Blockchain has the potential to better navigate risks around investments. What other future applications could there be?
There's been a great deal of hype surrounding blockchain since its capabilities were first promoted to underpin and support the cryptocurrency Bitcoin over a decade ago. Billions have been invested, and indications in both the PwC 2018 and Deloitte Global Blockchain 2019 surveys suggest that the technology is increasingly becoming an area of organizational attention and focus.
While the fintech industry remains the blockchain leader, organizations in other sectors including healthcare, technology, media and telecommunications are expanding their blockchain initiatives.
According to the Deloitte 2019 survey, which polled 1,386 senior executives across the globe, 53% of respondents identified blockchain technology as a critical priority for their organization this year. Despite its prioritization, adoption is in its infancy, with just 23% of the respondents reporting the initiation of blockchain deployments.
Today In: Leadership
Still, the Deloitte survey shows that there seems to have been a shift in organizational and executive attitudes towards this technology. The question is no longer whether blockchain will work, but how companies can potentially make blockchain work for them.
This uncertainty is an issue that's becoming increasingly relevant in the family office space. There are several areas of interest and potential benefit when it comes to blockchain implementation within family offices.
Investment due diligence
Family offices are increasingly seeking direct investment opportunities for both financial and emotional reasons. These types of investments require a greater focus on due diligence which is often costly and time-consuming, slowing deal flow.
Blockchain has the potential to provide a robust solution.While it will probably not ever replace due diligence in its entirety, it can be used to automate and even share the burden amongst the investor and investee.
This potential is already being harnessed by companies who offer blockchain software as a service. The software which employs smart contracts and identity technology built on top of the blockchain framework allows startups and companies seeking funding to automate their document-based due diligence.
As a result, they're able to securely record their financial and growth data and share this with investors. Investors can then efficiently assess the credibility and potential of the company seeking investment, cutting closure times, and increasing the number of successfully closed deals.
Risk management
Immutability, automation and transparency are vital characteristics of blockchain technology. Given these, the technology's potential is not only limited to applications within financial risk management but in many other non-financial risk areas.
According to Paolo Tasca, Executive Director, UCL Centre for Blockchain Technologies, blockchain has applications in various areas of preventable, strategy-related and external risk management.
Some of which include:
1. People, processes and systems related risksWhen it comes to people, processes and systems, Tasca states that blockchain is "fit and proper to perform monitoring and risk assessment." Data loss and tampering are key risk factors within any organization.
The use of smart contracts and automated procedures employed by blockchain technology helps to reduce the necessity for human intervention in routine processes, helping to mitigate these risks.When humans must perform certain functions, blockchain can be implemented to assess and monitor the integrity of these transactions.
This is achieved by capturing and securely storing information on various tasks and operations performed by both staff and management, affording a higher level of accountability and reducing operational risk.
2. Strategy risk managementStrategy-related risks are unavoidable in the general course of business and investment. While blockchain cannot prevent these risks, when intelligently implemented, it has the potential to reduce the probability of risk materialization.
It may also assist in improving the company's ability to mitigate risk events, should they arise.
3. Compliance riskBlockchain may also be employed to reduce compliance risk. Thanks to its real-time recordkeeping abilities and the use of smart contracts, rules can be embedded into the blockchain database to monitor organizational transactions and create real-time alerts.
As a result, those involved in compliance and auditing can monitor all transactions that occur and receive any alerts for events when they occur. The implications of this are significant.
Not only can blockchain increase compliance efficiencies by reducing the delay in compliance satisfaction, but it also has the potential to stop unsanctioned transactions or those with incomplete due diligence, while notifying the relevant parties of these actions.
This transparency enables compliance to address any issues that arise quickly and effectively.From a financial point-of-view, real-time rules and audits enable the rapid identification of irregularities, offering internal auditors a more efficient way not only to detect possible fraud but also investigate transactions by employing surveillance based on predetermined rules.
All of which reduce compliance risk. Particularly relevant in Impact investments
A growing number of family offices are seeking to generate environmental and social impact along with financial returns.
Using blockchain to manage assets has several potential advantages that could benefit impact investing. These include enhanced security and traceability, greater transparency, efficiency, increased speed of transactions and reduced costs, all of which add real value when it comes to impact investing.
The blockchain journey has only just begun, yet it is evident that this technology has numerous applications for family offices. Still, its success or failure within these organizations will come down to its implementation.
Defining business objectives and then looking at ways that blockchain can assist with these remains the differentiating factor.Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.
Francois Botha
I help family offices to define their purpose and align it with their investment strategy. Starting with soft assets, we help plan for continued family involvement over... Read More
There's been a great deal of hype surrounding blockchain since its capabilities were first promoted to underpin and support the cryptocurrency Bitcoin over a decade ago. Billions have been invested, and indications in both the PwC 2018 and Deloitte Global Blockchain 2019 surveys suggest that the technology is increasingly becoming an area of organizational attention and focus.
While the fintech industry remains the blockchain leader, organizations in other sectors including healthcare, technology, media and telecommunications are expanding their blockchain initiatives.
According to the Deloitte 2019 survey, which polled 1,386 senior executives across the globe, 53% of respondents identified blockchain technology as a critical priority for their organization this year. Despite its prioritization, adoption is in its infancy, with just 23% of the respondents reporting the initiation of blockchain deployments.
Today In: Leadership
Still, the Deloitte survey shows that there seems to have been a shift in organizational and executive attitudes towards this technology. The question is no longer whether blockchain will work, but how companies can potentially make blockchain work for them.
This uncertainty is an issue that's becoming increasingly relevant in the family office space. There are several areas of interest and potential benefit when it comes to blockchain implementation within family offices.
Investment due diligence
Family offices are increasingly seeking direct investment opportunities for both financial and emotional reasons. These types of investments require a greater focus on due diligence which is often costly and time-consuming, slowing deal flow.
Blockchain has the potential to provide a robust solution.While it will probably not ever replace due diligence in its entirety, it can be used to automate and even share the burden amongst the investor and investee.
This potential is already being harnessed by companies who offer blockchain software as a service. The software which employs smart contracts and identity technology built on top of the blockchain framework allows startups and companies seeking funding to automate their document-based due diligence.
As a result, they're able to securely record their financial and growth data and share this with investors. Investors can then efficiently assess the credibility and potential of the company seeking investment, cutting closure times, and increasing the number of successfully closed deals.
Risk management
Immutability, automation and transparency are vital characteristics of blockchain technology. Given these, the technology's potential is not only limited to applications within financial risk management but in many other non-financial risk areas.
According to Paolo Tasca, Executive Director, UCL Centre for Blockchain Technologies, blockchain has applications in various areas of preventable, strategy-related and external risk management.
Some of which include:
1. People, processes and systems related risksWhen it comes to people, processes and systems, Tasca states that blockchain is "fit and proper to perform monitoring and risk assessment." Data loss and tampering are key risk factors within any organization.
The use of smart contracts and automated procedures employed by blockchain technology helps to reduce the necessity for human intervention in routine processes, helping to mitigate these risks.When humans must perform certain functions, blockchain can be implemented to assess and monitor the integrity of these transactions.
This is achieved by capturing and securely storing information on various tasks and operations performed by both staff and management, affording a higher level of accountability and reducing operational risk.
2. Strategy risk managementStrategy-related risks are unavoidable in the general course of business and investment. While blockchain cannot prevent these risks, when intelligently implemented, it has the potential to reduce the probability of risk materialization.
It may also assist in improving the company's ability to mitigate risk events, should they arise.
3. Compliance riskBlockchain may also be employed to reduce compliance risk. Thanks to its real-time recordkeeping abilities and the use of smart contracts, rules can be embedded into the blockchain database to monitor organizational transactions and create real-time alerts.
As a result, those involved in compliance and auditing can monitor all transactions that occur and receive any alerts for events when they occur. The implications of this are significant.
Not only can blockchain increase compliance efficiencies by reducing the delay in compliance satisfaction, but it also has the potential to stop unsanctioned transactions or those with incomplete due diligence, while notifying the relevant parties of these actions.
This transparency enables compliance to address any issues that arise quickly and effectively.From a financial point-of-view, real-time rules and audits enable the rapid identification of irregularities, offering internal auditors a more efficient way not only to detect possible fraud but also investigate transactions by employing surveillance based on predetermined rules.
All of which reduce compliance risk. Particularly relevant in Impact investments
A growing number of family offices are seeking to generate environmental and social impact along with financial returns.
Using blockchain to manage assets has several potential advantages that could benefit impact investing. These include enhanced security and traceability, greater transparency, efficiency, increased speed of transactions and reduced costs, all of which add real value when it comes to impact investing.
Many impact investments involve startups and companies in developing countries. This often equates to low institutional capacity and environments which are not always conducive to trust. Blockchain, with its inherent trust-generating features, reduces the need for trust and lowers reputational risk exposure.In terms of impact investment due diligence, measurement and verification, blockchain technology can be employed to automate and accelerate the process, which, with current models and methods is slow and expensive. The increased speed and reliability that blockchain affords means that impact creation can be used as a performance measure when managing impact investments.
The blockchain journey has only just begun, yet it is evident that this technology has numerous applications for family offices. Still, its success or failure within these organizations will come down to its implementation.
Defining business objectives and then looking at ways that blockchain can assist with these remains the differentiating factor.Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.
Francois Botha
I help family offices to define their purpose and align it with their investment strategy. Starting with soft assets, we help plan for continued family involvement over... Read More
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Francisco Gimeno - BC Analyst Good article on investment strategy. The blockchain is creating new paths for this, and family offices are starting to get involved in what it is now a growing market. Money doesn't like risk. The blockchain is been seen now more and more as a safe and secure technology, and money can be invested wherever it is used.