal places of a dollar — the cost of distributing that payment dwarfs the payment itself. The stamp alone to mail the check is 55 cents, and let’s not ignore the cost of the check and the labor to issue and record it. It’s simply economically impossible to make payments of such tiny amounts.

Unless you use Bitcoin. Because Bitcoin’s smaller denominations are the tiny Satoshis, paying someone four Satoshis is easy, quick and free of postage. Thus, one promise of blockchain is that micropayments can now be possible — boosting the potential for e-commerce on a global basis.

Indeed, 17% of adults — 300 million people worldwide — lack bank accounts but do have smartphones, and that’s all you need to access Bitcoin. New technology is providing unprecedented access to money.

Supply chain management. Thanks to shared records, we can monitor the processing of goods and services as they flow through the supply chain. We’ve demonstrated real estate benefits. Now consider the fishing industry. The Norwegian Seafood Association is using a blockchain created by IBM to track salmon as they are bred, caught, stored and shipped. At the grocer, consumers can scan each fish’s QR code to see where the fish was farmed and when it left the sea. In turn, Norway’s suppliers of what’s considered the best salmon on the planet can prevent fraud and reduce waste.

Or consider luxury watches. Some of the most prestigious watchmakers in the world, including Vacheron Constantin, Ulysse Nardin and Breitling, are using blockchain technology to track every watch they manufacture. This allows buyers to authenticate each watch’s provenance — from the factory to the retailer, guaranteeing authenticity through changes in ownership. Virtually every industry can find value and benefits in deploying blockchain technology.

At present, most companies have not deployed the tech. But that is almost certain to grow exponentially. Xerox invented the commercial fax machine in 1964, but they weren’t ubiquitous until the 1980s. It won’t take as long for blockchain to become equally commonplace. Health care records, financial transactions, education reports, environmental information — the list of data that can be placed onto the blockchain is endless.

Self-sovereign identity. Rather than Facebook having and being able to use all your personal information without your knowledge and without compensating you, blockchain could give you more control over your identity and information, letting you grant access as you choose — and be compensated for doing so.

Some of the above is already in place. Other innovations have yet to enter the world of commerce. But be clear: All of it is coming. And since the access to entry to the blockchain are the digital assets it produces — the coins and tokens you’ve heard so much about — you can expect the price of those assets to rise exponentially as the technology is adapted by every government and corporation on the planet.

For your clients’ sake, and that of your practice, it’s time to incorporate digital assets into your investment management strategy.

DACFP’s Certificate in Blockchain and Digital Assets course can give you the start you need. But if you insist on remaining aboard that buggy, then do everyone a favor and get the hell out of our way — before you get run over.

Ric Edelman is the founder of the Digital Assets Council of Financial Professionals.


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