Blockchains, cryptocurrencies and cryptoassets

Cryptoassets are not just cryptocurrencies; every asset will be digitized and these cryptoassets are ultimately going to come to represent almost every single asset we have—natural assets, commodities, securities, and traditional fiat currencies as we understand them today. Investor’s Digest of Canada interviews fintech author Alex Tapscott.

Blockchain technology will someday allow for the exchange of many different types of assets. Cryptoassets are not just about cryptocurrencies.

On the eve of this past November’s US midterm elections, The New York Times published a controversial Opinion column that proposed a paradigm shift in the ways we think about identity, security and voting. The voting process would be enhanced and confidence restored when countries transition to blockchain elections, the columnist theorized.

The piece generated extensive responses, but no matter the opinion on the viability of its ideas, the consensus found the principle of establishing a reliable system for gathering and tallying votes to be unassailably valuable. The writer of the column was none other than Canadian innovator Alex Tapscott.

Alex is the son of fintech revolutionary Don Tapscott (author of The Digital Economy and Wikinomics). He has become a thought-leader on blockchain-related matters. In 2016, he and his father co-authored the top-selling book on cryptocurrency, Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. (An updated second edition was released in 2018.)

The Tapscotts are also the founders of the internationally-acclaimed Blockchain Research Institute (BRI). Alex is redefining the blockchain space with his presentations on “cryptoassets” as the BRI ushers in the next stages of technical development and regulation. Investor’s Digest’s Jordan Lazaruk spoke to Alex recently about his work and the evolution of blockchain.

What are cryptoassets?

J.L.: You spoke at length earlier this year about your classification of different blockchain-based projects as representing cryptoassets. Can you explain the term?

A.T.: The thing that’s happened over the past couple of years that’s really captured people’s imaginations is the increase in the value of cryptoassets. A lot of people quite frankly ask: “Why do we need a thousand or more (blockchain-based) currencies?” Today we have a system where most governments or nation-states create their own currency. It’s not a system that works particularly well. So why would we want to replicate that initial model? It’s a fair question.

I think the key thing for people to realize is that the world of cryptoassets is not just about currencies; in fact, currencies are only one set of the different types. And what we’re seeing—with the creation of these certain kinds of assets—is the first native digital medium for value.

You’ve basically got a whole new asset class, and these cryptoassets are ultimately going to come to represent almost every single asset we have; not just currency, but natural assets, commodities, securities, and traditional fiat currencies as we understand them today.

That’s going to represent the biggest rethink or reorganization of wealth in human history—going from all analog to all digital. You’re going to see the migration of hundreds of trillions of dollars of assets onto blockchain-based platforms.

Whether you are an investor, or you are a business leader, regardless of what industry you’re in it’s going to impact you, and so you have to be aware of it.

Will blockchains allow peer-to-peer transactions?

J.L.: Why do we need to migrate our assets to the blockchain?

A.T.: Pretty simply put, this is a more efficient, secure and frictionless way to move, store and manage assets. If you look at the securities market you’ve got $110 trillion—just in one of many types of financial assets. The way we trade assets in securities markets today might appear digital in the sense that you log on to your brokerage account and execute a trade online. What’s happening behind the scenes is that that transaction is going through this dizzying, complex series of intermediaries and doesn’t take a second to settle—it takes three days—and in the process incurs the risks associated with doing that.

With blockchain, we can enable the trading of stocks and bonds to happen peer-to-peer in the same way we can do that with cryptocurrencies.

Or think about the payments market, where you go to the store and you tap your card on the card reader. Again it might seem digital, but it’s not. What’s happening is it’s bouncing through your bank, the merchant’s bank, a clearing house and a couple other intermediaries.

If you think about other industries like supply chains right now, when assets move through supply chains, it’s up to whoever is holding that asset to understand and manage the custodies, and that’s because we don’t have a way to basically share data in a trusted manner. But with blockchain, everyone involved in the supply chain—from the creator of the goods to the end buyer—can understand and know, at any point in time, what the state of that asset is. We can use crypto as a way to track those assets, so supply chains will be transformed.

If you think about government, we’ve never been able to crack the code on e-voting. If anything, the move is now to go back to paper ballots because the Internet is not a good medium for voting.

Voting is a lot like making a payment—it’s like a transaction. When you vote, it’s important that your vote is counted, that it counts for whom you voted, that it remains anonymous, that it can be validated after the fact, and that you can’t vote again.

We can use blockchain as a way to make people execute a payment in a vote. Vote once and ensure the vote is counted and counted toward the person who you voted for because it’s recorded to this blockchain.

If you think about creative industries like music and film, we don’t have a way to enable micro-payments for consumption of individual assets like articles and songs so we have to stick to a subscription model. Blockchain can enable new payment models to ensure that content creators get paid. Songs are already digital assets—they’ve got music and lyrics and other information in them. They should have contracting inlaid—whenever it’s consumed it should create payments for the creator so that they get paid fairly and get paid first rather than get paid last if at all. There are use cases for this technology in a wide range and we’re really just scratching the surface.

A regulatory climate must be created

J.L.: A number of investors have been spooked by the volatility of the blockchain sphere and have expressed concerns about scams and a general lack of regulation in the space. What is the BRI doing to address these concerns?

A.T.: On one hand, you see a big technology boom—you see a lot of money goes in and you see a lot of innovation occurring. On the other hand, it’s taking place in this environment that’s really pushing the envelope of the regulated financial world as we know it.

The good news is that token sales and crypto have enabled new forms of fund-raising that make it easier for entrepreneurs to raise capital, build a business and create value. The bad news is that, like in any frontier market where expectations are high and a lot of money is sloshing around, fraudsters and criminals exploit it and end up ripping off investors.

What you need to do is create an environment where regulations still enable innovation but where the obligation of the regulator is fulfilled, which is essentially to protect investors, to stop criminal wrongdoing, and to ensure the integrity of capital markets. I think those things are possible, and if you look at what regulators are doing across the world we have reasons to feel really optimistic.

In places like China it’s unclear whether or not regulators are ever going to feel open or welcoming to this industry, but in places like Canada or the US the mentality is very different.

The Ontario Securities Commission (OSC) has shown a willingness to be innovative and has allowed a lot of projects to move ahead. In the US the SEC just announced they are creating what is in effect a safe space for companies to communicate with regulators to share information.

The BRI is doing a lot to make that happen. If you look at the membership of the BRI, it’s made up of large companies but also governments and government institutions. We count as members of the BRI the federal government, the [Ontario] provincial government, the City of Toronto and the Bank of Canada. So we have the unique ability to convene different stakeholders together and to help address these issues.

For example, in the spring we hosted the Regulation Roundtable where we had representation from many of Canada’s, and the world’s, leading start-ups, projects and protocols along with stakeholders from the financial services industries, the legal industries, and the corporate world, regulators from the OSC and other international regulatory agencies plus some government institutions.

Most of the participants said it was refreshing to have an opportunity to sit down together with such a diverse group to talk about these issues. Investors—whether they’re retail investors or institutional investors—need to feel comfortable that what they’re buying is what was marketed to them. They should have a reasonable expectation that regulations will be enforced and that any company they invest in will follow the law.

The Canadian technology industry has done itself a great service by producing some extremely high-quality projects and has executed pretty flawlessly on their plans, which has engendered a lot of confidence among the investment community, the corporate community and the regulatory authorities.

J.L.: Thank-you.

Regulation needed to create security, confidence

Although the valuation of the blockchain space has plummeted, which is a glaring red flag for investors in the short term, the technology will dramatically reshape industries and economies in the near future.

The work of people like Alex Tapscott and organizations such as the BRI will inevitably curate a secure space, and when confidence is restored, the opportunity to generate value will be historic. When that happens make sure to follow the advice of the Oracle of Omaha, Warren Buffett: “When it rains gold, put out the bucket, not the thimble.”

Jordan Lazaruk is a cryptocurrency consultant, co-founder of the food and lifestyle company Grindz, and a board member and proud supporter of Toronto-based non-profit group Project Phoenix.

This is an edited version of an article that was originally published for subscribers in the January 4, 2019, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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