In 2017, Katherine Pinkard met an MBA student at a conference who said she wanted to work for a blockchain team at a big bank on Wall Street. After their chat at the Johns Hopkins University event, where Ms. Pinkard was a keynote speaker, she googled “what is blockchain?”
Reading up on the emerging technology, the president of commercial real-estate firm Pinkard Properties quickly saw its business potential. “I realized how impactful this technology could be – was going to be – on the commercial real estate industry,” Ms. Pinkard says. “I decided that day that I wanted to be a part of it, and I was going to learn as much as I could about how blockchain could impact real estate.”
Those impacts include allowing for fractionalized ownership of properties through digitized assets, greater transparency of transactions due to the permanence of blockchain records and fraud reduction through the use of smart contracts, agreements that run automatically when a set of predetermined conditions are met.
Real estate is just one of the many sectors investing in blockchain technology, an advanced database that stores information in linked blocks and is shared and immutable, adding transparency. Finance, health care and government sectors are also exploring blockchain in innovative ways, but the potential applications could reach the entire economy.
The global blockchain technology sector was valued at US$10-billion in 2022, and it is expected to grow at a compounded annual rate of nearly 90 per cent from 2023 to 2030, according to data from Grand View Research. Driving factors behind that high growth include venture capital funding and investment in the sector, the use of blockchain solutions by the banking and cybersecurity industries, government initiatives, and business adoption for smart contracts, digital identities and payments, according to a Markets and Markets report.
After a year that saw sharp reductions in prices for leading cryptocurrencies, and major scandals such as the collapse of Terra’s stablecoin ecosystem and the implosion of crypto firm FTX amid fraud allegations and charges, some experts worry about the effects of investor hesitation and increased regulatory scrutiny on the emerging sector.
“People are generally more skeptical of the technology and the potential pitfalls [now],” Ms. Pinkard says. “We try to articulate that fraud is fraud no matter the investment vehicle, but given it’s a very nascent way of investing, there is still a lot of fear of the unknown.”
Why blockchain?
Blockchain technology is often associated with cryptocurrencies such as Bitcoin or Ethereum, but its uses go well beyond crypto, says Jane Connell, senior vice-president and chief information officer of Verizon Global Technology Systems’ Corporate Systems Group.
For example, last fall, Verizon won the 2022 Web3 & Blockchain Transformation Award in Toronto for a blockchain invoice dispute solution set up with its wholesale partners. “Verizon transformed an inconsistent, inefficient and labour-intensive billing dispute process involving wholesale partners into a self-sustaining rules-based dispute settlement solution,” says Ms. Connell, who described the scenario as a win for both sides.
Ganesh Swami describes the potential business use-cases for blockchain as “almost infinite.”
“In this past year alone, we have seen blockchain technology used to streamline historically tedious operations like data reporting, supply chain management and beyond,” says Mr. Swami, CEO of Vancouver-based Covalent, which provides blockchain data API and infrastructure. He pointed to the example of California’s Department of Motor Vehicles, which recently began testing digitization of car titles and title transfers on the blockchain. The initiative has the potential to modernize the DMV’s paper-based systems, reduce transaction fraud and improve vehicle history tracking, he says.
In the five years since she first learned about blockchain, Ms. Pinkard has incorporated it into her business operations and become a regular speaker and writer on the topic.
“Blockchain creates a lot of efficiencies in commercial real estate,” Ms. Pinkard says. “Transactions can be executed more quickly and more transparently in an industry that is notoriously opaque.”
Tokenizing commercial real-estate assets on the blockchain can open up options for raising equity and improve investor management, she says, and can even “democratize” real-estate investment by opening up access to commercial real estate to investors of all sizes.
The technology also has applications for much smaller assets than commercial real-estate properties.
“I started in the blockchain world in 2015 and quickly noticed that this technology was going to change the way we thought of asset ownership as a whole,” says Manuela Seve, founder and CEO of Alphaa.io in New York, which creates digital tokenization solutions for businesses. These include smart contracts that guarantee royalties on resale markets for original artwork creators, or transaction receipts stored on the blockchain.
“For example, our sports-fan engagement platform allows teams to gamify the experience of visiting a stadium in person,” Ms. Seve says. That gamification happens through blockchain-enabled activities such as collecting points for purchases, including team merchandise and collectibles, and offering active fans rewards like on-the-spot seat upgrades.
Ms. Seve points to blockchain’s applications for authenticity, resale and community building across industries as evidence of its business potential.
Following a rough year
Last year, developments in the blockchain space happened as several leaders in the sector fell apart. At the same time, prices for leading cryptocurrencies dropped and stayed low compared to the previous year, while governments around the world began to put regulatory pressure on the sector.
FTX’s collapse was caused not by blockchain technology, but by old-fashioned financial speculation – the kind that can happen in any industry, Mr. Swami argues.
“Bigger picture, blockchain technology was conceptualized to prevent historic methods of fraud,” he says. “Leveraging the technology responsibly will support ethical, transparent business use-cases in the near and long term.”
Investor interest in blockchain-based tech is very dependent on who you’re talking to, says Christian Lopez, head of blockchain and digital assets for Cohen & Company Capital Markets, a boutique investment bank. “Many institutional investors who dove into the industry in 2021 and 2022 are paring back their exposure, but that’s not just limited to blockchain.”
Those who have a history in this space are believers in the tech, and they are bargain shopping during a down period, he says. Even in traditional financial institutions, investment is still happening. Mr. Lopez points to Mastercard, Visa, Stripe and JP Morgan as just a few of the well-known institutions investing in this space.
What’s next for business and blockchain?
After a year with high-profile scandals like the collapse of FTX, regulation will be a dominant theme for this sector in 2023, Mr. Lopez says.
Securities laws apply to real-estate investments enabled by blockchain tech, just as they do for more traditional means of investment, Ms. Pinkard says. “But within the legal and regulatory framework, these tokenized assets could be traded more quickly and transparently than traditional commercial real estate assets, especially those of a smaller, non-institutional size.”
Every new industry is scrutinized, Ms. Seve says, and blockchain is proving to be no exception.
“We were operating like the Wild West. In order for us to get to mainstream adoption, we need to put best efforts forward as an industry to develop serious products and use our technology to bring more transparency specifically into use of funds.”
Ms. Seve says she also hopes to see more focus on equity in blockchain this year, and going forward. “Women are a minority in tech and venture, period,” she adds, pointing to a reduction in funding share for women last year from 2.2 per cent to 1.9 per cent – and just 0.2 per cent for women of colour.
“I expect there to be more representation in blockchain over the years. Especially as we continue to speak up against said ‘boys club,’ which made it possible for so many scandals to develop with impunity in the industry.”
