Bring digital assets into the enterprise IBM supply chain and blockchain blog through blockchain

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Today, digital assets are everywhere in the news: cryptocurrencies, stablecoins, or non-fungible tokens (NFT), to name a few. They have a wider range of applications, from representing financial instruments to protecting the authenticity and ownership of digital IP or physical assets. Companies engaged in digital assets have a great opportunity to provide customers with meaningful value through new services and business models. After a recent webinar hosted by Forrester Research vice president and principal analyst Martha Bennett: Digital assets, a new paradigm of financial services, I have the opportunity to ask her some important questions for the consideration of any organization that wants to introduce digital assets to their enterprise.

What are digital assets and what are some examples?

In this case, we are studying the different types of digital assets represented on the blockchain or distributed ledger network, the most common being in the form of tokens. Tokens are either fungible (that is, one can replace the other) or non-fungible (that is, each is unique). These tokens can be cryptocurrencies, stablecoins, or tokenized representations of existing financial instruments (such as securities and bonds). Tokens can also be used to protect the authenticity of digital artworks and other forms of digital IP and track ownership. Last but not least, tokens can represent physical assets as well as business-critical documents, such as invoices or bills of lading.

What are the business opportunities surrounding digital assets?

Investors’ demand for new asset classes and finding more effective ways to support shared ownership and make it easier for a wider group of investors to access current illiquid assets has grown steadily. There is also a powerful perspective of efficiency and innovation: the self-describing and programmable features of tokens allow faster and more accurate completion of processes and open up opportunities for new services and business models.

What are the security risks and compliance requirements?

Given the existence of risky financial assets, the minimum requirement is bank-level security. As far as digital assets are concerned, considering the nature of the technology involved (for example, transactions cannot be reversed, and the leakage or loss of keys can have serious consequences), the security requirements can be said to be beyond the scope. Different asset types have different risk profiles, and companies need to determine their preferred risk profile. From a compliance perspective, it is important to understand that the regulatory environment is still fluid and will change rapidly.

Although some countries have updated relevant regulations and even legislation to reflect the nature of digital assets, other countries are far less advanced, and some countries even prohibit financial institutions from processing encrypted assets. A country-by-country approach is essential. Companies also need to consider the differences between the states in the United States and the provinces in Canada.impending Crypto Asset Market (MiCA) For example, regulation will make the entire region clear; now those who want to provide services must contact the corresponding regulatory agencies in each country. Depending on the asset, they also need to consider the environmental footprint.

What needs to be considered from a technical point of view?

As mentioned earlier, having as strong security as possible is essential. Other basic requirements include modern infrastructure based on containers, microservices, APIs, and hybrid clouds. It is unlikely that there will be use cases for digital assets that do not require advanced analysis and prediction tools and artificial intelligence. It is very important that the digital asset representing the physical project needs to be connected to it to ensure that it has not been tampered with. Depending on the use case, this may require a large number of additional technologies, including IT (for example, the Internet of Things, geospatial and location data, computer vision) and non-IT (for example, tamper-proof packaging, nanotechnology for marking materials, hyperspectral imaging) . The same technology can be used to represent an organization’s carbon footprint or emissions exposed assets.

What are the options for entering the digital asset business?

It depends on several factors:

• How long does your institution expect to provide digital asset services
• The type of service your company wants to provide-just custody, trading and custody, token issuance, or other commercial services
• Your company’s desired degree of control over available functions
• Your company’s appetite for risk and innovation

All options are supported today. Companies can use standard outsourcing arrangements and white label services or develop their own solutions, combining off-the-shelf software components as needed. Extremely thorough due diligence is necessary-among the many available solutions, there are relatively few enterprise-level solutions that have an appropriate level of security.

This is an exciting time when companies begin to seriously evaluate how to use digital assets in their business. While minimizing risks and costs, the opportunity to launch new services and products has never been greater. In order to continue your journey with confidence, please make sure you stay up to date with the latest developments and contact us when developing a strategy.

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