Share this article:
Digital assets are everywhere in the news these days: cryptocurrencies, stablecoins or non-fungible tokens (NFTs) to name a few. Their applications range from representing financial instruments to protecting the integrity and ownership of digital IP or physical assets. Enterprises engaged in digital assets have a great opportunity to deliver meaningful value to their customers through new services and business models. Following a recent webinar featuring Martha Bennett, VP and Principal Analyst at Forrester Research: Digital assets, a new paradigm for financial servicesI had the opportunity to ask her several important questions that any organization looking to bring digital assets into their organization should consider.
What are digital assets and what are some examples?
In this context, we are looking at the various digital assets represented on a blockchain or distributed ledger network, particularly in the form of tokens. Tokens are either fungible (ie, one can be replaced by another) or immutable (ie, each one is unique). Those tokens can be cryptocurrencies, stablecoins, or tokens of existing financial instruments such as securities and bonds. Tokens can be used to protect the authenticity and track ownership of digital artworks and other types of digital IP. Last, but not least, tokens can represent physical assets as well as business-critical documents such as invoices or bills of lading.
What are the business opportunities around digital assets?
There is an ever-increasing investor demand for new asset classes, as well as more effective ways to support collective ownership and make currently illegal assets more accessible to a wider range of investors. There’s a strong efficiency and innovation angle: the self-defining and programmable nature of tokens allows processes to be completed quickly and accurately, and opens up opportunities for new services and business models.
What are the security risks and compliance requirements?
Given the presence of risky financial assets, the minimum requirement is bank-grade security. Security requirements for digital assets are viewed in light of the nature of the technology (e.g. transactions cannot be altered, and compromise or loss of keys can have dire consequences). Different asset types have different risk profiles, and organizations must decide on their preferred risk profile. From a compliance perspective, it is important to understand that the regulatory environment remains fluid and subject to rapid change.
Some countries have even updated the relevant regulations and laws to reflect the nature of digital assets, while others are extremely low, and some prohibit financial institutions from regulating crypto-assets. A country-by-country approach is essential. Companies should also consider the differences between US and Canadian jurisdictions. The upcoming Markets in Crypto-Assets (MiCA) regulation, for example, will bring transparency to the entire region; Now those who want to provide services must contact the regulators in each country. Depending on the property, they should consider the environmental footprint.
What should be considered in terms of technology?
As mentioned earlier, it is important to have as strong a security as possible. Other basic requirements include modern infrastructure based on containers, microservices, APIs and hybrid cloud. There cannot be a digital asset use case that does not require advanced analytics and forecasting tools as well as AI. And most importantly, the digital assets that represent the physical object must maintain the connection to it to ensure that it is not tampered with. Depending on the use case, this may require many additional technologies, both IT (eg, the Internet of Things, geospatial and environmental information, computer vision) and non-IT (eg, tamper proof packaging, nanotechnology to identify materials, hyperspectral) imaging). Similar technologies apply to assets that represent an organization’s carbon footprint or emissions exposure.
What are the options for entering the digital assets business?
This depends on several factors:
- How soon your institution wants to offer digital asset services
- The type of services your organization wants to provide – such as security, trading and protection, tokenization or other business services
- The level of control your organization wants over existing activities
- Your company’s appetite for risk and innovation
All options are supported today. Organizations can use standard outsourcing arrangements and white label services or develop their own solutions incorporating off-the-shelf software components as needed. Due diligence is a must – among the multitude of solutions available, relatively few today have appropriate enterprise-grade security standards.
This is an exciting time for enterprises to start seriously evaluating how they can use digital assets in their business. The opportunities to introduce new services and products while reducing risks and costs have never been greater. To continue your journey with confidence, make sure you stay up to date with the latest developments and contact us as you plan your strategy.
Transforming strategy into business results
IBM Blockchain Services can help bring your ideas to life. Explore the use of blockchain and digital assets in your business.
Find out what blockchain can do for digital assets