Cryptocurrency  

How can advisers take advantage of the legacy of cryptocurrency?

This article is part of
Guide to Cryptocurrencies

How can advisers take advantage of the legacy of cryptocurrency?

As financial advisers grapple with the regulatory challenges of cryptocurrencies, experts believe the blockchain technology that drives it will have the most lasting effect.

A report earlier this year from Deloitte painted a picture of how the technology could impact the industry.

At present, investors in private equity, real estate and alternative investment funds (AIF) may find it hard to sell/transfer their holdings owing to a lack of liquidity or of organised markets.

The firm says if such fund holdings are converted into digital tokens via distributed ledger technology (DLT) then these can be exchanged more easily and transactions can be confirmed or validated in near real time.

The report adds: “An additional benefit for investors is that it will be easier to move shares form one account to another because this will happen via DLT.

“This will also create an opportunity for custodians to be the agents that transform the physical shares into digital assets. In theory at least, the process could be used on any asset.”

The firm concludes, that the security tokens, which can be offered through security token offerings (STOs) are the securities of tomorrow. 

This is because from an investor’s point of view, STO enable buyers to access a larger universe of assets.

As an STO can be used to create a security token of an asset, this means that a security token could represent a share in a company, ownership of a piece of real estate, or participation in a investment fund. These security tokens can then be traded on a secondary market.

In most cases, tokens are related to normal securities, such as equity, debt and derivatives. Depending on local securities legislation, tokens can relate to digital artwork, paintings and property rights.

But Deloitte stresses that security tokens can only secure a sustainable presence in the industry if they are underpinned by a well defined regulatory framework.

 

Tyler Welmans, UK blockchain lead at Deloitte says in the broader sense, it will likely take another decade before blockchain technology will make a significant impact on the world and create a ‘legacy’. 

Its roles in the creation of digital identities and the management of digital assets of all forms is likely to be among its key uses.

Mr Welmans adds: “The launch of a widely accepted digital identity standard, a blockchain-enabled way for individuals, organisations and devices to obtain, use and verify credentials when communicating or transacting with one another, will be one of its key uses in generations to come.