There's a lot of disruption taking place in financial services, but blockchain seems to be the topic on everyone's mind.
The potential transparency and efficiencies promised by bitcoin, Ethereum, and other cryptocurrencies have piqued the interest of most companies that process transactions.
But blockchain and cryptocurrencies also carry a significant amount of uncertainty, which is very largely tied to constantly evolving regulations. Companies don't want to commit too much money to blockchain projects until they know how they'll be treated (and taxed) by regulatory bodies.
As investors, this leaves us in an interesting position. Will blockchains be embraced by the enterprise and eventually reach ubiquity? Or will they slowly fade away and become irrelevant ?
The Regulatory Issue
To help us figure out what's happening on the blockchain regulatory front, I recently spoke with CB Insights' intelligence analyst Arieh Levi at the Future of Fintech 2018 event. Arieh is an expert on blockchains; he closely follows their development and understands how and where they are proving most useful.
Here's what Arieh had to say about how regulatory agencies currently view blockchains:
It seems much of this year's price fall in cryptocurrencies is due to the potential fear of the SEC bringing the hammer down with unfavorable regulations. That's certainly a risk that many investors -- understandably -- aren't willing to take.
Arieh continued to explain that cryptocurrency regulations are still in their very early innings. But in a good way, they are also setting the ground rules for how blockchains can and will be used:
We'll watch for more of those smart actors to continue to develop the underlying blockchain infrastructure.
The bigger picture
With regulatory frameworks in place, Arieh noted that blockchains could offer a much more efficient platform that "tokenizes" -- or creates coded versions of sensitive information that can be shared without compromising their security -- all of your digital assets:
Blockchains could offer a way to conduct financial transactions much more efficiently. But we're still quite a ways out from that actually happening.
The Foolish bottom line
It's been quite a ride for Bitcoin investors this past year, which has brought several highs of euphoria and several lows of disillusionment. But behind the speculation, blockchains also have the potential to revolutionize our financial services infrastructure. With the stakes enormously high, regulators are taking a measured approach on how the should be governed.
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Simon Erickson owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
