In what has become a group effort by companies like BlackRock, NASDAQ, and Coinbase, some of the largest stakeholders in the future of markets, cryptocurrency, and the growth of capital have attempted to legitimize cryptocurrency, particularly Bitcoin. They hope to enable the largest asset managers to purchase it directly.
So far, the Securities and Exchange Commission (SEC) has blocked the attempts. Applications for spot-market exchange-traded funds that would own Bitcoin directly have been repeatedly shot down. (Current Bitcoin ETFs can only hold Bitcoin futures contracts or company stocks with crypto exposure.) BlackRock recently resubmitted its ETF proposal after a first-round rejection.
After the noise around crypto was silenced by fraud and the emergence of generative AI, these Bitcoin ETF efforts — especially BlackRock’s — may be the catalyst blockchain and Bitcoin need to win over the world of corporate finance.
What CFOs Should Know
“The biggest takeaway for CFOs is that digital assets are here to stay, even though they're not yet mainstream,” said Christos Makridis, CEO and founder of Dainamic, a financial technology startup, and a professor in the economics of blockchain and artificial intelligence at the University of Nicosia in Cyprus. “It is important, however, for CFOs to be engaged in the regulatory policy discussion; their voices need to be heard, especially as financial services has been the industry that has seen the greatest regulatory increase since the financial crisis, according to my research.”
For those who have found success in the crypto space, its long-term use in the fundamentals of corporate finance has its place. Raymond Chen, formerly community manager at blockchain analytics platform Nansen, and now an entrepreneur and investor in the industry, doesn’t believe the buy-in for this technology was overcome by the emergence AI, either. According to him, finance leaders, especially CFOs, have much to be cognizant of.
“In the web3 market, finance executives should keep a close eye on decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs),” said Chen. “DeFi enables innovative financial products and services while empowering individuals with greater control over their assets, while NFTs revolutionize digital ownership and enable new possibilities for creators and collectors. DAOs represent a new form of governance and decision-making, allowing community-driven projects to flourish.”
Further Comparisons to AI
This potential rejuvenation in crypto and blockchain-inspired finance products may benefit CFOs and make them realize AI isn’t the only way to solve their problems. Much like ChatGPT, tracking data, forecasting, and other fundamentals of corporate finance can be supported by blockchain technology in a similar capacity.
“My view is that AI and distributed ledger technologies (DLT) are two sides of the same coin,” said Makridis. “AI is about learning from data, and DLT is about secure and privacy-preserving management of data.”
“Though there is substantial interest in permission-less blockchain ecosystems, some of the large organizational efficiency gains reside in building permissioned systems that track inventory and execute payments at lower cost than existing accounting processes,” he said. “The biggest challenge is in migrating activity on-chain, even if it's already internal, since often that requires changing where data is stored and how it is accessed.”
“But the solution is to conduct a simple pilot and scale accordingly, and after gauging success from the pilot, CFOs can forecast the potential savings and experiment with the application of blockchain on more internal processes.”
When speaking further about AI and blockchain technology working together, Chen and Makridis mentioned smart contracts. These contracts earn their “smart” title for automatically executing a contract once a preset number of conditions are met. They have mixed use cases in corporate finance. While scammers have been taking advantage of the contracts, their integration with AI can simplify automation.
“AI technologies can improve consensus mechanisms, enhance security measures, and automate complex processes,” said Chen. “They can also facilitate data analysis and smart contract execution, leading to more efficient blockchain networks. These industries absolutely mesh together, and I envision great potential for collaboration between AI and blockchain.”
“Smart contracts aren't always that smart.”
CEO of Dainamic and Blockchain Professor at University of Nicosia
Makridis, although in agreement with Chen about the positive impacts AI can have on smart contracts, believes there is more work cut out before the technology can be implemented at scale.
“Smart contracts aren't always that smart,” said Makridis. “They're a series of ‘if’ and ‘then’ commands. But what happens ‘if’ something goes wrong? What we need is a more adaptable set of contracts that are robust to deviations around a mutually agreed point and can function under uncertainty.”
“That's where AI comes in,” he said. “Reinforcement learning and dynamic programming are about producing dynamic forecasts under uncertainty. If we have better and quasi-autonomous dynamic models in the background, we can construct genuinely smart contracts that function in environments of uncertainty.”