2023 Outlook for Blockchain and Digital Assets in Business

by Arthur · January 6, 2023

Most business leaders have continued to hear and learn about blockchain technology’s benefits, risks and opportunities. Recent news about cryptocurrency company failures may lead some of these executives to believe that the technology is still unproven for business applications. However, there is much more to consider.

Right now, blockchain technology is quietly providing new business solutions with more trust and resilience than traditional database structures can offer. Technology leaders know that there are already proven use cases where blockchain has delivered business value, and it could deliver more value next year. New advances in cryptography and solution-enabling technologies, along with increasing understanding and adoption, will continue to provide more new solutions.

While pressures for oversight and regulation take the headlines for 2023, there are areas where blockchain technology can still drive business value in 2023.

Table of Contents

Smart contracts will offer a first-time use for many businesses

Smart contracts are one of the most important use cases for blockchain technology in business. Smart contracts are essentially programs that automatically execute transactions based on certain conditions. That kind of automation may seem like a risk, but blockchain technology helps ensure the security and trust required for business solutions.

Smart contracts are a powerful tool to streamline and eliminate delays, manual interactions, costs and other friction in agreed contract transactions. Auditors and regulators may ask about auditability and control for these transactions, but proven solutions have shown that it is established answers in place.

As with other blockchain technology solutions, there are a growing number of partners and services that can help companies establish smart contracts without developing all the capabilities in-house. These services can help ensure that your contract designs include robust controls and the latest cryptography, access management, and anomaly detection capabilities.

Blockchain technology can be thought of as an operating system, enabling individual contracts and other solutions to run on the system. Most blockchain technology solutions use the technology at the core, but also include interfaces, functionality and systems off-chain. These off-chain elements provide more control over what is transacted on a blockchain, but they can introduce security vulnerabilities.

Companies must learn how to establish controls which helps to ensure the security of contracts and other transaction systems. If deviations are detected, companies must learn to use the original blockchain technology lane for asset tracking and recovery.

dApps and Web3 will proliferate

Decentralized applications (dApps) operate on multiple nodes in a blockchain network, distributed much like the blockchain ledger itself. Like the ledger, they can remain online even if some of the nodes go offline, meaning they offer stability and trust that centralized applications do not.

dApps can act on smart contracts or other programmatic terms automatically, but their capabilities are typically more complex than a contract. For example, they can replace typical Internet applications that are cloud-based but centralized, offering instead a decentralized model in line with what people envision as “Web3” or “Web 3.0″—a model that can stay online and validate itself by to use an infrastructure that is duplicative and decentralized rather than dependent on one remote server with limited backups.

Enterprises can take advantage of dApp vendors that offer solutions, or capabilities with APIs that enable larger solutions, to achieve the reliability and trust of decentralized applications. This can be particularly important when companies develop new proprietary solutions that need to leverage decentralized capabilities.

Decentralized finance (DeFi) will continue to revolutionize financial services in 2023. DeFi can include a variety of financial products, services and opportunities that are decentralized (rather than controlled by one central authority), often through blockchain technology. DeFi solutions are dApps that are specifically focused on financial capabilities, sometimes replacing functions that have traditionally been the realm of banks or other financial institutions. While DeFi solutions are an emerging field, some businesses are already using them to reduce the delays and costs of standardized financial functions – such as originating and subsequently selling mortgages on blockchains or raising funds via DeFi apps, as well as using DeFi for financial purposes. As DeFi solutions become more established, their business adoption is likely to grow.

Asset tokenization will become more convenient

Blockchain technology can be used to create a secure and unique digital asset, or token, which is a representation of value. This allows the tokenization or fractionation of assets that previously did not allow shared ownership. Securities can be bought, sold and settled more quickly. Real estate and other assets may have fractional ownership, with asset classes that were not suitable for fractionation before.

Cryptocurrencies will become more regulated

While it is true that cryptocurrencies (other than a stablecoin or central bank digital currency) are volatile, and recent failures slowed interest in cryptocurrencies, cryptocurrency adoption could grow over the next decade and generate more reasons to develop the ability to accept cryptocurrencies. As recent failures are expected to drive the development of regulation and oversight in 2023, it is hoped that a clear framework and safeguards will restore trust in platforms and the flow between fiat and digital currencies will become more common and effortless.

The metaverse, virtual reality, augmented reality and Web3 will promote use cases that can motivate businesses to engage with cryptocurrencies. Many businesses have engaged in branding and exploratory efforts on metaverse platforms, but cryptocurrencies can play an important role as businesses develop more direct transactional usage.

Governance will grow

Blockchain technology and cryptocurrencies have inherent qualities that track transactions and assistance to forensics that can resolve disputes. However, we will see an increase in cryptocurrency guidance and regulation from regulatory agencies such as the SEC, the Commodity Futures Trading Commission, and the US Treasury Department’s Financial Stability Oversight Council. We will also see companies begin to develop more advanced and mature internal governance around their own blockchain technology solutions.

Validation will be more environmentally friendly

Traditional blockchains, like the one Bitcoin runs on, have been notoriously resource-hungry — for example, many estimates indicate that validating a cryptocurrency transaction can consume more than 1,700 kilowatt-hours of energy, or about the same amount consumed by the average American home over two months. This is because the “proof-of-work” validation method that many traditional blockchains use requires many computers to process a huge amount of data to ensure the security and validity of each transaction. However, developers are seeking other validation methods that are more carbon footprint friendly.

There are clear motivations for developing and offering these options, as the massive energy consumption of traditional validation methods remains a barrier for organizations now investigating and reporting their ESG impact. As we have seen with the Ethereum blockchain (the second most popular blockchain after the Bitcoin blockchain), moving to a more environmentally friendly proof-of-stake (PoS) blockchain system is viable. PoS protocols are blockchain consensus mechanisms that work by electing validators in proportion to their amount of holdings in the associated cryptocurrency, rather than energy-intensive proof-of-work protocols.

As blockchain technology and its promise continue to evolve in 2023, businesses can see a growing range of use cases, easier access points, and increasing competitive pressures that will continue to encourage them to adopt blockchain solutions with real and practical business value.