Blockchain solutions are rapidly evolving beyond cryptocurrencies.
- Enterprise blockchain solutions are rapidly evolving beyond cryptocurrencies owing to their potential to improve the efficiency of business processes across virtually all economic industries.
- Persistent supply-chain issues have been a catalyst for enterprises to explore blockchain solutions to reduce risk.
- While adoption is slower in some industries, we believe that blockchain is a durable theme that is gaining investor attention.
The challenge for equity investors
Blockchain is a distributed digital-ledger system, or more simply a database that is shared by consent and synchronised across multiple locations, organisations, enterprises or geographies, and accessible by multiple individuals. The earliest and best-known use cases of the technology are cryptocurrencies such as Bitcoin. In the current environment, cryptocurrencies dominate the blockchain narrative given recent price volatility and evolving regulation, overshadowing the larger opportunity for enterprise applications of blockchain technology. Enterprise blockchain solutions are rapidly evolving beyond crypto given their potential to improve the efficiency of business processes across virtually all economic industries. To put it in perspective, the disruptive impact of widespread blockchain adoption could prove to be as transformative an innovation as the development of the internet itself.
Increasingly, enterprises are exploring or adopting blockchain solutions to improve the speed, cost, scale and transparency of their business operations. Any centralised business function that involves multiple independent parties that are reluctant or unable to share information can benefit from the transparency, efficiency, security and asymmetric sharing of data embedded in blockchain-based solutions. For example, the persistent supply-chain issues affecting the economy have been a catalyst for enterprises to explore blockchain solutions to address this risk. Global supply-chain networks are well-suited to a decentralised, blockchain-enabled approach given their logistical complexity and the need to coordinate multiple participants in these ecosystems. In addition to these benefits, the recording and documentation of supply-chain activities has the potential to enhance sustainable initiatives by providing transparency and measurability of energy usage and carbon intensity for all participants.
Consumer discretionary is leading blockchain adoption
Surprisingly, companies in the consumer discretionary sector have been early adopters of blockchain-based solutions. Over the last two decades, the business models of consumer-facing companies were radically transformed by the internet as the delivery of goods and services migrated from physical locations to omni-channel fulfilment and distribution. The lessons learned from this experience have motivated management teams to proactively embrace blockchain technology to avoid the mistakes they made in the past. For example, the ability to immutably record the provenance, ownership and authenticity of consumer goods on a blockchain network protects consumer brands while providing tangible value to the end consumer. Additionally, there is greater awareness and usage of non-fungible tokens (NFTs) in the consumer and media sectors as companies seek to monetise the value of content in a virtual setting. Until now, NFT content and volume have largely been driven by the private sector, but there are increasing examples of mainstream adoption as public companies partner with NFT platforms or develop their own NFT offerings to generate new revenue streams.
There is a long tail of enterprise adoption beyond industrial and consumer uses. The significant inefficiencies in the structure and delivery of health-care services are an obvious area where blockchain-based solutions can improve patient outcomes and reduce costs. The fintech revolution digitised the consumption of financial products but significant friction persists in delivering financial services in areas like insurance, payments, remittance and consumer finance, especially for under-banked populations. We believe innovation in blockchain technology is a robust, long-duration theme that is just beginning to garner attention among investors, but awareness of the theme’s disruptive potential should rapidly increase as enterprises accelerate their adoption over the next decade.
This is a financial promotion. These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. This material is for professional investors only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those securities, countries or sectors. Please note that holdings and positioning are subject to change without notice. This article was written by members of the NIMNA investment team. ‘Newton’ and/or ‘Newton Investment Management’ is a corporate brand which refers to the following group of affiliated companies: Newton Investment Management Limited (NIM) and Newton Investment Management North America LLC (NIMNA). NIMNA was established in 2021 and is comprised of the equity and multi-asset teams from an affiliate, Mellon Investments Corporation