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Last updated: Jan 24, 2024

Blockchain in asset management: applications and advantages of asset digitization

Yan
Copywriter, Vention
Ivan Pilnikau-2
Blockchain Development Expert
expertexpertexpert
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Asset management using blockchain has surged in popularity in this decade due to its decentralization, offering security, transparency, and automated smart contracts. The technology facilitates the tokenization of assets, converting physical items into digital tokens for fractional ownership.

 

The tech’s global accessibility allows investors to manage assets worldwide, while the diverse range of blockchain assets, including cryptocurrencies and DeFi tokens, provides varied investment options.

The acceptance of cryptocurrencies like Bitcoin and Ethereum, along with institutional involvement, enhances the legitimacy of blockchain investments. DeFi platforms' growth further expands asset management opportunities, fostering innovation in the industry.

What is blockchain in asset management?

Blockchain has also grown immensely popular in this decade due to the increasing amount of use cases being discovered and developed around the technology. It’s not just fintech: Healthcare, real estate, supply chain logistics, and even the gaming industry have tapped into blockchain’s secure decentralization to improve and optimize their pipelines.

In finance alone, blockchain is used for managing, tracking, and trading various types of assets. And its scope goes beyond just cryptocurrencies: Blockchain can effectively track everything from tokenized securities and tangible real estate properties to intricate government records.

It’s hard to argue against the overall value blockchain brings. Its distributed ledger technology aims to replace traditional, centralized intermediaries in record-keeping. This shift has the potential to cut costs significantly, reduce delays in transactional processes, provide more accurate and timely data, and greatly enhance the accuracy of reports, making it a valuable asset across multiple domains.

And how has the market reacted to blockchain’s mainstream popularity? Strongly.

Blockchain for asset management: market state in 2024

Forecasts suggest that spending on blockchain solutions will grow steadily after reaching almost $19 billion by 2024.

Most importantly, blockchain is a worldwide trend. The tech’s global market size is expected to reach $1.2 trillion by 2030, at a CAGR of 82.8 percent. Of these, about $103 billion are directly attributed to demands for a distributed ledger system. In other words, benefits such as immutable records, smart contracts, and supply chain audits are intrinsic to blockchain — and irreplaceable by other technologies.

Blockchain in asset management and how to leverage it_01-2

Source: Statista

Distributed ledger market size by use case in USD millions, as per Statista

Early in this decade, about 64 percent of businesses were exploring the use of digital assets managed by enterprises in their operations. This confidence greatly influenced the enterprise blockchain market's growth, which reached $4.9 billion in 2021. Future projections are even more striking, with an expected market value of $246 billion by 2030, equivalent to a remarkable 54.5% CAGR over an eight-year period.

Blockchain in asset management and how to leverage it_02 (3)

Responders who considered digital assets in their business models, as per Deloitte, 2020.

This outstanding demand for enterprise blockchain solutions is primarily driven by the increasing emphasis on data protection, which accounts for 58 percent of the total market share. As sensitive information becomes ever more digital, traditional safeguard methods tend to lag behind what modern tech offers for security.

Keen businesses have noticed it.

How blockchain asset management implementation works

Breakthrough tech such as blockchain doesn’t go well with one-size-fits-all approaches. However, best practices in implementing blockchain-based enterprise asset management (BEAM) follow a series of key steps. Here’s how BEAM goes in most cases:

Asset identification and registration

Each asset is assigned a unique digital identifier. Relevant information such as specifications, ownership, and maintenance history may also be recorded.

Blockchain network setup

Here, the participants of the blockchain (be it private or permissioned), including internal departments, suppliers, and maintenance providers, are granted appropriate permissions to access the network.

Asset digitization and tokenization

Blockchain allows for creating digital tokens that represent ownership or rights to specific assets, enabling fractional ownership and increased liquidity.

Integration with IoT devices

Integrating blockchain to IoT asset management helps track and collect real-time data on physical asset management. This data is securely transmitted to the blockchain, providing continuous information about the asset’s condition.

Smart contracts

Smart contracts can stipulate predefined conditions for preventive maintenance, trigger automatic work orders, and facilitate transparent and automated payments.

Work order generation and execution

Maintenance teams execute the tasks outlined in the work orders (either manually or by smart contracts), and the completion status is recorded on the blockchain.

Decentralized blockchain asset tracking

Blockchain promotes a decentralized and tamper-resistant record of all transactions related to the asset on the chain. It includes maintenance activities, ownership transfers, and asset status changes.

Interoperability with ERP systems

Integration is crucial for seamlessly coordinating asset management with other business processes, such as finance, inventory, and human resources.

Digital wallets for asset owners

Digital wallets may be provided to asset owners or stakeholders, enabling them to manage and monitor their assets on the blockchain. This can include viewing ownership details, asset history, and receiving alerts.

Still unsure of how blockchain would best suit your business?

Our specialists are ready to guide you through the details

Blockchain asset management use cases: main blockchain applications in asset management

Finance and banking

Despite being the industry that made blockchain popular, asset management through blockchain in finance can be summarized in two words: tokenized securities. Blockchain lets its participants issue and trade digital tokens representing ownership in traditional assets like stocks, bonds, and investment funds.

For example, PAXG, short for Paxos Gold, is an asset-backed digital token approved and regulated by the New York State Department of Financial Services — with a total market capitalization of $327 million since its initial issue in 2019. As a collateralized stablecoin, PAXG requires the purchase of physical gold to back the issuance of new tokens and is, therefore, limited to Paxos’ ability to maintain its supply of gold to meet demand for PAXG.

Insurance

Blockchain’s greatest benefit to insurance is the smart contracts that allow companies to automate and streamline the claims process. Studies from consultancies like Deloitte have found that blockchain technology can be used to complete agreements via smart contracts with minimal human interference, which in turn protects health records and efficiently detects fraudulent claims.

As a result, insurance entities can incorporate blockchain into their strategies to nurture stronger relationships with patients and customers — and reduce costs altogether.

Real estate

The primary advantage of blockchain in asset management for real estate lies in property tokenization. This process transforms real estate assets into tokens, allowing for fractional ownership, enhancing liquidity, and simplifying transfer.

Case in point: The real estate platform PropertyClub has adopted blockchain to redefine how people search for, buy, sell, market, and invest in properties. Using smart contracts, the company conducts real estate transactions digitally using cryptocurrencies or its own PropertyClub Coin.

Manufacturing and supply chain logistics

Blockchain boosts supply chains from production to delivery primarily through provenance tracking. It can trace the origin and journey of products through the supply chain to enhance transparency and reduce the risk of counterfeit goods.

For example, industry leader American Tire Distributors (ATD) uses blockchain by convening a network, Torqata, to serve all participants in their tire supply chain through shared and trusted information. This network functions as an automated replenishment system, activated by sales data from tire retailers and backed by advanced analytics. The outcome is a supply chain driven by actual demand, leading to reduced inventory levels, lowered operating costs, and enhanced sales due to the on-demand availability of products.

Automotive

Blockchain also presents a valuable tool for automakers and dealerships, especially in vehicle lifecycle management. This includes maintaining comprehensive records of vehicle maintenance, tracking vehicle ownership history, and facilitating secure transactions.

Consider the German startup ARXUM, which got ahead by implementing blockchain-based solutions for the automotive parts supply chain. Their technology allows customers to trace each part back to their manufacturer, offering detailed insights into the sub-parts and processes involved in their production.This helps manufacturers to analyze and optimize production in real time.

Energy

Energy, once generated at scale, is prohibitively expensive to ‘save’ and must be consumed immediately. Blockchain’s decentralized trading facilitates direct transactions between energy producers and consumers, enabling peer-to-peer energy trading to make energy grids more efficient.

Energy giant Shell has been investigating the potential of blockchain technology to encourage the adoption of sustainable fuels in the transportation sector. Beyond this, blockchain proves instrumental in accurately tracking nature-based solutions for carbon capture and reducing emissions. Its application is key in avoiding the duplication of carbon credits and safeguarding the effectiveness of reforestation and conservation efforts, all while enhancing the carbon market's transparency.

Healthcare

Blockchain greatly enhances security in healthcare, which is fundamental to ensure compliance with regulations such as HIPAA and GDPR. It allows for redundant recordkeeping and storing and managing patient health records on the blockchain to ensure data security, integrity, and controlled access.

A prominent example is healthtech pioneer BurstIQ, helping blockchain healthcare startups manage massive amounts of patient data safely and securely. Its blockchain technology enables the safekeeping, sale, sharing, or license of data while strictly complying with HIPAA rules. Their complete, up-to-date information about patients’ health and healthcare activity can also be helpful to root out abuse of opioids or other prescription drugs.

Education

Blockchain has made strides in many educational areas, particularly as a fraud detector. It enables, for example, extra-robust secure credential verification to store educational certificates and credentials on the blockchain for tamper-proof verification.

Take, for instance, the open standard platform Blockcerts, co-developed by the MIT Media Lab, which issues and verifies blockchain-based certificates to create immutable records like academic transcripts and credentials. With past academic achievements — grades, transcripts, even diplomas — on their blockchain, the company can review the credibility of documents and easily pinpoint falsified information.

Advantages of blockchain in asset management

So far, we’ve covered the core features of blockchain in asset management and how they have been used in different industries. Now, let’s see how the technology fares against traditional asset management methods.

 

Traditional vs. blockchain asset tracking

Benefits

Blockchain asset management

Traditional asset management

Transparency

  • Offers a clear and unchangeable ledger where every transaction is documented and accessible to all involved parties.

  • Enables real-time tracking of asset ownership, transactions, and changes, enhancing transparency throughout the asset lifecycle management.

  • Relies on centralized databases, which may lack transparency and real-time visibility.
  • Transactions and ownership changes might require manual verification, leading to delays and potential errors.

Security

  • Utilizes cryptographic techniques to secure transactions and control access to assets.

  • Implements decentralized and tamper-resistant technology, reducing the risk of fraud and unauthorized alterations.

  • Relies on centralized databases that may be susceptible to hacking or unauthorized access.

  • Security measures are typically implemented but may not offer the same level of resilience as blockchain.

Efficiency

  • Streamlines processes through automation using smart contracts, reducing the need for intermediaries.

  • Enhances the efficiency of transactions, settlements, and asset transfers.

  • Processes may involve multiple intermediaries, paperwork, and manual verification steps, leading to delays.

  • Settlement times can be longer, and the overall workflow may be less streamlined.

Reduced сounterparty risk

  • Minimizes counterparty risk through decentralized and automated smart contracts.

  • Reduces dependency on intermediaries, enhancing trust among participants.

  • Involves multiple intermediaries, introducing counterparty risk and potential delays in transaction settlements.

  • Relies on trust in the reliability and efficiency of intermediaries.

Fractional ownership and liquidity

  • Facilitates fractional ownership of assets, allowing for increased liquidity and broader participation.

  • Tokenization enables the division of assets into smaller, tradable units.

  • Fractional ownership may be more complex, and liquidity can be limited, especially for some types of assets.

  • Transactions might require larger capital investments, restricting access for smaller investors.

Immutable record keeping

  • Maintains an immutable record of all blockchain transactions, changes, and ownership details.

  • Provides a reliable source of truth that is resistant to tampering or alteration.

  • Relies on centralized databases that may be vulnerable to errors, alterations, or discrepancies.

  • Auditing and verification processes may be more time-consuming and resource-intensive.

Global accessibility

  • Enables global accessibility, allowing participants from different regions to engage in transactions without significant barriers.

  • Reduces reliance on local infrastructure and intermediaries.

  • Transactions may be subject to geographic limitations, and cross-border activities can involve additional complexities and delays.

  • Requires coordination with various local entities and compliance with diverse regulatory frameworks.

Cost savings

  • Reduces the need for intermediaries, paperwork, and manual verification, leading to cost savings.

  • Automation through smart contracts can streamline processes and minimize administrative expenses.

  • Involves multiple intermediaries, administrative overhead, and paperwork, increasing operational costs.

  • Settlement processes can be resource-intensive and time-consuming.

Challenges to solve in blockchain in enterprise asset management

As with any breakthrough technology, it’s natural to have concerns about blockchain and its possibilities. Is it really safe? How easy is it to integrate it into older infrastructure? What does the law say about it?

Fortunately, blockchain has already spent over a decade in the spotlight — an eternity in tech terms. Savvy software development companies have had enough time to sort out unique, expertise-based solutions for every challenge blockchain implementation presents.

Regulatory uncertainty

Regulatory frameworks for blockchain in general and digital assets specifically are a work in progress in many jurisdictions, leading to legal uncertainty in places where these frameworks haven’t yet been codified into law. Companies may face difficulties in ensuring compliance with varying regulations across territories, especially if their blockchain platform or app is intended to be global.

Scalability

Some larger blockchain networks face scalability issues, particularly when dealing with a huge volume of transactions. Slow transaction processing times and higher fees can limit the scalability of blockchain-based asset management platforms.

Interoperability

The current lack of standardized protocols can hinder communication and interoperability between different blockchain networks. Difficulty in transferring assets and data between diverse blockchain platforms may limit their utility.

Integration with legacy systems

Integrating blockchain for enterprise asset management with existing legacy systems can be complex and costly. Organizations may struggle with seamlessly transitioning from traditional asset management to blockchain-based solutions if the implementation is made shoddily.

Security concerns

While blockchain is inherently secure, there are known possible vulnerabilities, especially with hastily coded smart contracts. As with any implementation-related concerns, relying on experienced partners is usually the best way to insure yourself against sloppiness with enterprise asset management blockchain.

Cost of implementation

Implementing blockchain solutions, especially in terms of infrastructure and development, can be costly without the right strategy. High implementation costs arising from bad planning may deter organizations, particularly smaller ones, from adopting blockchain in wealth and asset management.

Unsure about integrating blockchain into your strategy?

Our specialists are here to guide you in crafting an effective plan without breaking the budget.

Software architecture for blockchain asset management

As you know, blockchain architecture is decentralized, spreading control across many participants. In general, this decentralization makes blockchain-based asset management consist of several layers that work together to enable secure, transparent, and efficient digital asset management.

 

Application layer – Contains the business functionality of the blockchain asset management software:

  • Asset tokenization parameters
  • Smart contract functionality for automated transactions and agreements

  • Blockchain asset tracking and monitoring algorithms

 

Blockchain integration layer – Responsible for interfacing with the underlying blockchain network:

  • Integration with the chosen blockchain network
  • Smart contract deployment and execution

  • Asset deployment and management on the blockchain

Blockchain in asset management and how to leverage it_03 (4)

Smart contracts – The algorithms that automate and enforce rules in the asset management system using blockchain:

  • Asset issuance, transfer, and ownership
  • Automated maintenance contracts

  • Payment and settlement agreements

 

Identity and access management – Ensures secure and controlled access to the blockchain asset management system:

  • User authentication mechanisms
  • Role-based access control

  • Digital identity management

 

Data storage – Responsible for storing both on-chain and off-chain data related to assets and transactions:

  • On-chain storage for critical asset information
  • Off-chain databases for additional data, such as user details and asset metadata

 

Security – Implements various security measures to protect the integrity and confidentiality of data:

  • Cryptographic techniques for securing transactions and data
  • Private key management systems

  • Regular security audits and monitoring

 

Integration with external systems – Enables seamless integration with external systems, such as financial platforms, ERP systems, and IoT devices:

  • APIs for connecting to external databases
  • Middleware for data exchange between the blockchain environment and other systems

Best practices for blockchain in asset management

As Ivan Pilnikau, blockchain specialist at Vention, states:

Ivan Pilnikau, Blockchain specialist at Vention“The top concern of any serious blockchain company must be security. That includes investing in certifications from reputable security companies to distinguish themselves as legit businesses, as suspicion is rife within crypto,” Ivan warns. “Those certificates are essential to establish trust and attract the real institutional investors that come with it.”

Data transparency should be another big focus in curbing fraud. The entire point of blockchain is its decentralized governance that, in most cases, allows every stakeholder access to the same data points — something undesirable by bad actors. As a rule of thumb, investors should be wary of blockchains whose in-chain data is obfuscated or somehow opaque.

Lastly, when picking a vendor for your blockchain project, be sure to gauge the three core qualities for dev shop selection: expertise first and foremost, plus engineering knowledge, and finally, reputation.

Modesty aside, you may find that Vention has those in abundance.

Need blockchain technology experts for your project?

Look no further than Vention.