Why blockchain still has a future, despite its past

In 2017, Katherine Pinkard met an MBA student at a conference who said she wanted to work for a blockchain team at a major Wall Street bank. After their chat at the Johns Hopkins University event, where Pinkard was the keynote speaker, she Googled “what is blockchain?”

When he read about the new technology, the president of commercial real estate firm Pinkard Properties quickly saw the business potential. “I realized how impactful this technology could be—was going to be—on the commercial real estate industry,” says Pinkard. “I decided that day that I wanted to be a part of it, and I was going to learn as much as I could about how blockchain could impact real estate.”

These impacts include allowing fractional ownership of real estate through digitized assets, greater transparency in transactions due to the permanence of blockchain records, and fraud reduction through the use of smart contracts, agreements that are executed automatically when a set of predetermined conditions are met.

Real estate is just one of the many sectors investing in blockchain technology, an advanced database that stores information in linked blocks and is shared and immutable, providing transparency. Finance, healthcare and public sectors are also exploring blockchain in innovative ways, but the potential applications could reach the entire economy.

The global blockchain technology sector was valued at US$10 billion in 2022, and it is expected to grow at a compound annual rate of nearly 90 percent from 2023 to 2030, according to data from Grand View Research. Driving factors behind the high growth include venture capital funding and investments in the sector, the use of blockchain solutions by the banking and cyber security industries, government initiatives and business adoption for smart contracts, digital identities and payments, according to a Markets and Markets report.

After a year that saw sharp reductions in the prices of leading cryptocurrencies, and major scandals such as the collapse of Terra’s stablecoin ecosystem and the implosion of crypto firm FTX amid fraud allegations and accusations, some experts worry about the effects of investor hesitancy and increased regulatory scrutiny. on the emerging sector.

“People are generally more skeptical about the technology and the potential pitfalls 1676409213, says Pinkard. “We try to articulate that fraud is fraud regardless of the investment vehicle, but since it’s a very nascent way of investing, there’s still a lot of fear of the unknown.”

Why blockchain?

Blockchain technology is often associated with cryptocurrencies like Bitcoin or Ethereum, but its uses go far beyond crypto, said Jane Connell, senior vice president and chief information officer of Verizon Global Technology Systems’ Corporate Systems Group.

For example, last fall, Verizon won the 2022 Web3 & Blockchain Transformation Award in Toronto for a blockchain invoice dispute resolution set up with its wholesale partners. “Verizon transformed an inconsistent, inefficient and labor-intensive billing dispute process involving wholesale partners into a self-sustaining rules-based dispute resolution solution,” said Connell, who described the scenario as a win-win for both sides.

Ganesh Swami describes the potential business use cases for blockchain as “almost endless.”

“Just in the past year, we’ve seen blockchain technology used to streamline historically tedious operations like data reporting, supply chain management and more,” says Mr. Swami, CEO of Vancouver-based Covalent, which provides blockchain data APIs and infrastructure. He pointed to the example of California’s Department of Motor Vehicles, which recently began testing the digitization of car titles and title transfers on the blockchain. The initiative has the potential to modernize the DMV’s paper-based systems, reduce transaction fraud and improve vehicle history tracking, he says.

In the five years since she first learned about blockchain, Pinkard has incorporated it into her business operations and become a regular speaker and writer on the subject.

“Blockchain creates a lot of efficiency in commercial real estate,” says Pinkard. “Transactions can be executed faster and more transparently in an industry that is notoriously opaque.”

Tokenization of commercial real estate assets on the blockchain could open up opportunities to raise equity capital and improve investor governance, she says, and could even “democratize” real estate investing by opening access to commercial real estate to investors of all sizes.

The technology also has applications for much smaller assets than commercial properties.

“I joined the blockchain world in 2015 and quickly noticed that this technology was going to change the way we thought about asset ownership as a whole,” says Manuela Seve, founder and CEO of Alphaa.io in New York, which creates digital tokenization solutions for businesses. These include smart contracts that guarantee royalties on resale markets for original artwork creators, or transaction receipts stored on the blockchain.

“For example, our engagement platform for sports fans allows teams to amplify the experience of visiting a stadium in person,” says Seve. This gamification occurs through blockchain-enabled activities such as collecting points for purchases, including team merchandise and collectibles, and offering active fans rewards such as on-site seat upgrades.

Seve points to blockchain’s applications for authenticity, reselling and community building across industries as evidence of its business potential.

After a tough year

Last year, developments in the blockchain area occurred when several leaders in the sector fell apart. At the same time, the prices of leading cryptocurrencies fell and remained low compared to the previous year, while governments around the world began to put regulatory pressure on the sector.

FTX’s collapse was not caused by blockchain technology, but by old-fashioned financial speculation – the kind that can happen in any industry, Mr. Swami claims.

“Bigger picture, blockchain technology was conceptualized to prevent historical methods of fraud,” he says. “Using the technology responsibly will support ethical, transparent business practices in the short and long term.”

Investor interest in blockchain-based technology is very dependent on who you talk to, says Christian Lopez, head of blockchain and digital assets for Cohen & Company Capital Markets, a boutique investment bank. “Many institutional investors who emerged in the industry in 2021 and 2022 are reducing their exposure, but it’s not just limited to blockchain.”

Those who have a history in this space are believers in the technology, and they bargain during a downturn, he says. Even in traditional financial institutions, investments still take place. Mr. Lopez points to Mastercard, Visa, Stripe and JP Morgan as just some of the well-known institutions investing in this space.

What’s next for business and blockchain?

After a year of high-profile scandals such as the collapse of FTX, regulation will be a dominant theme for this sector in 2023, says Lopez.

Securities laws apply to real estate investments enabled by blockchain technology, just as they do to more traditional investment vehicles, Pinkard says. “However, within the legal and regulatory framework, these tokenized assets can be traded faster and more transparently than traditional commercial real estate assets, especially those of smaller, non-institutional size.”

Every new industry is scrutinized, says Seve, and blockchain proves to be no exception.

“We operated like the wild west. For us to get to mainstream adoption, we need to do our best to develop serious products and use our technology to provide more transparency specifically in the use of funds.”

Seve says that she also hopes to see more focus on equity in blockchain this year, and in the future. “Women are a minority in tech and venture, period,” she adds, pointing to a reduction in the funding share for women last year from 2.2 percent to 1.9 percent—and just 0.2 percent for women of color .

“I expect that there will be more representation in blockchain over the years. Especially as we continue to speak out against said ‘boys’ club’, which allowed so many scandals to develop with impunity in the industry.”