Blockchain innovation in wealth and asset management

13 December 2019

There is still a lot of uncertainty and circumspection around what technology can do for wealth management. Because of its nature, Blockchain is considered a very disruptive innovation, and Blockchain asset management is one of the pillars of the future of wealth management.

Many people associate Blockchain to cryptocurrencies, and they think that in order for Blockchain to work, all their money should be exchanged for some cryptocurrency, but it is not always the case.

Some people underestimate Blockchain’s possibilities, but the opposite is true as well: some people overestimate it and think it will change everything.

Of course, Blockchain is a revolutionary innovation, but we should see what and how it can improve. Asset management, as we mentioned above, is a well-fitting example.

What is asset management

Asset management is the activity of transfering assets between entities: stocks, commodities, properties, equities, are all assets that can be transferred.

In order to be transferred, assets must be recorded on a platform, and the transactions must be validated by qualified companies or individuals.

In some jurisdictions, transfering an asset can be a very tangled process because of bureaucracy and ID checks, and here is where the trouble comes.

Let’s see an example of real estate tranfer (it is the same one we used when we talked about Blockchain real estate technology).

Blockchain asset management

Let’s say there is a residential building in Switzerland consisting of 18 apartments and a restaurant worth CHF 15mln. The owner wants to sell only 20% of the building (worth CHF 3mln).

First of all, she can’t really sell exactly 20% of the building, because she can only sell whole units (apartments or the restaurant). With traditional asset management procedures, she would look for a real estate agency that can find trustworthy investors. Once she found it, a broker is put in charge of her property and works as a middle man between owner and potential buyers.

When the broker finds a buyer, there are ID checks to pass and documents to be signed and validated, and the transaction is also in control of a central authority, usually a bank.

With Blockchain asset management, the owner decides to tokenise 20% of the building. A set of security tokens is then administered on a blockchain, and when an investor buys one or more tokens, the transaction is recorded, and there is no way to manipulate it. Next time the owner receives the rental income, a share of it, proportioned to the value of the tokens bought, goes to the investors. This process is entirely automatic and validated by the blockchain.

Blockchain asset management becomes essential if we consider that in a world where the internet is ultra-fast, waiting weeks for an asset transfer sounds outdated.

The role of regulators

It sounds fantastic, doesn’t it?

However, we must take into account the fact that regulatory compliance legislation is always slower than technological innovation. For instance, we know very well the difficult compatibility between Blockchain and GDPR, and the resistance some jurisdictions are opposing to smart contracts.

The problem of Blockchain, if we want to consider it a problem, is that it is international and borderless, so national laws mean nothing to it, and while this might be the foundation of a future model of global economy, is a source of concern for any national government.

Obviously, we know that country governments take their time to legislate Blockchain compliance in their citizens’ best interest, so the only consideration we can do is that while Blockchain asset management is ready to work, we still have to wait for clear regulations that leave no room for legal vacuums.

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