Bitcoin and other cryptocurrencies have become the target of special attention from an increasing number of institutions and companies. One of the latest to focus on the state of the crypto world is KPMG. A member of the Big Four group of audit companies, KPMG released a report stating that “cryptoassets are worth paying attention to”, but that it is time to institutionalise them.
KPMG Analysts Believe That the Future of Economy Is Tokenised
The fast spreading uses of blockchain technology and token-based transactions led KPMG experts to predict that they will reshape global economy. The report authors believe that:
While it is still early stages and it is hard to predict how the next 10 years will play out, the tokenized economy will likely be one of the more impactful innovations enabled by crypto.
The report also states that cryptocurrencies have the potential to revolutionise the financial world. Bitcoin, Ether and other blockchain-based currencies can create an open system featuring:
- No central control by a single or a group of institutions;
- Wider access to investments and exchanges of financial resources;
- Faster, more affordable payment solutions connecting people in any place, at any moment.
From Speculation to Institutionalisation: The Step Forward
KPMG analysts believe that all the above will happen only if cryptoassets move forward from the current phase, that of investment/speculation. Cryptocurrency developed for and in the retail market. The blockchain system makes direct transfers and purchase of goods simple and straightforward.
The tokenized economy will likely be one of the more impactful innovations enabled by crypto.
However, major institutions have to adopt and recognise Bitcoin and other crptocurrencies, in order for them to go mainstream. As the report authors explain:
Cryptoassets have potential. But for them to realize this potential, institutionalization is needed. Institutionalization is the at-scale participation in the crypto market of banks, broker dealers, exchanges, payment providers, fintechs, and other entities in the global financial services ecosystem. We believe this is a necessary next step for crypto to create trust and scale.
This participation will help cryptocurrencies take off, scale up to global use, as well as attain the level of trust that people and organisations currently have in major fiat currencies. However, institutions have more requirements than the retail market in order to adopt cryptoassets. They need clear regulations in terms of compliance, governance and transparency.
Key Challenges on the Path to Institutionalising Crypto
The authors of the KPMG report recognise that their proposal is not easy to achieve. There are several issues that need solving before the global economy can rely on cryptocurrencies.
Some of these challenges are:
- Regulatory compliance: creating a global, harmonised regulatory framework for cryptoassets;
- Cybersecurity issues: the development of a new standard of cybersecurity for crypto transactions;
- Accounting, financial and tax implications: a harmonised approach to recording cryptoassets in the accounting books and reporting them for tax purposes;
- Fork governance: when a single blockchain divides into two chains, there must be clear rules for managing the financial, tax, accounting and operational implications of this action;
- Determining provenance and ownership: determining the minimum required information for cryptocurrency transactions to prevent theft and fraud.
We believe [institutionalisation] is a necessary next step for crypto to create trust and scale.
The report analyses various scenarios and potential solutions to these challenges. However, this is obviously a thought experiment and it will be a while until the global economy is ready to run on crypto. But every single effort made in this direction is a new building block added to the master blockchain. And, institutional investors are definitely making a move.