Long ignored and neglected by the financial world, digital assets have entered the mainstream. After all, many crypto companies trade publicly on the Nasdaq exchange. Online payment platforms are working on plans to accept cryptocurrency. Governments are exploring central bank digital currencies. And, tellingly, the ads that aired during the 2022 Super Bowl included many crypto-focused companies.
The emergence of multiple blockchain platforms signifies an increase in the speed, efficiency and interoperability of digital assets amid falling transaction costs. Crypto and its many applications could soon infiltrate every industry through applications and smart contract use cases ranging from vaccine passport apps to voting technology to supply chain management.
SEE: Metaverse Cheat Sheet: Everything You Need to Know (Free PDF) (TechRepublic)
Why prioritize crypto now?
Executives have more choices than ever to leverage digital assets, smart contracts, and programmable money: Now is the time for companies to imagine redesigning their contracts digitally. But what does this actually mean for your industry? Why should you care? And what should you do? What’s the downside of waiting?
Innovative companies no longer theorize about a hypothetical world of crypto and smart contracts. Business leaders are developing strategic roadmaps for crypto-based investment opportunities, operational improvements, and payment methods.
Three Ways Businesses Think About Crypto and Smart Contracts
C-suite business leaders should consider crypto from all sides. Here are three starting points.
Diversify the balance sheet.
More and more companies are turning to digital assets and cryptocurrencies to diversify corporate balance sheets.
Case in point: In August 2020, MicroStrategy, the publicly traded maker of business intelligence software, started converting cash to buy large amounts of bitcoin. MicroStrategy President and CFO Phong Le explained the company’s decision.
“Global macroeconomic, monetary and digital developments have converged, forcing all forward-looking companies to consider alternative assets on their balance sheets,” Le said.
There are both financial and strategic considerations for companies looking to add digital assets to their balance sheet, including the ability to:
- Capture the return of asymmetric risk
- Hedging against fluctuations in fiat currencies
- Adopt modern and open technologies as part of the overall business strategy
- Improve an operational strategy for accepting digital assets as payments
Our perspective on companies investing in crypto further explores the addition of digital assets to a company’s balance sheet.
Enable cryptocurrency payments
Today, the most popular entry points adopted by businesses include the use of digital assets to enable cryptocurrency payments such as bitcoin. This requires a limited number of adjustments in business functions and can reach new customers and increase the volume of each sales transaction. A hands-off approach allows the business to transact between crypto and fiat currency to receive or make payments without touching them. Companies that embrace this limited use of crypto typically rely on third-party vendors and keep crypto off the books.
Another option is to go beyond enabling crypto payments and expand crypto adoption within operations and treasury using a hands-on approach. This path may offer businesses more opportunities and benefits, but will likely present more technical issues. Practical and practical approaches to using crypto for payments are discussed in more detail in The Rise of Cryptocurrency Use in Business.
Replatform with smart contracts
Smart contracts are the next step in blockchain’s progression from a financial transaction protocol to a general-purpose utility.
Smart contracts use consensus protocols to automatically implement the terms of multi-party agreements, helping to automate or eliminate frequent, manual or duplicate transactions between parties. Smart contracts can reduce auditing, reconciliation and legal reviews because all parties agree to the code – representing rights and obligations – behind the digital transaction. The resulting transaction is more transparent, accurate and faster. And smart contracts require fewer intermediaries, reducing execution risk and transaction cost.
Here are some examples of smart contracts by industry.
|Financial services||Life Sciences and Healthcare||Media and Entertainment||Manufacturing||Interprofessional|
|Transaction Clearing and Settlement||Electronic medical records||Distribution of royalties||Supply chain source and financial documentation||Execution of the transfer pricing agreement|
|Coupon payments||Access to population health data||Governance and Product History||Peer-to-peer transactions|
|Insurance Claims Processing||Personal health tracker||Vote|
|Validation of loan eligibility|
Learn more about smart contracts from Deloitte’s insights.
What’s at stake
A tech company that doesn’t already consider smart contracts risks falling behind. At a minimum, you should explore crypto capabilities to see how they can benefit your business or industry. Engage with leaders in your organization to identify opportunities for digitizing or reimagining business activities using smart contracts. The crypto is more inclusive, moves with greater speed, and offers more transparency than ever before – all signs that it is heading towards mainstream adoption. Are you on board?
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This article was written by Paul Silverglate, Vice President and US Technology Leader, Deloitte & Touche LLP, and Rob Massey, Global and US Tax Blockchain and Digital Asset Leader, Deloitte Tax LLP. Please see our Blockchain Solutions and Digital Assets for more information.
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