It’s common for some corporate leaders to speak with great excitement about the impact blockchain and other distributed ledger technology can have on their businesses, yet in the same breath with disdain for cryptocurrencies, equating them to speculation, fraud, and pictures of spaced-out monkeys.
The intrinsic link between cryptocurrencies and blockchain
Indeed, several events over the last few years have augmented this narrative, including large-scale fraud at FTX, the collapse of several lenders and hedge funds, and pump-and-dump schemes. However, these sorts of acts are not exclusive to cryptocurrencies and have been perhaps just as prevalent in traditional finance over the years.
As the digital landscape evolves, enterprises must recognize the intrinsic link between cryptocurrencies and blockchain.
Cryptocurrencies are central to the functioning of most public blockchains (public blockchains can be used broadly by anyone, although they are not all built equally and have varying levels of “enterprise attractiveness”). They are the payment mechanism for the use of the respective blockchain and provide an incentive for both technological innovations and those that help secure the networks.
Corporate leaders who fail to evolve will be left behind by the more advanced financial institutions already on a path to public blockchain adoption.
Corporate leaders who fail to evolve will be left behind by the more advanced financial institutions already on a path to public blockchain adoption.
Due to Bitcoin's prominence, the primary use of which has arguably been payments for goods and services, it’s a common misconception that all cryptocurrencies are to be used in this way. This leads to a belief that they have no real intrinsic value and are only traded by speculators. However, most cryptocurrencies are designed to be the payment mechanism for using their respective blockchains rather than purchasing goods and services.
Many large corporations already use public blockchains today. When they do so, they make payments (sometimes referred to as “gas” fees), either directly or indirectly, in the native cryptocurrency of that blockchain.
Greater blockchain adoption means increased demand for cryptocurrency
Many blockchains have a finite, or at least controlled, supply of cryptocurrency. As a particular blockchain sees greater adoption, there will be increased demand for its cryptocurrency to pay for its use, which should place upward pressure on its value. This incentivizes blockchain entrepreneurs and developers, typically remunerated in the native cryptocurrency, to innovate further and give their blockchain a competitive advantage.
Additionally, proof-of-stake blockchains, the most prevalent and used by enterprises, are secured through the decentralization of operators, who “stake” their cryptocurrency as their right to operate the network. They are rewarded for this through payments in the native cryptocurrency; therefore, the cryptocurrency helps improve the network's security.
Without cryptocurrencies, there is no real incentive for entrepreneurs to build innovative blockchain technology. You also do not incentivize groups to operate blockchain networks and ensure their security. Yes, cryptocurrency-free “private” blockchains have been used successfully by several companies to create operational efficiencies.
The real prize for most businesses will come from developing public blockchains, which offer them the ability to scale products and services through access to a broad, global audience.
However, the real prize for most businesses will come from developing public blockchains, which offer them the ability to scale products and services through access to a broad, global audience.
The need to evolve blockchain adoption
The traditional corporate world must progress its understanding of blockchain technology and cryptocurrencies beyond the headlines. In financial services, where this rhetoric is most common, corporate leaders who fail to evolve will be left behind by the more advanced financial institutions already on a path to public blockchain adoption.
Fortunately, there is still time to close the gap, but with 2024 set to be a big year for blockchain adoption, they should seize the opportunity now.
Important information
Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.
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