Digital assets, such as cryptocurrencies and non-fungible tokens (NFTs), are disrupting the financial services landscape. We’re entering a game-changing era of decentralised finance (DeFi), in which these assets are no longer a far-fetched idea, but becoming part of our daily lives. If you have not already taken time to understand this space and find your opportunities, now is the time to do it.
Since the creation of bitcoin in 2009, the digital asset ecosystem has grown exponentially, and other currencies such as ethereum and terra have become well-known. In June 2022, more than 12,000 cryptocurrencies were available. The number more than doubled from 2021 to 2022, and the market is still adding around 1,000 every month, according to fool.com.
Due to their decentralised nature, digital assets are still unregulated in many areas. This is changing – for example, the UK government is regulating parts of the market; and the US has introduced several bills aiming to regulate stablecoins and digital commodities.
Regulation will challenge some providers, but it will ultimately make the digital asset market more secure and mainstream. Here we examine six benefits of digital assets in more detail.
- Faster payments
Digital asset transactions are significantly faster than traditional payment methods, and can bring greater control and oversight of the end-to-end process. Ability to view, approve and initiate transfers improves the user experience, and reduces processing times compared to traditional methods such as CHAPS and SWIFT.
- Secure exchange
Blockchain has become an urgent priority for financial firms.
A blockchain is a digital ledger of transactions managed and updated by a network of computers. A blockchain associated with a digital asset manages a large record of transactions and other data wrapped in several layers of security.
Blockchain security involves a comprehensive risk assessment procedure that protects a blockchain network through cybersecurity frameworks, security testing, and secure coding practices. Digital asset transactions are recorded on transparent public ledgers making it easier to track transactions and establish comprehensive audit trails.
Digital assets have enabled new demographic groups worldwide to access financial services. Users are often people who value transparency in their transactions.
2020 research by crypto app BitPay and Forrester Consulting found up to 40% of customers who pay with cryptocurrency are new customers of the merchant, and their purchase amounts are twice those of credit card users.
Accessibility also provides opportunities for people in developing countries. Bitcoin adoption is widespread in these countries due in part to the inaccessibility of banks – many individuals and small businesses in developing nations don’t have bank accounts. This also denies them a chance to participate in e-commerce.
Cryptocurrencies such as bitcoin are borderless and do not involve intermediaries, enabling previously unbanked people to trade globally.
- Global liquidity
Cryptocurrencies are global assets. Anyone who can access a wallet or have someone host a wallet on their behalf can own and use them. Most current fiat currency infrastructures limit access to capital and liquidity and associated costs can be expensive.
Through tokenisation, digital assets enable access to new capital and liquidity pools, and to new global asset classes. Most digital currencies are also investable, and assets such as bitcoin and ethereum have performed well over the last five years. Though initially extremely volatile, their performance has become more stable.
- Store of value
Cryptoassets are held and managed in digital wallets. A robust wallet structure is critical to a successful treasury function. Many institutions have adopted a tiered structure in which they use online ‘hot’ wallets as operational accounts, and secure off-line ‘cold’ wallets to store value. This allows institutions with high transaction volumes to track, manage and monitor transaction details.
Developing your digital asset strategy
Many individuals and enterprises globally are embracing digital assets for their many benefits. The inadequacies of legacy and traditional finance systems create an opportunity to adopt a more streamlined, transparent, and governed approach with digital assets.
Introducing digital assets to your business is an opportunity to attract new clients by enabling them to interact with your business in different ways; improving customer experience; and making you more adaptable to consumer trends. Developing a digital asset strategy can improve your competitive advantage today and for the future.
How Delta Capita can help
Delta Capita has an experienced and dedicated team that provides expertise in digital assets and regulatory compliance to many financial institutions. This experience gives us an expert view of industry best practices and financial regulations. For organisations impacted by these changes, we can provide valuable insights and ensure your firm is always aligned with the latest regulations and licenses.
Contact us to find out more and speak to one of our experts.