Will bitcoin become the next gold?

Cryptocurrency for trading: Speculation or disruption?

A recent article in the Economist has triggered a new round of questions about cryptocurrency in general and bitcoin very specifically. This comes on the heels of the EY Global Blockchain Summit where more detailed parsing out of the specifics around decentralized finance, or DeFi, brings greater clarity to the scope of the disruption bearing down on legacy capital markets and government policy objectives.

A prevailing view at TBR is that cryptocurrency trading values are simply too volatile at this time to compel large enterprises to agree to trade in those currencies. Quarterly discussions of the impact of foreign exchange rate fluctuations on the year-to-year results suggest a very limited appetite for conducting commerce in widely varying cryptocurrencies. As such, TBR believes that at least in the early developments fiat currencies will prevail.

Cryptocurrency for wealth stores: Speculation or disruption?

The Economist article posited another point of view worthy of consideration, and that is for cryptocurrency to be a wealth storage. Citing Nobel Prize-winning economist and game theorist Thomas Schelling, the article posits that the center of gravity forming around cryptocurrency means bitcoin could become a global wealth store against economic turbulence in much the same way the movement between stocks and precious metals have been used as a safe harbor hedge.

Gold, it is argued, has value because enough people tacitly agree that gold bars do, indeed, have value and therefore it is a wealth store as a hedge against inflation. This wealth store comes, essentially, from the group consensus that it is so.

Today bitcoin has natural value as a wealth store due to its scarcity and fame. In this way it is a natural hedge against inflation. The article further cites J.P. Morgan’s tracking of the uptick in exchange-traded funds (ETFs) investing in gold that took place as the recent bitcoin price roiling saw it drop from $58,000 a coin to $33,000 a coin in a matter of weeks.

Few people transact commerce by shipping and receiving gold bars, and few people transact business in bitcoin. Gold has maintained relevance as an investment vehicle due to the group consensus of its value as represented by gold bars. Oftentimes the gold bars are not even in the physical possession of their owners. There is something tangible there in the form of the bar itself. But that tangible, physical asset really feels like the only distinction in the analogy.

TBR can envision capital markets with various grade ratings for different cryptocurrencies. It is known that certain banks and major credit card brands ponder creating their own coins. We can envision buying networks growing that coalesce around specific social objectives likewise forming as the group consensus mechanism around enterprises working to reduce greenhouse gas emissions or to seek social justice spring up with the digitally born as they enter their earning years.

In this scenario the flow of wealth from bitcoin into gold or vice versa could be viewed as the overarching predictive indicator of the rate, pace and citizen comfort level with our pivot into a full- fledged digital economy. Ransomware attacks spike and money flows to gold, for example. New high-growth digital businesses proliferate with more crypto trading provisions and more money flocks back into bitcoin as a wealth store.

It’s definitely a concept for the outside edge of the Three Horizons model and likely on very few people’s radar, but the article posits a very compelling argument for bitcoin as a wealth store more so than as a trading currency about to revolutionize commercial payments as we know it.

So what do you think? Will bitcoin become the next gold?

Demand for digitization to support European economies drives IT services vendor investment

Dramatic need to shift to contactless payments

Prior to the pandemic, demand for digitization services and deals in the European financial, public and retail verticals grew at a generous rate. Europe-focused vendors covered by TBR, including Accenture (NYSE: ACN), Atos (Nasdaq: ATOS), Capgemini, Deloitte and T-Systems, consistently expanded services and contracts surrounding related capabilities, such as cloud, blockchain and automation, feeding these healthy verticals. However, vendors and clients faced numerous challenges as the pandemic hit, such as the need to shift to remote work environments and the need for digital, e-commerce and contactless solutions. In 1H20 most vendors focused on client retention and headcount management, rather than entertaining expansionary strategies. Europe, which felt the impacts of the pandemic in its early months, was among the first to experience a need for digital alternatives, evidenced by accelerated demand for digital infrastructure, banking and payment solutions, benefiting IT service vendors and the struggling European economy.

As consumers faced pressures to go cashless, demand for contactless payment alternatives increased dramatically. While the financial and public sectors had been prioritized in 2020, as they typically make up a large percentage of IT service vendors’ revenues, the retail vertical contracted drastically as lockdowns and supply chain challenges impacted inventory levels. So, while tailoring contracts and generating solutions to attract clients in the financial and public sectors was imperative in the thick of the lockdowns, addressing challenges in retail will complement vendors’ efforts in other verticals as well. From an influx of credit card and debit card usage to increased demand for Apple Pay and other tap-to-pay capabilities, retail clients of IT service vendors were transitioning their client-facing solutions to meet the demand to go digital.

For example, in 4Q20 Atos announced it will use the Atos Codex Internet of Things solution to develop and run nutrition company Goli’s cashless and contactless vending machines, which will be deployed in numerous environments such as shopping malls and airports. The solution also leverages cloud technology to connect cashless payment alternatives and digital wallets to the network. Additionally, Atos holds shares in Worldline, a payment and transaction services company that offers a strong digital payments and contactless solutions portfolio, along with a collaborative partner network. In December Worldline partnered with P3 Financial Group to bolster the real-time digital commerce and e-payments ecosystem in much of Europe.

Other vendors have taken similar action; T-Systems Hungary drove real-time payments on a single platform for ACI Worldwide (Nasdaq: SCIW) in September, strengthening regional initiatives to meet expectations for safer and more secure vertical operations, and Capgemini partnered with SharpEnd and The Drum to develop CornerShop, a retail innovation store that is helping brands, retailers and shoppers utilize technologies to transform their shopping and customer engagements in preparation for the post-pandemic world. Further detail and analysis on the store are available in TBR’s 4Q20 Capgemini report.

Previous investments in emerging tech like blockchain paved the way

Going back about 10 years, digitization drew consumer attention in the mid-2000s, when in-house cloud computing caught fire and distributed ledger technologies emerged. Leveraging blockchain, cryptocurrency entered the market as a private payment alternative that offered greater security and cut out banks altogether. Bitcoin, arguably the poster child of cryptocurrency, quickly became an investment tool for many users, though its position as a go-to currency in the black market and, more importantly, its price volatility made its use an unpopular choice for the average consumer.

Changing regulations related to IT technologies, such as blockchain and digital assets, have challenged Europe-centric vendors despite the opportunity to capitalize as consumer preference shifts to digital. IT services vendors covered by TBR will likely face new contract and deployment challenges in the region, alongside pre-existing obstacles related to the COVID-19 pandemic. TBR believes a greater focus on digital and contactless payments, e-commerce, and digital banking and currencies from vendors will be an important aspect of economic regrowth in Europe and lead to adjustments in financial, public and retail verticals to better complement one another.

EY Blockchain Asia: The revolution starts now

EY’s blockchain world

EY’s Asia-Pacific Blockchain Summit started with the firm’s Global Blockchain leader, Paul Brody, making three clear points. First, EY is committed to China and to the region, seeing huge potential for blockchain growth. Second, EY is committed to public blockchain as the long-term solution for most business and governments. Third, Brody’s concept of blockchain as the bridge between enterprises — as the tool to tackle the previously uncrossable chasm between different enterprises’ data and business processes — remains a driving force behind how EY sees the future of blockchain, in Asia and the rest of the world.

TBR’s December 2020 special report EY 2021: Hybrid and omnipresent discussed these latter two points: “Public blockchain, in Brody’s words, ‘will do for networks of enterprises and business ecosystems what ERP did for the single company.’ Brody added that conducting B2B [business-to-business] transactions over a public blockchain increases transparency and compliance with commercial terms.” The February event carried that discussion further, and specifically into Asia. 

EY and public blockchain in China  

Brody outlined a few major developments for EY in China, with all his comments reinforced by the subsequent panel speakers and EY professionals who provided additional color, both for the China-specific elements and developments impacting the entire region. In short:

  • EY has formerly joined the Financial Blockchain Shenzhen Consortium (FISCO) and made the firm’s EY OpsChain solution available on the FISCO BCOS (Be Credible, Open & Secure) platform.
  • EY intends to deploy its entire Ethereum suite of solutions to users in China.
  • EY has fully localized its blockchain entrée — — for the Chinese market.

In addition, Brody touched on the opportunity blockchain presents in Asia, highlighting China and the Chinese market’s emphasis on digital payments as a precursor to blockchain adoption as well as a robust startup scene. He also highlighted three sectors where EY has been “making exceptionally large” investments: financial services, supply chain and the public sector, which underscored one of Brody’s main points around the importance of public blockchain as the core, foundational building block. He noted that “money and stuff are tokens … contracts are a mix of legal agreements and business processes,” so all business could be conducted on the public blockchain, which is EY’s focus on enterprise solutions. 

On Feb. 2, EY hosted an Asia-Pacific Blockchain Summit, a virtual event run by the EY Blockchain practice based in Singapore that included EY professionals and clients, startup executives, and industry experts who are primarily, but not exclusively, based in Asia. The three-hour event included a keynote from EY Global Blockchain Leader Paul Brody, a blockchain solution demonstration, and panel discussions covering the technology, including the challenges and opportunities associated with blockchain and the broader emerging technology space. The following is TBR’s commentary on noteworthy announcements and participants’ assertions made during the event as well as EY’s overall blockchain strategy.

KPMG: Fundamentally what blockchain does is digitize trust

In late 2020, KPMG’s blockchain team outlined to TBR the efforts the firm has made to evolve its blockchain practice, expanding into concrete and discrete areas in which the firm can “create an ecosystem around something that already exists, then add a layer of trust, enabled by blockchain,” as made evident by the three focus areas detailed by the KPMG team: cryptoasset custody and analytics, climate accounting infrastructure, and energy trading reconciliation. KPMG explained that the firm’s digital transformation initiatives, which underpin the entire blockchain practice, remain anchored by data, identity and ecosystem — conveniently core elements of blockchain. 

Americas Blockchain and Digital Assets Leader Arun Ghosh went one step further, saying KPMG had intentionally moved away from “leading with blockchain” to building a message around digitalization and trust: “Blockchain is digitizing the infrastructure. Fundamentally what blockchain does is digitize trust.” In TBR’s view, this business-problem-first, technology-second approach mirrors what consulting clients say they want and plays to KPMG’s strengths.

Measuring environmental commitments: Climate Accounting Infrastructure

Businesses face challenges in proving to clients, stakeholders and regulators that their efforts to address climate change have a measurable impact on the environment and meet enterprisewide goals. Stepping up to address that challenge, KPMG saw an opportunity to deploy blockchain solutions as part of a Climate Accounting Infrastructure (CAI) offering. In essence, verifiable emissions data depends on trust, which can best be built and sustained through a combination of tools, including blockchain solutions, AI, enhanced IoT sensors and cloud.

For KPMG, the journey to a blockchain-enabled climate accountability offering started with a client in the financial services sector that was seeking help to meet its sustainability goals. Operating across multiple regions, with overlapping and sometimes conflicting standards and regulations, the client wanted to invest smartly, prove value to its shareholders, and build trust with customers and regulators, all while fully understanding the costs and potential impacts, both positive and negative. Once KPMG devised a blockchain-enabled approach — which KPMG says provides “near real-time climate accounting and reporting to help clients meet their climate goals” — the firm narrowed its focus down to two core industries: real estate and oil & gas.

As Ghosh explained to TBR, these industries face increasing compliance pressures, as well as structural challenges to meeting environmental standards, making them excellent initial target clients. The specific blockchain component, according to KPMG, comes through securing the massive amounts of structured and unstructured data in a way that can be verified but not altered, leading to greater trust and transparency for all parties.

In a Dec. 29, 2020, article, The New York Times detailed the pressures facing the real estate industry in New York City, starting with the sheer volume of carbon emissions coming from the city’s buildings (close to 70% of the city’s total emissions). According to the article, a 2019 law “requires owners of structures 25,000 square feet or larger to make often sizable cuts in carbon emissions starting in 2024 or pay substantial fines” and “affects 50,000 of the city’s roughly one million buildings, including a substantial number of residential buildings.” The city’s role as a global financial hub and KPMG’s heritage in accounting and financial services present a strong opportunity for the firm to begin building a use case for its CAI offering, particularly if the firm leverages its existing NYC-based client relationships to gain introductions to commercial real estate owners.

Last fall, TBR met with KPMG’s blockchain leadership team, including Americas Blockchain and Digital Assets Leader Arun Ghosh, and discussed changes the company’s blockchain practice has undergone since the October 2019 Blockchain Analyst Day. As TBR prepares in 2021 to add a blockchain-specific component to our Digital Transformation portfolio, examining in detail how IT services vendors and consultancies have been building blockchain practices, we will publish special reports describing specific vendor offerings and how those offerings and supporting capabilities fit within the larger blockchain ecosystem.