Trends Watch: Blockchain Technology
- Sep 8, 2022
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Hamiz Mushtaq Awan, Founder & Partner, Plutus21 Capital.
What is your outlook for cryptocurrency?
Blockchain technology has vast applications beyond cryptocurrencies. For example, bitcoin is the first digital asset using blockchain technology. Bitcoin has the potential to be an institutional portfolio hedge to macro concerns such as expanding money supply and inflation fears. Bitcoin could also serve as a digital replacement for or companion to gold. Any interaction made expensive, inefficient and slow by intermediaries can be improved using shared and open infrastructure. We expect blockchain technology to have a larger impact on society than the internet. Blockchain technology allows the next generation of internet applications to be built enabled by information and value becoming digital.
What are the greatest opportunities you see and why?
Similar to previous technologies, we expect blockchain technology to be developed and adopted in a certain order depending on the need and progress of particular use cases. For example, using software taking over software companies: What we saw in the last 20 years will be dwarfed by what we are about to witness in the next 20. Software companies have been eating the lunch of traditional companies but now, it will be software itself eating the lunch of software companies. Replacing traditional companies with software companies reduces costs by 10-to-20%. However, replacing software companies with software itself reduces costs by 90%. For example: Compound is a bank on the blockchain with no physical branches. It has a total of $50 billion deposits. We expect use cases that are the most natively digital with the lowest regulation (e.g., video games) to be adopted first, and the use cases that are the least natively digital with the highest regulation (e.g., mortgages) to be adopted last.
What are the greatest challenges you face and why?
Adoption amongst non-technical users. You had to be a computer programmer to learn how to send email in the early days. It was not until user-friendly email applications like Hotmail and Gmail were created that email usage became ubiquitous. There is a lot of improvement needed in the experience for non-technical blockchain users to achieve mainstream adoption. In addition, regulations are another challenge we face. Given the pace of development and the global nature of blockchain technology, regulators are having a difficult time keeping pace which is causing uncertainty for entrepreneurs and investors building in the space. Clear, even if they are strict, regulations will allow for builders and users to have more confidence. Finally, we think about safety of users and their assets. Given the complex nature of the current technology and interfaces, safety of users and their assets is a challenge that needs to be addressed with robust security protocols and best practices.
What keeps you up at night?
Bad actors are attracted to young industries that have captured the interest of investors, entrepreneurs, and users. The general excitement and lack of experience allows for bad actors to take advantage of the system. Our regulators and industry stakeholders need to come together to protect the ecosystem from these bad actors.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.
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Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.
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