“Blockchain will become the ‘beating heart’ of the global financial system.”1
- World Economic Forum
Rarely does a single technology impact the entire financial system. Now, blockchain is poised to do just that. How will financial practice change as a result? What do financial professionals need to know in order to benefit from a technology that MIT Media Lab director Joi Ito predicts “will do to the financial system what the internet did to media.”2
In a series of concise reports, Blockmatics gets past the hype, examining the promise and limitations of blockchain’s impacts across the six core financial functions 3:
1. pooling resources & subdividing shares
2. dealing with contract-related incentive problems
3. transferring resources across time & space
4. providing information
5. managing risk
6. clearing & settling payments
The series considers how blockchain expands the financial toolbox, describes exemplary early blockchain applications, offers practical limitations that encumber scalability, and shows which types of financial practice are likely to be most immediately impacted.
Report 1 of the New Financial Paradigm series addresses the functional area of asset division and resource pooling. This refers to the way investors pool their resources when they aggregate their individual wealth into vehicles that permit investment in common. From the perspective of a shared enterprise, subdividing ownership into investable shares can permit it to raise capital by selling these shares to investors and financial intermediaries. 4
Blockmatics’ analysis unpacks how blockchain, essentially a method by which a decentralized network of actors can render immutable a shared, timestamped record, expands the asset division and resource pooling toolbox. According to Blockmatics’ analysis, it does so in three ways: 1) by aggregating usage demand, 2) by managing assets more efficiently, and 3) by making new types of assets investable.
The report is designed to offer useful information to a broad swath of financial professionals.
Investment bankers and bond traders will be interested to learn how inbuilt tokens expand their ability to finance enterprise on the basis of future demand for an enterprise’s products or services without the need for debt or equity financing.
Accountants will be keen to understand ways that blockchain enables them to program tangible assets to be traded and tracked with greater speed and accuracy, and at lower cost.
Hedge fund and mutual fund managers will find relevant ways blockchain makes it easy to program, offer, and divest managed passive portfolios.
Institutional investors will be interested to learn how blockchain-recorded access to tangible assets can render usage-allocated property investable.
Equity analysts will want to understand how tokenizable intangible assets herald the advent of disruptive new business models, as pre-production content is rendered investable.
Companies that understand the disruptive reality of blockchain and wish to bring their staff up to speed are invited to consider hosting a customized Blockmatics training series for your staff.
1. World Economic Forum. 2016. "Blockchain will become 'beating heart' of the global financial system." World Economic Forum. August 12. Accessed March 15, 2018. https://www.weforum.org/press/2016/08/blockchain-will-become-beating-heart-of-the-global-financial-system/.
2. Ito, Joichi, Neha Narula, and Robleh Ali. 2017. "The Blockchain Will Do to the Financial System What the Internet Did to Media." Harvard Business Review.
3. Merton, Robert C., and Zvi Bodie. 1995. A Conceptual Framework for Analyzing the Financial Environment. Working Paper, Harvard Business School, Boston: HBS.
Merton, Robert C., D. B. Crane, K. A. Froot, Scott P. Mason, Andre Perold, Z. Bodie, E. R. Sirri, and P. Tufano. 1995. The Global Financial System: A Functional Perspective. Boston: Harvard Business School Press .
4. Like enterprises, other types of tangible and intangible assets are monetized through the subdivision of asset rights.
About the author
Brennan O’Rear is a Blockmatics researcher/ content creator and a blockchain strategy consultant passionate about the potential of information technology to evolve economic systems. An inaugural member of the University of Chicago’s International Innovation Corps, Brennan’s thinking draws upon more than a decade of strategic consulting and entrepreneurship.