How to invest in Blockchain’s future

As digital currencies like Bitcoin and Ethereum have dropped out of the limelight, the companies making the headlines as the Blockchain revolution advances, are those using this open ledger software to streamline their operations.

Their stories illustrate how this technology is “creating a second era of the Internet,” says Don Tapscott, co-author of the book Blockchain Revolution and Executive  Chairman of the Toronto-based Blockchain Research Institute.

“Crypto currencies have been the tail wagging the dog,” he says. “While they have grabbed the headlines, the revolution behind the currencies is rapidly spreading.”

Blockchain is an opportunity and a challenge for investors. It is creating exciting new products and services, but the advances are not always easy to understand. Unlocking the value takes time and the companies and products first out of the gate aren’t necessarily the ones that will win the race.

“There aren’t many publicly-listed Canadian companies in this area,” Mr. Tapscott says. “So one way to participate is to look at existing companies most affected by the changes. They are the ones experimenting with the technology and adapting to it, or not.”

Mr. Tapscott, who specializes in the social and economic impact of technology, said there are key differences between the “Internet of Information” and the second era – “The Internet of Value” –  based on blockchain.  The first is a medium that copies information with the original, or multiples of it, stored elsewhere – like an email or  photo.

But when it comes to things like money, our identities, or intellectual property, copying is a bad idea.

Blockchain reduces the need for a middle man, cutting costs, speeding up transactions and improving privacy.  Blockchain does this because transactions are shared among partners in a contract or business deal, so each has the same information. Everyone can see the transactions when entered and once entered nobody can change them. That makes them tamper proof.

Government, insurance, financial services, healthcare, and food safety are areas of rapid implementation include. Here are a few examples:

• The Canadian and Dutch governments are working with Accenture plc, the Fortune 500 business services company and the World Economic Forum, on a project to replace your passport with your smartphone. They are testing Blockchain to securely store the information.
• Air Canada  is involved in a blockchain-based platform for travel agents and others to book airline tickets, while Air France – KLM has tested Blockchain to store and transparently make available, aircraft maintenance records.
• IBM, Microsoft Corp., and the shipping company Maersk, have teamed up in the insurance space, to develop a system that tracks ships and their cargoes to reduce insurance costs and also help customs officials known more accurately when cargo arrives.
• Shoppers Drug Mart is using Blockchain technology to help doctors and pharmacists ensure the quality of medical cannabis.  It does this by tracking the movement of batches of cannabis from farm to store.
• An outbreak of E. Coli bacteria on lettuce supplied to Walmart led the company to use Blockchain to track fresh produce at its stores. Suppliers of leafy greens must now be able to follow the produce from when it picked to when it was delivered. This is another IBM initiative, through the IBM Food Trust.
• Reliance Industries in India is moving 300 million customers on its Jio mobile network to blockchain, delivering financial services to citizens.

Individual blockchain stocks listed in the U.S. and elsewhere, as well as ETFs offer opportunities, says Mr. Tapscott. A more conservative approach is to tag along with today’s technology leaders.

That means the IBMs, Microsofts, Mastercards, and Paypals. Other early adopters are logistics companies, including Fedex and UPS. They are most affected by the changes and are motivated to maintain their dominance. So they explore and incorporate the potential.

A decade from now, Mr. Tapscott expects to see major disruption caused by digital currencies. It has already arrived, with Facebook’s plan, along with dozens of partners to launch a digital currency next year called Libra.

If it can overcome the government hurdles to implementation globally, Libra would take advantage of Facebook’s 2.4 billion active users to offer a way to buy things outside the banking system. Libra’s founding members are a financial services and new economy Who’s Who. They include Mastercard, PayPal,  Visa, eBay, Vodafone, Spotify, Lfyt and Uber.

A white paper on the Libra Web site lays it all out.

Mr.  Tapscott says Libra is the one of many threats to the global banking system. Meanwhile China has beaten Facebook to the punch, with the impending launch of a  digital version of the yuan.

Mr. Tapscott says if you’re the U.S. government looking at these developments you have to formulate a response.

  “The U.S. dollar isn’t going anywhere soon, but I suspect within a decade the U.S. and many other countries will have created their own digital currencies. They will have to respond to China and corporate projects like Libra. There will be no choice.”

Mr. Tapscott says the problem for some companies is what is known as the innovator’s dilemma. They have to make a choice between continuing to serve existing customer needs with a tried and true business formula, or make radical change to position for the future. Some can’t do it.

“When the first internet kicked in, companies like Kodak, Barnes and Noble, Blockbuster, or Nortel all looked like good investments,” he says.

 This article appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on Oct. 8, 2019