Blockchain is a silent technology. Its practical application is not as easy to imagine for the average person as the metaverse or artificial intelligence. And yet it portends a great economic revolution. Of course, before we talk about its potential, it makes sense to define what we are talking about when we talk about blockchain. Its beginnings are linked to cryptocurrencies, especially Bitcoin, but its journey is much longer and will involve important changes in payment systems – most central banks are already working on their digital currencies -, in logistics, in the video game industry or in the world of investment thanks to tokenization – creating a digital replica of a real asset.
Blockchain technology is not just a database, it is a set of technologies that allow the transfer of a value or asset from one place to another without the intervention of a third party. In this sense, and as explained by BBVA experts on its website, it proposes a new model where authenticity is not verified by third parties, but by the network of nodes – computers connected to the network – participating in the blockchain . Therefore, no transfer of value – be it money or any other asset of any value – occurs through an intermediary, but through a consensus that allows for transparent storage of information.
As the name suggests, the blockchain is a chain of blocks that contain encrypted information about a transaction on the network. And since they are intertwined (hence the word chain), they allow data (or value) to be transmitted with fairly secure encryption through the use of cryptography. “What’s really new is that the transmission doesn’t require a third party to certify the information, instead it is distributed across multiple independent and peer nodes that inspect and validate it without the need for them to know each other.” Once entered Information cannot be deleted, only new information can be added, as the blocks are linked by cryptographic encryption. Therefore, it is impossible to change data from a block before the chain, because I would have to change the information from the previous blocks,” they explain from BBVA.
A person consults Ethereum coin prices on their mobile phone. Cryptocurrencies use “blockchain” technology. Angel Garcia (BLOOMBERG)
The big banks are already calculating what is to come. For example, Citi has published a detailed report on the economic impact of blockchain. Digital currencies (CBDCs) issued by the world’s leading economies alone would be worth $5 trillion by the end of this decade and occupy the cell phones of 2 billion people. 90% of central banks are conducting pilot programs using virtual currencies. However, the ECB assumes that the new euro will only be available in three or more years. There are still ambiguities to be clarified, for example with regard to the impact on privacy.
new formats
Perhaps Manisha Patel, an IMF finance expert, has some solutions. First, the social sense. How would you help the most vulnerable? “These new digital formats are being explored by many developing countries as they have the potential to improve financial inclusion. They will be successful if they are an affordable and widely accepted payment instrument.” However, they require extensive internet infrastructure and access to mobile phones. It is the way to overcome barriers. Time and its logic remain. “Tailored proposals in each country may take several years.” This arrhythmic cardiogram that is Bitcoin has made technology fashionable and with it prophets of guilt and redemption.
And what happens to crypto assets when official digital currencies become popular? “Cryptocurrencies will survive as a means of payment in the informal economy, illegal activities and tax evasion.” They compete with $100 bills,” predicts Kenneth Rogoff, former chief economist at the IMF. “They are used for speculation and crime,” confirms Emilio Capela, a partner at McKinsey & Company. Although there are those who believe in salvation. Enrique Dans, a professor at IE Business School, appreciates the freedom that comes from not being dependent on a central bank. And he gets excited when he talks about his eight-year-old little brother, Ethereum, “an open-source community that uses a lot less energy to mine than bitcoin.” [fabricarlos]’ he claims. “With this technology, the crash of 2008 would not have happened.”
Another business imagining mountains of money with the blockchain is that of video games. Last year, around 3.2 billion players or gamers used the blockchain. These folks don’t typically wonder what technology is behind their video games, but together with the Web3 ecosystem (investor Packy McCormick defines it as “an internet owned by developers and users and coordinated with tokens), they will enhance the experience when sit in front of the computer. The consulting firm Newzoo, which specializes in this intangible area, estimates that they generate $184,000 million. This is the present, the past has left scars. Everything was going more or less on track until Bitcoin started to be surrounded by controversy. “Cryptocurrencies have been like prestige for blockchain reputation, but the technology they are based on is very useful,” compares Javier Pino, an Afi expert. Fraud, theft and the bankruptcy of the FTX platform are memories that are damaging the memory of the crypto world.
Even if consumption also plays a role in this game (the distribution world will become more efficient through the massive use of block systems), this mat is above all financially green. And the two big technologies (blockchain and tokenization) want to share the future. Tokenization is changing everything because almost everything is tokenizable. A line of credit, the minimum investment in venture capital, the purchase of a house, the rights to songs, image rights, stocks, currency, gold, a Picasso painting… Digital assets democratize, their proponents argue, investments created for or by the elites did not exist at all in the financial markets.
“Tokenization has the potential to transform financial and non-financial infrastructure, public and private markets, over the next 5 to 15 years,” estimates Alkesh Shah, director of digital asset strategy at Bank of America Global Research. It is estimated that the tokenized digital stock market will reach between $4 trillion and $5 trillion by 2030. “It already makes it possible to reduce credit risk, increase the liquidity of previously illiquid assets or allocate capital more efficiently,” explains the analyst. Even today, a painting worth more than 50 million is circulating in Madrid whose owner is trying to tokenize it through NFTs (from English non-fungible tokens or non-fungible tokens). In other words: unique and unrepeatable.
And suddenly the day: someone wants to reinvent finance. “The next generation of markets, the next generation of stocks will be their tokenization,” Larry Fink, president and founder of BlackRock, the world’s largest manager, told The New York Times in November 2022. If Picasso reinvented painting by abandoning the vanishing point, the technological revolution is on the verge of rethinking finance. Two inseparable sciences also help in this: sociology and cryptography. 67% of Millennials (born after 1981) around the world prefer to be guided when investing by computer recommendations (robo advisors). “Technology and Digital Experience”. This is the idol of the investment firm Schroders. Then comes the greatest legacy in history. In the coming decades, the manager’s experts say the UK’s former baby boomers (late 50s to 70s) will leave millennials and Gen Z £5.5 trillion. A number that in the United States ($68 billion) looks like a new Independence Day. “Currently, tokens are not uniformly defined or regulated across regions, but administrations will address this deficiency,” they predict in Schroders.
Well, tokenization (blessed by the behemoths of Wall Street) has already hit the economy. Venture capital firms such as KKR, Hamilton Lane and Apollo are digitizing part of their funds through blockchain platforms familiar to many supporters of this new algebra: ADDX, Avalanche or Polygon. Down the same street, other giants – Goldman Sachs, HSBC, JP Morgan, Citi and Société Générale – are designing their own digital asset trading structures. “It’s an opportunity to develop the use of these services at scale,” says John Gladwyn, Manager of Pictet Digital. In fact, Hamilton Lane has lowered the minimum investment for some of its funds from $125,000 to $10,000. And late last year, KKR tokenized its healthcare fund into Avalanche. Even the market value of tokenized gold surpassed $1 billion in March.
constant innovation
The world of finance knows that it must constantly innovate or, like a recurring dream, it is worthless. Until now, cryptocurrencies have had the big problem of volatility. The way to bypass this fence is stablecoins. To ensure stability, the currency is pegged to a currency like the dollar. It is a market with a transaction volume of 7.8 trillion dollars (around seven trillion euros) in the past year. But there are hackers who never left, or speculators who are a stumbling block in any ecosystem where seas of money flow. Doubts arise. “Stable versions are of little use as a store of value because it’s never clear if they have enough collateral [activos] to stabilize the currency in case of attacks,” warns José García Montalvo, professor of economics at Pompeu Fabra University (UPF).
Given the uncertainties of all technologies, perhaps one of the areas where there is more consensus is smart contracts. A software. Programming. It allows a predetermined order to be executed when a set of requirements are met. When “this” happens, then “that” happens, guaranteeing a high level of accuracy and compliance,” says Álvaro Casado, Head of Digital Assets at KPMG. It works on the blockchain, so the terms of the contract are stored in a distributed database. They can be seen but not changed. “A clear beneficiary will be international trade, which requires an enormous amount of documentation and terms and could be automated with standardized rules and simpler trading options,” García describes Montalvo.
With such contracts and the tokenization of the supply chain, those who make fortunes from, for example, counterfeiting Louis Vuitton bags would have a hard time. “Dolce & Gabbana or Gucci have already started experimenting with selling digital garments protected within this blockchain,” says Javier Molina, an analyst at eToro. And he adds: “If I as a customer buy the NFT or, for example, a digital scarf, it is guaranteed that only I am the owner.” Porsche and Mercedes are also getting into this technology.
It’s not just about money. In developing countries, adulterated medicines (between 10 and 30%) kill one million people every year. This results in the value of tracking down, of following the trail. “Walmart, together with IBM, managed to understand the journey of orange juice from a farm in South Africa to reach the American consumer in just three seconds,” recalls Daria Krivonos, CEO of the Institute for Future Studies in Copenhagen. By 2025, around 20% of the top 10 global food companies will use blockchain. There they live with entrepreneurs. BlockBar is a blockchain-powered platform that allows luxury beverage brands to issue NFTs on a collection of rare wines or spirits. The goal is to own these exclusive bottles and sell them on the secondary market. “The company stores them in state-of-the-art facilities and can ship them worldwide or pick them up at more than 250 duty-free locations,” says its President Sam Falic.
The bet of brands
An ecosystem is gradually emerging whose fertile soil is that of the blockchain and in which brands form a community. Adidas has created an NFT collection called Into the Metaverse, Balenciaga has designed various outfits for Fortnite game avatars, Gucci has sold a virtual bag on the Roblox video game platform for $4,000, and Nike has acquired digital footwear maker RTFKT Studios.
But this technology not only lives in the thin digital air, it also touches the ground. “The use of digital technologies and blockchain – if they are adapted to local needs and we guarantee that even small producers can access them – could bring great benefits for the economy as a whole and lead to greater efficiency, productivity, resilience and sustainability,” lists Máximo Torero auf, Chief Economist at the Food and Agriculture Organization of the United Nations (FAO). And it warns: “There is a risk of deepening inequalities if these advances remain inaccessible to women, young people or small producers.”
Everything happens without forgetting that tokenization is a technology that also affects thinking. Selling the music catalogs of successful artists to companies like Hipgnosis – operated by Canada’s Merck Mercuriadis – brings in billions. The singers make a lot of money, which relieves them of any pressure for the rest of their lives, and the companies make money from the reproduction rights. Universal Music Publishing paid Bob Dylan around $600 million to acquire the catalog and recording masters, Bruce Springsteen sold 300 songs, 20 studio albums and 23 live albums for around $500 million, and Sting sold all of his production to Universal after he had received more than 300 million dollars 300 million. Around 130 artists (Paul Simon, The Killers, Phil Collins or Neil Young) have already liquidated their works.
However, until now, investing in intellectual property has been impossible for a regular saver. This is where blockchain technology, tokenization and its ability to fragment come into play. The co-producer of Rihanna’s song Bitch Better Have My Money has raised $63,000 after tokenizing the rights to his song with NFT. He split them into 300 pieces via AnotherBlock platform for $210 and they were bought by 205 people.
Converting masterpieces into digital assets opens up big business, but it also raises ethical questions
Leftover paint on the floor of artist Jackson Pollock’s home that has been converted into an NFT. Pamela Hassell (AP PHOTO/ LAPRES
Converting a work into a digital asset to exploit its value divides the art world. In the final months of 2021, NFT-based crypto art experienced its winter. After artist Beeple (Mike Winkelmann) awarded a $69.3 million NFT (Everydays: The First 5000 Days) at Christie’s, almost everyone in the industry thought history’s most absurd art orgy was over. “They are a scam, just like cryptocurrencies,” said Independent Commissioner Bartomeu Marí. “Right-wing anarchism was looking for a way to escape state financial control and not pay taxes. I haven’t seen great artwork in this format before. But people’s pursuit of money is exhausting. Jackson Pollock’s studio converted the paint residue staining the floor into NFT. Four of these were produced in a run of 100 units in collaboration with the Web3 Iconic platform. He marketed them online on July 19. They were all sold (in dollars and in Ethereum) in just three hours for around €400,000. Pollock worked by dripping paint through the wooden handles of his brushes.
Rafael Lozano-Hemmer’s works are exhibited in some of the most prestigious galleries in the world, such as Pace. One of his pieces reaches one million euros. At the end of the discussion, the principles are summarized. “I have made sure my name is not associated with NFTs due to its complex relationship with cryptocurrencies,” he summarizes. He defends that this can be a way of life for artists from communities that are underrepresented in the market. “However, I’m less impressed by creators who are in a privileged position – I’m thinking of myself – and still produce them,” he says. In just nine days in April, British artist Damien Hirst raked in €19 million from the sale of 5,508 paintings from his artificial intelligence-generated Spiral series. Exactly 399 were NFTs. Despite everything, institutions such as Lacma, Castello di Rivoli, Buffalo AKG or Pompidou have included them in their collections. In the new there is always a doubt between what will perish and what history will despise.
But you can’t make that mistake with the old masters. The Italian government halted NFT sales of masterpieces from the country’s museums in July last year. To put in about 70,000 euros for Michelangelo’s Tondo Doni (Uffici, Florence) is a commercial failure. In the face of the pandemic, many looked for means of survival. Now Italy will not sign any more contracts: it wants to protect its cultural heritage. The director of one of Spain’s major art galleries – who wishes to remain anonymous – claims to be physically obsessed. “The collection belongs to the whole country. It would devalue the works if we made these digital sales to specific people,” he muses. However, the Thyssen Museum chose to use this tool on Van Gogh’s painting Les Vessenots in Auvers (1890). The institution sells 100 versions for 30,000 euros, which can be purchased on Telefónica’s NFT marketplace.
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