Earlier this week, I wrote about the technology that most people right now associate only with bitcoin. The thing is that over the last year or so, many of the biggest and most influential companies in the U.S. have recognized not only how useful blockchain technology is for cryptocurrencies, but also how it could be used in a huge variety of other business applications. When describing blockchain as it applies to their business operations, many analysts and executives used words like “transformative”, “revolutionary”, and “the next big tech disruptor.” Some are even comparing blockchain to the Internet itself in terms of its potential ability to ripple throughout the business world, leading corporations to completely change the way they do business.
Technologies that are truly transformative on the kind of scale I’m referring to don’t come around that often; over the last hundred years, I can think of only three (the assembly line, the personal computer, and the Internet) that up to this point have forced the entire business world to toss aside old business models and adopt new ones. That means that the companies that have the ability to recognize when a new technology has that same kind of transformative potential, and can find ways to leverage it effectively have a leg up on the rest of the competition.
When it comes to blockchain, the list of companies that are battling for a foothold is long and growing by the day. The businesses that are the mostly like to emerge from the fracas at the top of the heap aren’t just those with the best ideas, but also the resources and size to implement their own plans and adopt those of other, smaller players. Today’s article is a list of 5 well-known stocks that I think are already distancing themselves from the pack in the race to take advantage of blockchain. The surprising part is that while you might naturally think first (and not incorrectly) about tech companies, there are a couple of major players from the financial sector that are the forefront, too.
The Goldman Sachs Group (GS)
While GS is among a number of other financial companies that have lately been warning about the increasing risk associated with bitcoin, and even predicted as early as January of this year that the cryptocurrency was entering a “bubble” stage, they have also been among the earliest, and most notable companies in the financial world to embrace the potential that blockchain offers. In November of last year, GS and JP Morgan Chase & Co. (JPM) completed a successful, six-month test of equity swaps, which are derivative contracts that facilitate the exchange of future cash flows using a blockchain ledger. Equity swaps give the parties involved the ability to diversify its income for a set period of time while continuing to hold the assets that generates those flows, and these trades make up a huge market, estimated at nearly $3 trillion. Settlement of trades between organizations currently takes days, and sometimes weeks for back-office and clearing operations to be completed. Blockchain offers the potential to reduce these times – along with the administrative and opportunity costs associated with holding funds in reserve until settlement and clearing is completed – to just minutes instead of the customary periods.
Equity swaps aren’t the only types of financial transactions and processes that GS, and others see benefitting from the adoption of blockchain technology, with the possibilities ranging through practically every part of the financial world. GS is clearly betting big, as they rank among the most active equity investors in blockchain companies in the world.
International Business Machines (IBM)
IBM was one of the earliest blue-chip companies to recognize the potential of blockchain, and they moved quickly to position themselves; they contributed code to open-source blockchain efforts and offered free trials to blockchain software startups to try their cloud-based blockchain services. IBM rents out the storage and processing capacity of about 60 of their data centers to businesses all over the globe, and this year they expect blockchain technology will represent one of their largest user groups. With the market for blockchain technology and related products and services expected to grow from just about $242 million in 2016 to almost $8 billion by 2022, this is clearly a segment of the technology business that offers major opportunity for companies that are willing to adapt and modify their businesses, such as IBM is doing.
IBM continues to be proactive about their involvement in blockchain: they are one of the key companies behind the Hyperledger consortium, which is an open-source, nonprofit that works to create efficient standards for commercial use of blockchain technology. In October of 2017, they also revealed they had begun processing payments between banks in the South Pacific using its own proprietary blockchain.
Mastercard Incorporated (MA)
As bitcoin acceptance and use has spread across the globe, one of the industries that seemed to be the most at risk was certainly credit card and payment processing companies. Being able to exchange cryptocurrencies between parties securely over the web generally eliminates the need for the intermediary function (and its associated fees) offered by traditional payment systems. In the fall of 2017, Mastercard began offering the ability to send money over a blockchain, rather than swiping a credit card. That put them far ahead of other companies in their industry, including Visa (V), which only began to implement a limited, “pilot phase” version of a similar system in November of last year. It should be noted that Mastercard is only making the service available on a limited basis as a business-to-business payment system; consumers will still have to rely on a plastic swipe.
Why use Mastercard’s blockchain, rather than working with a cryptocurrency? Because the Mastercard system works with traditional, fiat currency, which most businesses still rely predominately on to do business. One of the drawbacks about using cryptocurrency like bitcoin is that converting bitcoin into cash, or vice versa is burdensome and mostly impractical; they still require some kind of exchange to facilitate the conversion. Mastercard is betting that keeping the ability to work with government-issued currency on a more secured, efficient network like blockchain offers the best of both worlds.
Intel Corporation (INTC)
In the early days of bitcoin, miners used their own computers to generate the cryptocurrency, but the power consumption and processing demands quickly became more than a single computer could handle; currently it is estimated that a single bitcoin transaction can require as much energy as the average American home uses in a week. Remember that bitcoin updates its blockchain every ten minutes, and you can understand that the demands of blockchain technology represent a major challenge to the kind of implementation and adoption most companies and experts are predicting for the future. Another challenge is that while a blockchain’s ledger, by nature of its design, is public, there are a lot of business transactions that, for a multitude of reasons must remain confidential. That presents a problem that threatens to only increase the power and processing demands blockchain already imposes.
Intel is tackling the problem head-on, but not necessarily to facilitate more bitcoin mining. Instead, they are using their expertise to create an interesting solution. Intel has been working with Microsoft (MSFT) to incorporate their Software Guard Extensions (Intel SGX) with the Coco Framework, which provides blockchain developers with a consensus mechanism that can deliver about 1,600 transactions per second while also keeping the transactions confidential among blockchain participants. The Intel SGX adds a proof-of-elapsed-time method to facilitate blockchain production that requires almost no energy.
Accenture PLC (ACN)
Like IBM, ACN is a member of the Hyperledger consortium as well as the Enterprise Ethereum Alliance, and has inked a number of significant blockchain deals in the last year. They are working with Microsoft, for example, to create a digital ID database for more than 1.1 billion people globally. They are also collaborating actively with small, and micro-cap software companies like Digital Asset, R2 and Ripple that are on the cutting edge of blockchain development. Accenture provides a variety of professional IT services across a wide range of industries, and they clearly see blockchain as a way to improve logistics for global shipping. Their shipping-based blockchain recently won approval from an important European shipping consortium. Instead of sharing information through physical documents, the ACN solution offers a secure data-sharing method that can speed up information flow, simply and streamline processes like cargo checks, and reduce the risk of customs levies on shipping customers.
The truth is that the number of ways that blockchain is being adopted, and adapted for the business world are only just beginning to be seen. These aren’t the only companies that are positioning themselves effectively to take advantage of that opportunity, but they are some of the biggest leaders that are the most likely to continue leading the way while others follow their lead.