Long dismissed and overlooked by the financial world, digital assets have hit 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, advertisements aired during the 2022 Super Bowl included numerous crypto-focused companies.
The emergence of multiple blockchain platforms means increasing speed, efficiency and interoperability of digital assets amid falling transaction costs. Crypto and its many applications may soon infiltrate all industries thanks to applications and smart contract use cases ranging from vaccine passport apps to voting technology to supply chain management.
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Why prioritize crypto now?
Executives have more choices than ever to leverage digital assets, smart contracts and programmable money: Now is the time for businesses to imagine the replatforming of their contracts in digital form. But what does this mean in practical terms 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. Enterprise executives are crafting strategic roadmaps for crypto-based investment opportunities, operational enhancements, and payment methods.
Three ways enterprises should think about crypto and smart contracts
Enterprise C-suite executives should consider crypto from all sides. Here are three starting points.
Diversify the balance sheet.
More companies are looking at digital assets and crypto currencies to diversify corporate balance sheets.
Case in point: In August 2020, MicroStrategy, the publicly traded maker of business intelligence software, began converting cash to buy large quantities of bitcoin. MicroStrategy President and CFO Phong Le explained the company’s decision.
“Global macroeconomic, monetary, and digital evolutions have converged, requiring all forward-thinking corporations to consider alternative assets on their balance sheet, Le said.”
There are both financial and strategic considerations for companies seeking to add digital assets to their balance sheet, including the ability to:
- Capture asymmetric risk return
- Hedge against fluctuating fiat currencies
- Embrace modern, open technologies as part of overall corporate strategy
- Enhance an operational strategy to accept digital assets as payments
Our perspective on corporations investing in crypto further explores adding digital assets to a corporate balance sheet.
Enable cryptocurrency payments
Today, the most popular entry points adopted by corporations include the use of digital assets to enable cryptocurrency payments such as bitcoin. It requires a limited number of adjustments across corporate functions and can reach a new clientele and grow the volume of each sales transaction. A hands-off approach allows the enterprise to transact between crypto and fiat currency to receive or make payments without touching it. Enterprises adopting 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 broaden crypto adoption within operations and the treasury function using a hands-on approach. This route may give companies more opportunities and benefits, but will likely have more technical issues. The hands-off and hands-on approaches to using crypto for payments are discussed further in the rise of using cryptocurrency in business.
Replatform with smart contracts
Smart contracts are the next step in blockchain progression from a financial transaction protocol to an all-purpose utility.
Smart contracts use consensus protocols to automatically implement the terms of multiparty agreements, helping automate or eliminate frequent, manual or duplicative transactions among parties. Smart contracts can reduce audit, reconciliation and legal reviews, as all parties agree with the code — representing the rights and obligations — behind the digital transaction. The resulting transaction is more transparent, accurate and faster. And smart contracts require fewer intermediaries, lowering the execution risk and transaction cost.
Here are some smart contract examples by industry.
|Financial services||Life science and health care||Media and entertainment||Manufacturing||Cross-industry|
|Trade clearing and settlement||Electronic medical records||Royalty distribution||Supply chain source and finance documentation||Transfer price agreement execution|
|Coupon payments||Population health data access||Product governance and history||Peer-to-peer transacting|
|Insurance claim processing||Personal health tracking||Voting|
|Loan eligibility validation|
Learn more about smart contracts in Deloitte’s perspectives.
What’s at stake
A tech company that is not already considering smart contracts may be at risk of falling behind. At a minimum you should be exploring crypto capabilities to see how they can benefit your business or industry. Engage with your organization’s leaders to identify opportunities to digitize or reimage commercial activities using smart contracts. Crypto is more inclusive, being moved with greater velocity and offers more transparency than ever before — all signs it is headed for mainstream adoption. Are you on board?
This post was written by Paul Silverglate, vice chair and US technology sector leader, Deloitte & Touche LLP, and Rob Massey, global & US tax blockchain & digital asset leader, Deloitte Tax LLP. Please check out our Blockchain & Digital Assets Solutions for more information.
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