The arrival of a “disruptive” revolution could rewrite the way traditional financial markets operate. With blockchain, digital assets, and cryptocurrencies entering mainstream markets and being widely adopted, the speed of currency circulation may accelerate significantly. Despite some scandals in the industry, the concept of cryptocurrencies itself has attracted widespread attention, with large commercial entities in various industries and regions taking measures to plan, experiment, pilot, or adopt cryptocurrencies, stablecoins, and tokenized assets. Cryptographic assets are programmable and have the potential to replace some services currently provided by intermediaries such as banks, securities exchanges, or brokers. Blockchain or distributed ledgers can transparently create, store, and transfer digital assets in a decentralized peer-to-peer network in real time and immutable ways.
Lara Abrash, head of Deloitte’s US branch, said: “The scale of exploration in the current industry indicates that the adoption of cryptocurrencies will be more extensive, potentially disrupting existing economic frameworks. To responsibly move forward, we must prudently establish clear governance models to maintain transparency, fairness, and accountability.” Many countries are developing regulatory frameworks that allow the use of digital assets in their financial systems. This can enable financial institutions, businesses, non-profit entities, governments, and consumers to conduct a wide range of transactions—from cross-border accounting and complex supply chains to payroll, benefits management, digital rights to intellectual property, taxation, and investment accounts.
Consumers can already choose to use stablecoins for various retail purchases without the need for traditional bank accounts, credit cards, or cash; however, these choices are often complex and costly. In some countries where more people have mobile phones than bank accounts, a digital currency system may provide more equitable access to global citizens as costs and convenience improve.
Tim Davis, the global and US Risk and Financial Consulting Blockchain and Digital Asset Leader at Deloitte & Touche LLP, said: “Acceptance of tokenized tangible and intangible assets is increasing, which could change the way global entities, governments, and consumers conduct common transactions.” The evolving environment—business adoption, regulation, and tokenization, or the process of representing assets in digital form—provides a background for how the currency and payment landscape may expand to a critical mass, indicating that companies may need to start considering how to plan and embark on their own digital asset journey.
More and more brands are paying attention, Davis said, and an increasing number of major platforms that make up the pillars of the modern global economy are planning or beginning to consider the potential impact and opportunities of cryptocurrencies and digital assets. “These include mainstream banks and banking networks, credit card networks, as well as technology providers experimenting or operating blockchain network nodes or developing plans,” he said.
Rob Massey, a partner at Deloitte Tax LLP and Global and US Tax Blockchain and Digital Asset Leader, said that PayPal’s adoption of cryptocurrencies represents a significant step in the transformation of value exchange methods. PayPal account holders can buy, hold, and sell some common cryptocurrencies on their platform. Account holders can also cash out to pay for purchases and transfer cryptocurrencies between eligible PayPal and Venmo accounts, as well as other wallets and exchanges.
Massey said: “PayPal’s adoption of cryptocurrencies provides a key element for adoption—access.” Another example is JPMorgan’s development and deployment of methods to represent traditional assets on the blockchain to achieve frictionless settlements. Some of the products launched so far include the JPM Coin System (a blockchain-based general ledger and payment system) and Onyx Digital Assets (a multi-asset tokenization platform), which enable financial institutions, asset managers, and fintech companies to record and represent financial assets as programmable tokens on the blockchain.
Recently, JPMorgan and Apollo Global Management released a report describing their vision for tokenized portfolio management methods—large-scale personalized investment portfolios that simplify the order execution and settlement processes for traditional and alternative investments. The system will be supported by blockchain, smart contracts, and asset tokenization.
Goldman Sachs has also entered the digital asset space, conducting cryptocurrency trading and launching its digital asset platform. Goldman Sachs, along with companies like S&P Global, Moody’s, Broadbridge, and Keybase, have joined Canton—a privacy-focused open blockchain network that uses smart contract technology to provide connections between entities. The permissioned blockchain aims to provide interoperability and control to support synchronous financial markets, enabling secure, controlled data and value exchanges.
Wendy Henry, Global Blockchain and Digital Asset Director at Deloitte Consulting LLC, said: “The rapid development of blockchain technology with the necessary transparency and privacy levels to manage a large volume of global transactions is becoming increasingly feasible.” “Enterprises, particularly financial institutions, are able to build applications on public networks and establish the ability to tokenize assets, which is a significant step forward in the development of cryptocurrencies and digital assets. Although financial institutions have not yet made extensive use of this capability, it has the potential to expand to achieve wider adoption.”
Furthermore, with the rapid development of generative artificial intelligence capabilities, AI platforms can act as agents representing humans in financial transactions. Davis said: “Digital assets are well-suited for AI platforms, as funds can be transferred, controlled, and programmed directly, enhancing the ways funds are used means new risks and rewards, and the rapid development of AI may help accelerate the adoption of digital assets.”
Moreover, platforms like Bitwave are emerging to bridge the gap between blockchain-based technology and traditional finance. Bitwave is a digital asset ledger that can be input into common enterprise resource planning systems to enable programmable funds, including payments to suppliers, customers, and employees. The platform supports accounting, auditing, and reporting of data captured in distributed ledgers—functions crucial for expanding adoption.
Another important evolutionary step is layering networks on existing networks to aggregate transactions in a way that can increase traffic and processing speeds. Just as high-rise buildings can increase real estate capacity in dense areas, second-layer distributed ledgers can benefit from the security of the first-layer network on which they sit, significantly reducing transaction costs and improving processing speeds. For example, Optimism’s OP Mainnet is an open-source extension of Ethereum designed to scale the Ethereum ecosystem.
“As major platforms continue to roll out applications, consumer and business acceptance of cryptocurrencies and digital assets is rapidly increasing,” Davis said. “These are important indicators that global currency and payment systems are about to undergo further disruption.”
Global regulation is evolving, and Deloitte LLP’s audit services are evolving.As stated by Brian Hansen, Partner at a certification firm and Head of Blockchain and Digital Assets Audit in the United States, many jurisdictions worldwide are establishing regulatory frameworks for digital assets. The Financial Stability Board of the G20 and the International Monetary Fund have provided comprehensive guidance on how authorities should address the macroeconomic and financial stability risks posed by cryptocurrency activities and markets. The European Union adopted the Cryptocurrency Market Regulation Regulation in June 2023, which sets rules for unregulated cryptocurrencies in existing financial services legislation. The Securities and Futures Commission of Hong Kong issued regulations on tokenized assets, stablecoins, and crypto trading.
Around 130 jurisdictions globally are launching, piloting, developing, or researching Central Bank Digital Currencies (CBDCs), although U.S. regulatory agencies are still in the early stages of conceptualizing a U.S. CBDC. California has also passed two bills to establish a virtual currency licensing system and regulate digital financial asset transactions.
At the federal level in the U.S., the regulatory tone differs as the risks and volatility of cryptocurrencies have prompted the government to increase scrutiny in various aspects. The Financial Stability Oversight Council released a report finding that the connection points between digital assets and traditional finance could pose systemic financial risks and urged federal agencies to continue enforcing existing rules and regulations. The Securities and Exchange Commission (SEC) approved several physically-backed Bitcoin ETFs for trading, a significant development for the U.S. market paving the way for Bitcoin investments in traditional brokerage accounts.
From an accounting perspective, the Financial Accounting Standards Board has developed guidance on how companies should account for cryptocurrencies and other digital assets according to GAAP. The Internal Revenue Service has also issued digital asset guidance, considering them federal tax properties. Meanwhile, banking regulatory agencies are urging financial institutions to enhance risk awareness.
Tokenization is taking shape
Davis mentioned that as technology adoption and regulation continue to evolve, the global financial ecosystem is gradually moving towards a tokenized economy, where assets are represented in digital form on the blockchain, and value exchange is decentralized.
Non-Fungible Tokens (NFTs) have attracted attention in specific fields like sports and art, but blockchain technology and the evolving regulatory environment can support the tokenization of a wider range of tangible and intangible assets when risks are understood. These assets can include securities, loans, public and private funds, hedge funds, currency markets, private equity, environmental credits, real estate, commodities, ownership, voting rights, and content licensing. Valuable items can be converted using code rules and proofs and traded on the blockchain to significantly enhance efficiency and transparency.
“Tokenization offers many potential benefits, which are becoming increasingly attractive,” said Massey. “Consider the typical costs and frictions associated with transactions (such as commercial loans) and how tokenization and value management through distributed ledgers can improve this process.” By encoding tokens using smart contracts and other automation tools, they can be almost instantly executed, cleared, and settled. This process can be faster, cheaper, provide round-the-clock access, and enhance transparency.
Digital assets and tokenization can help companies better manage trapped cash on their balance sheets.
Massey said: “It can enable them to explore new ways to facilitate cross-border payments, repatriate cash, and improve working capital management. It can significantly improve payroll processes, providing a way to compensate employees continuously or periodically, such as paying gig workers based on workload or daily wages. Tokenization can simplify many traditional banking processes by reducing settlement times and costs.”
Henry stated that ultimately, tokenization could lead to a programmable currency system where value is embedded in smart contracts, and terms and conditions are also encoded. She said: “Even without third-party intermediaries, companies can significantly improve cost, efficiency, and transparency, which could dramatically change how they handle accounting and financial functions.”
For example, consider the frictions often encountered in cross-border payments, which require layers of processes, regulatory reviews, and costs. With tokenization and programmable currency, transactions can be executed instantly anytime, anywhere. They can be automated based on certain trigger events and have built-in transparency and control. Funds do not need to get entangled in payment channels but can be deployed according to working capital strategies and used when needed.
How to take action
Abrash said: “While there is uncertainty among regulators about how a decentralized financial system might develop, many organizations see the potential advantages of this system, prompting more and more organizations to launch or consider launching their digital asset strategies. Companies can consider several different approaches to plan and embark on their digital asset journey.”
Build cross-functional teams. Form a team from across the organization (finance, treasury, accounting, technology, legal, risk, tax, compliance, operations, supply chain, human resources, and marketing) to explore what’s happening in the crypto and digital asset space and consider opportunities and risks.
Understand blockchain and Web3. Understand how companies can benefit from a post-shift data sharing and verification method that provides transparent, immutable transaction records without intermediaries. Consider possible use cases where accountability and auditability are crucial, and data needs to be kept at a distance from each other in a multi-party open and transparent manner.
Consider possible uses of cryptocurrencies. While the cryptocurrency market is highly volatile and has seen significant failures repeatedly, as people become more familiar with cryptocurrencies and more self-regulated and rigorous, the cryptocurrency market is gradually maturing. After significant efforts, analysis, planning, and execution in terms of risks and opportunities, rules and regulations, and processes and controls, companies can consider opportunities to invest, buy, sell, hold, and receive or make payments using cryptocurrencies.
Massey stated: “As the cryptocurrency and digital asset space develops, barriers to entry and scaling are gradually disappearing. The global economy is moving towards widespread adoption of these new business models.” When cryptocurrencies and digital assets become more accessible and tradable than fiat currencies and traditional processes, the market may see a wave of adoption, changing the way value exchange occurs.
