UPRETS INSIGHTS | World Economic Forum: Why Digitalization?
Source：World Economic Forum Strategic Alliance
World Economic Forum: Why Digitalization?
The World Economic Forum is an annual meeting that brings together global market leaders, influencers and decision-makers from different parts of the world. This year’s forum was in Davos and the focus was on how stakeholder capitalism can bring solutions to some of the urgent challenges in the world. There were more than 3,000 participants from all over the world who covered topics such as world health, geopolitics, climate change and the global economy to mention a few.
The innovative side of the 50th forum featured contributions from blockchain experts. The focus was on how digitalizing real-world assets have the potential to revolutionize these particular markets. One of the speakers at the event was director of Digital Currency Initiative at MIT whose focus was on the importance of digital securities.
Neha Narula offered deep explanations on how digital security ownership differs from assets that are held by traditional banks. An important point that she commented on was how blockchain technology boosts overall market integrity through the transparency of the distributed ledger.
How Smart Contracts Can Streamline Business Systems
Narula was specific on how smart contracts can streamline business systems and industries from all over the world. In her explanation, she described smart contracts as ‘programmable layers’ that make it easy for developers to develop ‘interesting applications’.
The roadblocks to the large scale of adoption of smart contracts and blockchain, in general, were her closing remarks. Lack of consumer protection is one of the factors slowing down this adoption according to her submission. Narula believes that a strong regulatory framework is crucial for this market to thrive; an argument that was echoed by other analysts in the field. Her focus was on regulations where companies provide full disclosure about what their digital security represents and the details of the firm.
The Move from Digital Security Assets to A Digital Security Economy
There are success stories of digital securities such as ether. On the other hand, some projects were there to milk unsuspecting and clueless investors. Regulatory frameworks became an issue.
The focus is now shifting from digital security assets to creating a digital security economy. Jeremy Allaire, CEO of Circle, was one of the speakers that explored the topic of digital securities economy in details. He elaborated how digitalization creates new markets. According to him, these new markets, when combined with a global reach on a 24 hour economy, will open up new investment opportunities. There will thus be a new stream of capital for different global businesses and new markets.
His focus was also on the importance of creating capital markets that allow open and global participation of different players. The newfound markets will be more inclusive when compared to the traditional ones. According to Allaire, the current market structure is somehow limited. He was quick to point out that only a few thousands of companies participate in the capital markets, whereas there are millions of companies out there.
Why Digitalize Real-world Assets?
Some of the traditional assets that you can digitalize include; equity, debt, pieces of art and real estate. Creating digital securities and then storing them on a distributed ledger is what digitalization is all about. The big question is, why do we need to this?
The process of selling and buying traditional assets can be cumbersome. Take for instance, when you want to transfer ownership of land in the traditional sector. The process takes a lot of paperwork and coordination between different players to make it a reality. Digitalization makes the exchange of such an asset fast and convenient. The distributed ledger will store information and automates some of the functions such as KYC/AML which speeds up the process.
The blockchain also links different players which makes it a one-stop-shop for all your problems. The blockchain will store all the information on payments and transfers made. The ledger is immutable which means that no one can alter the data once it is keyed in.
Most private markets are known for their liquidity challenges. For instance, real estate is estimated to take up to eight years to become liquid. It thus becomes an unattractive investment option for someone who may want higher liquidity. Digitalized assets make it easier to make assets liquid. However, there must be an underlying demand for the asset in question for it to become liquid.
The digitalizing company also needs to invest in the right infrastructure to make liquidity a reality. The company will thus work closely with regulatory bodies, create a private market and also link to external exchanges for secondary liquidity.
Lower Barriers to Entry
An average investor is usually locked from investing in real estate due to the price of properties. Digitalization allows average investors to enjoy partial ownership through digital securities. It is thus possible for an investor with as low as $100 to invest in real estate. The digital securities market is still in its infancy stages and regulations differ from one country to the other. For instance, the US only allows accredited investors to participate in the digital securities market.
Most traditional private markets are restricted to regions. The flow of information on available opportunities is also very low. For instance, there may be a lucrative overseas property that you may be eyeing but investing becomes a nightmare. Digitalization opens up the private markets to the global market. A person in China can thus invest in the United States at the comfort of his home. All the data that such a person requires to make decisions is available on the blockchain. The approach also reduces intermediaries which allow investors to get better bargains.
Digitalization being one of the topics of discussion on the World Economic Forum is a clear indication that the digital security economy is ready for mass adoption. There is still a lot of groundwork such to be done; such as creating global regulatory frameworks and creating the right ecosystems. The market is only getting started and we expect more exploration in the coming years.
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