From one billion to one trillion: A brief analysis of the inevitability of cryptographic assets and digitalization of securities

About the author: Ami Ben David is the founder and CEO of the digital securities blockchain Ownera, co-founder of SPiCE VC and Securitize, and a securities token company investor.

Bitcoin has been around for ten years. Recently, it has been promoted by Facebook. The general market has begun to realize that the era of digital currency with blockchain technology as its core is coming.

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Image source: pixabay

All major players are aware that not only the digitization of money is taking place, but the digitization of asset ownership has also arrived. Obviously, this is a bigger financial market, and its impact on the global society and economy is immeasurable.

A few weeks ago, I was involved in hosting a closed seminar on digital securities for financial institutional investors and bankers in London. The conference is divided into small round tables. The task of each round table is to rate the merits of digitalization of securities based on importance, including: liquidity, efficiency, cost, post-transaction simplification, asset price, partial ownership, speed, global access. , new financial products, business models, etc.

By the time the results were announced, it was clear that there was no consensus. Each round table has its own different voice, and there is almost no unified opinion inside.

After the event, I talked to the participants and realized that everyone in the room was thinking about an asset class that was close to their heart. Some people rate the advantages of digitalization of listed stocks, others consider real estate debt, and others talk about private equity.

Overall, ranking is not important because digitization is inevitable.

Digitalization of securities is an inevitable trend

Let us explain why. First, here is a brief description of the meaning of digital ownership: ownership is essentially data. The Society agrees that Owner X has the right to own Asset Y and protects these rights through the power of the court and the police. As with any data, ownership can also be digitized.

Today, most global assets are private. In order to trade, both buyers and sellers have to go through a long and expensive process, including lawyers, accountants, etc., and then everyone must sign a document detailing the rights the buyer has. The owner's entire portfolio of documents constitutes ownership. Let us call these documents "Analog Ownership".

Public markets are much more efficient, they have electronic records of ownership, but they are still not digital entries. The transaction requires multiple entities to cross-book the settlement of each transaction. These public platforms are expensive, inefficient, and have very limited startup capacity.

Speaking of securities tokens, it defines the rights of any token holder by a set of master documents and smart contracts. The blockchain records the owner of each token and replicates it in a consensus manner, so no entity can control this ledger.

You can then deposit the tokens held by yourself or the custodian 1 or conduct a transaction (each transaction uses artificial intelligence to check compliance).

Ownership essentially becomes a digital value that can be divided into smaller parts that can be circulated around the world immediately.

The main feature of digitization is that securities are stored in the form of 0 and 1 (this is "electronic"), but digital securities can flow instantly on a global network.

What happens when the market changes?

The digital market has gone through four stages. Let us take the music industry as an example:

Phase 1: Simulation

The music is recorded on a plastic record. You can only go to the local business to buy such a record.

Similar ownership: Most private transactions happen locally and require physical contact.

Second stage: digital format

The music is recorded on a CD. It is more portable and electronic, but it is not a fundamental change.

Similar ownership: Excel form, cap form management software…

The third stage: innovation!

Hackers found that they could send music files around – underground P2P platforms, illegal file sharing, music executives desperately protecting old orders, Napster, legal action…

Similar Ownership: ICO – Just like music sharing 20 years ago, developers realized the potential of tokens, connecting people directly and changing the rules of financing games. Similarly, the authorities took only two years to proceed. Counterattack and implemented relevant regulations.

Fourth stage: digitization

In this final phase, music becomes truly digital, and the market embraces new formats with legal and commercial solutions and new business models on a fast network. This led to an application like Spotify, where every user in the world can listen to the songs they want to listen to anywhere, without having to buy a complete record.

Even better, algorithms and artificial intelligence can create song combinations and personalized discovery lists, and new artists can enter the market faster and cheaper, thanks to new business models, and 20 years ago, this The pattern will be rejected by the executives of each record company.

Ownership version: Digital Securities. Ownership can flow, just like a song. Think of a Spotily-like app that gives every user access to every asset in the global marketplace, and that's a great thing.

When people ask, “Do investors want digital securities?” The answer is: “Do people still listen to songs?” Once all securities are digitized and available immediately within the scope of regulation, everything is related to assets. The format is instant and transparent.

But with this coming, everything has changed. Usability, discovery, pricing, and business models have led to a new, flowing digital world. Will it happen overnight?

Of course not, there are many obstacles that need to be overcome and many solutions are needed. But digitization is actually inevitable, and its driving factors are very strong.

The difference between a billion and a trillion

The music market is worth billions of dollars; the ownership market is worth trillions of dollars.

In fact, "securities" are the general term for dozens of asset classes, which vary greatly from each other. In general, each of them is larger than the entire music market, and they target completely different types of owners, investors, and application traffic. Some of them are for retail investors, but most are large institutional investment entities that trade through investment banks and major exchanges.

However, there is an indisputable fact in all of these asset classes: ownership is still data, and it's about who has the right to what, but now it can finally be digitized.