November 3—Blockchain, the brains behind cryptocurrencies, is a concept that once seemed like the stuff of science fiction. But there is much more that blockchain can do beyond supporting digital currency. It is the building block (pun intended) of programmable ledgers that will define the way forward for complex digital financial transactions. CIO Tony Roth explores blockchain’s vast potential with Paul Brody, EY Global Blockchain Leader.

Paul Brody 2021.jpg

Paul Brody, EY Global Blockchain Leader

Please listen to important disclosures at the end of the podcast.

Wilmington Trust’s Capital Considerations with Tony Roth

Episode 42: Blockchain
Tony Roth, Chief Investment Officer, Wilmington Trust Investment Advisors, Inc.
Paul Brody, EY Global Blockchain Leader

PAUL BRODY: There’s a whole generation of digital financial services, of technology services that are being developed in Ethereum. If you want to participate in the growth of that ecosystem, you want to figure out which of those companies are offering exciting services that are worth investing in.

TONY ROTH: That was Paul Brody, Ernst & Young’s global blockchain leader, discussing the differences in blockchain ecosystems and their ability to transform the way companies do business.

TONY ROTH: Welcome to Capital Considerations, the market and economic podcast that’s fully invested in your success. I’m your host, Tony Roth, chief investment officer of Wilmington Trust.

Some of our listeners may remember that we recorded a podcast over the summer with Alyse Killeen, a well-known Bitcoin investor.

Our conversation with her was so fantastic, that it whetted our appetite to learn more, especially around the foundation of Bitcoin, namely blockchain, the brains underneath cryptocurrencies and, many other applications of technology that are transforming the economy. We wanted to ask the question what else is happening in the blockchain space, and is there more to the story than simply investing in Bitcoin?

To help us answer the question we are joined today by Paul Brody. Paul is Ernst & Young’s global blockchain leader, responsible for driving initiatives and investments in blockchain consulting across E&Y’s global business. He led E&Y’s first blockchain strategy client engagement, examining how digital services, payments, and internet of things come together in new ecosystems and road mapping a strategy to best take advantage of this for one of E&Y’s major clients.

Paul has over 20 years of consulting and strategy experience in technology and served as vice president and global industry leader of electronics at a multinational technology company prior to joining E&Y. Paul, thank you so much for being here.

PAUL BRODY: Thanks so much for having me.

TONY ROTH: So, Paul, one of the questions that we get asked probably more than almost any other question is should I buy Bitcoin, should it be something that’s in my portfolio, and why is it not in my portfolio today? And, of course, the answer is that Bitcoin has been a very speculative investment. It continues to be a very speculative investment. Just because it does well, doesn’t mean it’s going to continue to do well.
As we educate ourselves on Bitcoin, what we learn is that Bitcoin is about much more than a single digital currency. Bitcoin really represents probably the most well-known instance of the application of blockchain technology, which as I think about it is a way for information to be entered securely in a digital format with what we call a distributed ledger, which means that there are hundreds if not thousands of instances of the same ledger and when a change occurs in one copy, it sort of occurs everywhere with the right key that allows for that change to occur. That blockchain technology provides a level of certainty or security with respect to the entries in the digital ledger that’s very high and provides very meaningful intrinsic value.

And so, that’s how I’ve always thought of the underlying technology that animates and gives rise to digital currencies and Bitcoin. But I know from our conversations, Paul, it’s much more than that. So, maybe we should start by just talking about blockchain, what is it, and from my starting point of a distributed ledger, how can we build on that to get a more comprehensive understanding of what blockchain really is?

PAUL BRODY: That’s a great question and, indeed, blockchain is a bit more than the distributed ledger, but it is especially a big part of that. So, what I always tell people is there’s sort of three things that define blockchains and how they work and the first is the distributed ledger. Everybody gets a copy of all the transactional data. And, by the way, this is really useful, because if you’ve heard people talk about, hey, blockchains are tamper-proof or Bitcoin is tamper-proof, that’s because so many people have a copy. Sure, you could go change your stuff. But now you’re visibly out of sync with everybody else. So, there’s the distributed ledger component, but there’s two others that are worth keeping in mind and are part of the reason why we have this explosion of really cool applications and technology going on.

The first, is the concept of the programmable ledger. And we don’t hear that term as much, but one of the things that goes into the Bitcoin and other blockchain ledgers isn’t just the transactions, who gave what to whom, but you can also include little business agreements, right. I’m going to give you this if you get me that or basically small software applications. And what this allows for is automation. I can not just give you money or give you money in exchange for something else, I can actually set up business rules and logic that can be shared across multiple parties and this is giving rise, and we’re going to talk about this today, to this incredible range of digital services.

TONY ROTH: Can you give me like a simple example of that application?

PAUL BRODY: Sure. So, think about something like an interest payment, right. So, when you deposit money in the bank, they pay you interest and I can recreate that functionality on the blockchain by creating a smart contract that automatically pays interest on money deposited and accumulates that money, which I can then lend out to others. So, I can build basic or ultimately quite sophisticated banking functionality on these digital building blocks.

And the third one, the third thing that’s very important is a concept of the consensus algorithm. And what this is this is the one thing that particularly differentiates blockchains from other types of IT systems in that there is no single centralized authority that’s in control. So, when you swipe your credit card, or you write a check, or you make a bank payment, your bank or the credit card company is the arbiter of whether or not you have enough money in your account. It’s the central authority in that ecosystem.

On a blockchain, there is no controlling central authority. Instead, there’s something called the consensus algorithm where all the parties check each other and if the majority, usually close to unanimous, approve and agree that your transaction is fair and logical, then it proceeds. But this is quite revolutionary because it’s in the past we’ve always had to have a central authority, which ultimately becomes extremely powerful, in order to approve and manage all these transactions. And it’s this is a big departure from that.

TONY ROTH: So, I could see why that would be really powerful but also, obviously, in the context of a cryptocurrency can also open the door to a lot of risks and abuses as it relates to things like terrorism and money laundering since there’s no central authority to be able to say, hey, I don’t like this particular use of the ecosystem; I’m going to stop this transaction.

PAUL BRODY: You’re exactly right. And, indeed, the thing I always remind people of though is that the internet itself is a decentralized permissionless network. And one of the things that we’ve learned over the last 25 years is that we have to accept that in decentralized ecosystems and in the human world there are people who are going to do bad things, but that does not mean that you can’t set up and run services that comply with the law, that prevent abuse. Those are all things that are possible.

It’s a little bit more challenging than having a single centralized authority that can just easily say no. But it’s also in some ways a bit more democratic. One of the big appeals of cryptocurrencies and blockchains to many folks is the fact that somebody can’t arbitrarily deny them access to the network and services. And so, I think that explains a big reason why so many people are enthusiastic about the technology even though it means that so-, in some cases bad actors can do bad things.

TONY ROTH: So, let’s try to think about how this comes to life within a commercial context. Let’s say that I’m a company. I could be a bank, as you’ve already alluded to. I could be a global rent-a-car company, like Avis or Hertz, and I want to use blockchain in order to meet my long-term business objectives. I want to be more efficient. I want to be able to communicate with my clients more effectively and more transparently. Are there different ways in which I can just use blockchain or is that inconsistent with blockchain because obviously the corporation is sort of an administrator of the blockchain, so they are a central authority. How does that all shape out?

PAUL BRODY: You’ve zeroed in on a really interesting question, which is what’s the difference between a trusted third party and the central authority? So, if you think about the internet, right, we have all kinds of trusted third parties that have important roles on the internet. Every time you go to your web browser, and you go to a particular site, you’ll see that those websites are secured by a certificate authority, for example. Now, the certificate authorities don’t control the internet, but we prefer to transact with companies that have a certificate issued by them, because we know that we’re dealing with somebody who’s probably who they say they are.

It’s a little bit the same in blockchain. So, if you think about it, right, I want to rent a car. If I want to rent a car, I’d like to know that I’m dealing with a reputable car rental company, right. If I am going to buy cryptocurrency, I’ll give you my favorite example. I’d really like to know that I am buying cryptocurrency from an exchange that’s audited by a proper accounting firm that’s going to make sure that the money I give them actually turns into the cryptocurrency I want. So, those are examples of enterprises like audit firms or brand-name companies that can establish a role as a trusted party on the network, but they’re not a controlling authority.

TONY ROTH: So, Paul, if I’m a company and I want to use blockchain in order to implement some type of application that will allow me to achieve my business objectives, do I have to start from scratch and create my own blockchain network? Or can I jump into, for example, in the case of Ether, which is another competing cryptocurrency to Bitcoin, there’s an underlying, as I understand it, blockchain network called Ethereum, which is the underlying blockchain if you will, can I jump onto Ethereum or do I have to create my own from scratch? How do I think about the actual guts of the system relative to the use of the system if that makes sense?

PAUL BRODY: No that, that’s a fantastic question and it’s the number one question that our enterprise clients struggle with. The answer is you can do either one. You can start your own blockchain or you can join a public blockchain that’s already out there. And, by the way, Ethereum, the one that you mentioned, is by far the biggest and has the most participants. It’s really becoming the internet of the blockchain ecosystem.

Now, interestingly, almost all companies as they start down this path, their first choice is, hey, let’s build our own blockchain and it’s a very natural instinct, right. Companies like to control the variables. They like to control the ecosystem. It’s less scary than jumping onto this big open digital ecosystem.

Unfortunately, the truth is nobody else wants to join your proprietary private blockchain. And one of the funniest things that we did was we did a survey and we found out that for every one company that was willing to join somebody else’s blockchain, two companies started their own. And as you can imagine, that’s not a recipe for ever getting any kind of critical network mass.

So, ultimately, nearly all companies, the path they tend to go down is they first try to start their own blockchain. They realize how hard it is, how tough it is to get other people to join in, and eventually they change their mind and start heading towards a public shared blockchain and most of those people end up on Ethereum.

TONY ROTH: And so, let’s just be clear. It’s important that other people join in because those participants actually strengthen the network. In other words, if I’m a big bank, one of the biggest banks in the country, and I want to use blockchain in order to pay interest to my clients in the way that you’ve talked about on a more automated basis and create security, etcetera, if I were to create my own, which I probably have the capital to do so, and not let anybody else in, I could do that potentially, but the integrity of the network won’t be as strong as if there are multiple participants. Is that right?

PAUL BRODY: That’s right, but it’s not just that. But what’s the point, right? So, the whole value proposition of blockchain is that it’s a network ecosystem and it is true that anything you can do on a blockchain you can also do with a traditional centralized system. But the value proposition of blockchain, the reason why people want to transact on it is that it’s this open, level playing field for all the participants. And we see the value proposition very specifically as when you have multiple parties in a transaction and you have shared business logic, right, shared rules together, not just I’m giving you a payment, that’s when blockchains are a better option than any other system.

So, take something like a complex business contract, right. I’ve got a buyer, I’ve got a seller, maybe I have an insurance company involved as well, right. There’s specific rules about when I get paid, what the volume discounts are. It turns out that companies, you know, spend a lot of time and energy trying to make those work and it’s not that the payments themselves are complicated. It’s keeping track of all the business rules, and this is something that blockchains do really, really well. That’s their value proposition and that value proposition doesn’t work unless you have lots of other parties in the network to participate in those types of deals.

TONY ROTH: Okay, got it. So, how many of these blockchain ecosystems are out there today? So, we know that there’s Ethereum, which is the system upon which the Ether cryptocurrency is based. We also know that Bitcoin itself has an underlying blockchain. I don’t know if it has its own name, it’s that it’s synonymous.

PAUL BRODY: It is just the Bitcoin blockchain. Bitcoin is just on the Bitcoin blockchain. And, indeed, the whole reason that Ethereum was created was because the original creator of Ethereum looked at Bitcoin and said that is really awesome, but I want to have really sophisticated programming. I don’t just want to do a few simple smart contracts. I want to have a full programming environment. And that was the origin of Ethereum and it’s why most people choose to build new business applications in that Ethereum ecosystem.

TONY ROTH: Are there other cryptocurrencies on Ethereum besides Ether?

PAUL BRODY: Yes. There’s something like a quarter of a million different digital assets that have been defined using smart contracts on Ethereum. At last count, and this was a couple months ago so the number’s higher, I counted over 200 financial services from loans, automated loans to interest payments to global liquidity services, wallets, and analytics.

So, it’s a really vibrant ecosystem. And together, in fact, Bitcoin, which has become kind of the go-to for as a digital asset, and Ethereum, which has become the go-to as a programming environment for services, those two represent about 80% of all the global cryptocurrency and digital asset kind of value and transactions in the world.

TONY ROTH: So then, we have these two ecosystems that I guess are competitors in some sense. You have Bitcoin blockchain and you have Ethereum. Who owns them and how do they make money?

PAUL BRODY: So, both of these are fully decentralized. The answer is nobody actually owns Bitcoin or Ethereum. But both networks have something that we’ve really started to come to call stakeholders, and these are the individuals or the entities that have chosen to invest their money, their time, and their computing power on the network. They don’t own the ecosystem. But because they are actively engaged in processing transactions and validating them, they effectively have a very powerful say in the governance model, which is generally done by a type of digital majority vote.

TONY ROTH: Let’s say that I’m a capital allocator or I’m an owner of capital and I appreciate the very innovative role that these blockchain environments, these networks, are going to play increasingly going forward and I want in on that. And I don’t necessarily want to buy the cryptocurrency or any given cryptocurrency that sits on top of that. I may think that the price is too high today due to the speculation. But I’d love to be able to somehow become a financial stakeholder in the underlying system. How would I do that?

PAUL BRODY: So, in the case of Bitcoin, there’s sort of two ways to become a, let’s say a stakeholder in the Bitcoin ecosystem. One is to become a miner or to join a mining pool. And mining isn’t really something we really talked about, but I should come back to it and explain it a bit more, because this is something people talk about a lot.

So, one is to become a miner or join a mining pool. And then, in the world of Ethereum you can become a stakeholder, or you can start buying digital assets in the Ethereum ecosystem that represent some of the companies or the services that are building out their products and technologies.

TONY ROTH: How would I become a stakeholder in the Ethereum environment?

PAUL BRODY: So, in the Ethereum environment, you can become a direct stakeholder in Ethereum simply by buying the Ether cryptocurrency and you can do that through any one of these. But an important analogy that I would draw is that, imagine you had decided the U.S. is a great economy 100 years ago, right. You wouldn’t just buy dollars. You’d buy dollars so that you could buy stock in the companies that kind of made America successful.

So, you kind of want to think about the same thing there, which is there’s a whole generation of digital financial services, of technology services that are being developed in Ethereum. And while I never give investment advice, what I would tell you is that if you want to participate in the growth of that ecosystem, you want to figure out which of those companies are offering exciting services that are worth investing in. Because the analogy I would give you is it’s a little bit like, you know, getting your hands on some US dollars in 1935 and saying, okay, America’s going to do great for the next century. I want to buy some companies. What companies would you buy, right? That’s the same analogy I would give you.

TONY ROTH: And would I gain my exposure to those companies by buying their stock in a traditional exchange or would I gain my exposure to those companies by some way tapping into it through the Ethereum network itself?

PAUL BRODY: So those companies, many of them, right, they’re either companies or they’re something called a distributed autonomous organization, a DAO, they don’t issue for the most part stock in a traditional way. Many of them, what they’re doing is they’re issuing governance tokens, which function a lot like sort of an ownership stake and entitle people to a share of the economic outputs of that ecosystem. And so, you actually have to go onto Ethereum and buy governance tokens from those organizations.

TONY ROTH: And is there yet a pooling mechanism for sort of like a mutual fund, if you will?.

PAUL BRODY: There are a few out there. There are some sort of Ethereum and DeFi indexes that you can buy. I personally would love to see sort of a top Ethereum companies index fund, which I haven’t quite found one that I agree with yet. And so, I’ve sort of constructed my own.

But I’m a big believer. I went to undergrad at Princeton and I’m a big believer in index funds. I haven’t found one that I quite like yet. But that principle I believe is starting to be shaped into these digital ecosystems as well.

TONY ROTH: And by the way, not for nothing, but the reason that we have these conversations at Wilmington Trust is so that we continue to push our knowledge forward so that we can figure out the best way to provide these kinds of exposures to our clients. And we’re working hard on this, and this is, the conversation is an organic part of that process that we hope will find fruition in some really interesting opportunities for our clients.

Let’s go back to the mining for a moment, Paul, and just explain to everybody what that is, because if nothing else, it’s a term that we hear frequently and I think it’s important that, as you said as well, people understand that.

PAUL BRODY: That’s right. People talk about mining all the time without really sort of understanding what it is. And mining is—exists in both the Bitcoin and Ethereum and most other blockchain ecosystems and it, it serves two purposes.

The first is you need to batch up all the transactions, right. Because transactions are coming from all over the place and a copy is going to everybody everywhere, you need to package them up. But one problem is that my clock on my computer and the clock on your computer are not exactly the same. And so, you can’t just order the transactions based on time, right. They may happen at roughly the same time, but it’s not exact.

So, what has to happen is that somebody’s got to go through and say, hey, I’m going to bunch all of these transactions together and share one block, a group of transactions to everybody at the same time. So, batching is the first thing that gets done. And so, that’s very important. You’ve got to pick one party to do that so we all have the same order.

The second thing that’s really important is we’ve got to avoid collusion, right. If I know who is in charge of batching those transactions and they’re allowed to do it somewhat arbitrarily out of sequential order or out of time order because we don’t know what the exact times are, how do I know that you are doing so in a reliable and trustworthy way and that you can’t be corrupted or bought off? And the answer is you need to have a random selection. And this is where we got mining is that to pick the winner of that process randomly, a bunch of different parties are assigned a random number problem and there’s no clever way to solve this problem. You just have to solve it faster by trying lots of combinations.

Now, back in the old days, 10 years ago, eight year, eight, nine, ten years ago when the Bitcoin was let’s say 25 cents or 50 cents, you left your laptop on overnight and if you were lucky in the morning you’d solved a couple of those problems and as a part of that process you were allowed to give yourself two or three Bitcoins or four Bitcoins. So, you made a few bucks.

When Bitcoin hits $50,000 or $60,000 and you’re allowed to get yourself two Bitcoins each time you win that problem solving and that happens every ten minutes, you’re potentially talking about a lot of money. And the only way to win this race is to have lots and lots of computers working at the same time. And so, all of a sudden, we had people building warehouses full of computers to try to solve this problem, to be the first to do so, and then get that $50,000, $60,000, $100,000 payoff. And that’s how we end up not only with a extremely secure mining process, but also one that generates a gargantuan carbon footprint, and that process is called proof of work.

TONY ROTH: Given the world that we’re in, transitioning to a non-carbon world or a carbon-neutral world, how is Bitcoin or any of these systems be a viable ongoing concern as it were if they are so inimical to our carbon ambitions?

PAUL BRODY: There’s two things that are happening. The first is that in the world of Bitcoin, they are working very hard to get to a kind of carbon-neutral model. So, they’re building these data centers, but they’re powered by alternative energy. Some people are going to start offering, I’m sure, carbon offsets for their Bitcoin consumptions, transfers, and payments. So, that’s one path.

The path that Ethereum has chosen to go down is a variation of proof of work called proof of stake. And then, proof of stake summarized very simplistically, you put up a stake in the network, some amount of Ether or some amount of money, and as a result of that stake you may be randomly selected by the system to batch those transactions. So, it’s no longer a competitive process.

The downside of that is that if you are caught cheating, your stake is forfeit. You have to give up your stake in the network. So, the way this works is you’re basically putting up a bond for good behavior. But, as a result, we’re getting rid of all this redundant computational work.

TONY ROTH: So, Paul, let’s pivot the conversation to the future, because I know we can get really deep on these technicals, and think about how big a deal do you think blockchain is looking out over the next couple decades? How transformative will it be in our economy and where do you think the most powerful applications are likely to be?

PAUL BRODY: So, I personally think it’s going to be huge, and I’ve sort of bet my career on that, so I hope I’m not wrong. But I think I would say very specifically I see two big areas where it’s going to be very powerful.

The first is in business-to-business agreement. So, I believe, and we know from experience, that running a complex business contract on a blockchain is much cheaper and faster than a traditional implementation model. To give you a sense, we set up a blockchain for Microsoft to handle the Xbox video game contract and we took the time it takes for Microsoft to process a month’s worth of transactions from 45 days down to four minutes. So, we know we can do complex business process activities much faster, and my own prediction is that if adoption of blockchain matches adoption of the cloud, by 2030 50% of all business agreements will be done on a blockchain.

And then, there’s a secondary which I think will be really big, which is these financial services, the digital financial services. Today, the crypto and blockchain ecosystem is worth about $2 trillion. There’s $70 trillion in the stock market, another $100 trillion in bank deposits, and another $100 trillion in bonds. So, there’s $270 trillion in other assets.

I don’t think they’re going away, but those other assets, you’re going to be able to take those and do something called a wrapping in asset. You’re going to be able to put like a blockchain wrapper around that asset. You’ll be able to put it on Ethereum and say borrow automatically against it. And so, eventually a lot of those digital assets will be transacted in this decentralized financial services ecosystem.

TONY ROTH: Very cool. When you think about this, do you think about it as a U.S.-dominated trend or phenomenon? Is it truly global? For example, I know that a lot of the mining used to happen in China until they cracked down on it because of the energy utilization.

But I ask in the sense that the dollar has been the dominant currency in the world and probably will be for some time and much of the innovation that happens in the world continues to be sprung from the ideas of American companies and ultimately the U.S. economy benefits from that. This feels different. It feels as though while much of this innovation is coming out of the U.S., it inherently has sort of a leveling effect where people can participate globally and maybe that’s a good thing. How do you think about the cross-border or international dimensions of this from an economics standpoint?

PAUL BRODY: So, I think you’re right. You know, blockchains are a lot like the internet in that they have this kind of border erasing, leveling effect to some degree. But I am a big optimist about the U.S. component in a couple of different ways. And I say this with the zeal of the converted, but I, I’m a U.S. citizen now after being originally born in England.

We have an amazing innovation ecosystem. You know, the data on sort of business formation after the pandemic is just incredible in terms of the level of new innovation that’s coming, you know, out of the US economy. So, I’m generally very optimistic.

The other thing I’m very optimistic about is the role of the US dollar. So, it’s true that the U.S. dollar has been very dominant in the past and it’s also true that relative to the rest of the world the U.S. economy isn’t quite as big as it was at say our peak in the 1950s or ‘60s. But there’s a couple things to keep in mind. Number one, we have a uniquely well-run central bank in the Federal Reserve. And, you know, the Federal Reserve is incredibly transparent. It’s got an incredibly strong governance structure. And so, the value of the dollar is I think in very good hands and that’s something I feel very positive about.

And by the way, the overwhelming majority of blockchain-based financial transactions today are done using U.S. dollar-denominated digital tokens. So, I think the dollar has a tremendous role. I think the U.S. economy is—remains a vibrant place. But there’s no question that this is a very competitive ecosystem and if you don’t stay competitive, you can lose ground very quickly.

PAUL BRODY: I’m very bullish on America’s role in this global ecosystem. It’s definitely competitive. There’s no question. We could lose our advantage if we’re not careful. I’m super-bullish on America’s role in the future.

TONY ROTH: What do you think of sovereign governments creating their own cryptocurrencies? It seems as though the existing crypto tokens have such a large advantage because they’ve been able to build up this entire ecosystem. It doesn’t happen overnight.

And secondly, there’s sort of an inherent contradiction with a sovereign potentially crypto in that you would have a central authority, which would similarly undercut the value proposition to some degree of having the blockchain and the security that comes with it in the first place.

PAUL BRODY: People talk about these, and they often talk about what are called central bank digital currencies or sort of government-issued digital currencies. I personally am a skeptic about CBDCs, as they’re known, for a couple of reasons.

Number one, governments don’t really want to be in competition with private banks and this would put them directly in competition with them. And although governments like that, the truth is that they depend on, you know, they like the idea of having some direct interaction with the end user and the voter. The reality is that they depend on central or private banks to do all of these regulatory compliance activities. Central banks actually don’t do very much of that.

Secondly, it’s not just about creating a digital currency. Most of the money we transact in is already digital. If you create a blockchain-like digital currency, you’re saying you want to make it programmable and that means creating this whole programming infrastructure that people can run contracts on. And I also think that most governments don’t know how and don’t really want to do that.

And so, I believe that what we will actually get isn’t government-issued digital currencies, but rather government-regulated digital currencies where companies can issue the kind of currency they want in many different ecosystems as long as they are playing by a set of rules that have been issued by a government. Now, just to be clear, one final caveat here is all of that’s true, except for in China where the central government has very strongly committed to a central bank digital currency and their level of control over the financial system is much, much higher. And so, they, they can mandate and require things that are probably not likely to be successful outside of China. So, it’s usually a little bit of a different ecosystem and model there.

TONY ROTH: And, of course, any of these various privately sponsored currencies that may pop up could still be denominated in US dollars.

PAUL BRODY: And, yes. And I believe most of them will be. And I think what we’re headed towards is the U.S. regulators laying out the rules for how those will be run and supported and audited so that people can use them with confidence even though they’re not issued by the government.

TONY ROTH: So, thank you so much, Paul. We’re going to have to stop here. But let me summarize what I think are three key takeaways from today’s conversation.

Number one, from a foundational standpoint it’s important to appreciate the three key features of blockchain. One is that it is distributed and essentially tamper-proof, which is to say that if you have a legitimate valid claim to an entry in a blockchain or a blockchain transaction or ownership stake, it’s very hard to imagine that you will lose that, or it’ll be taken away from you and there’s inherent value in that ecosystem. Number two, it’s programmable. So, we can create ownership stakes that have events associated with them, payment of interest for example, transfer of parts of the ownership stake when certain other predefined events occur. And that makes the system much more useful, flexible, extensible. And three, it’s decentralized, which provides inherent security, openness, and availability to participants that may take advantage of blockchain in the public arena.

So, that’s the first thing. The second thing is that blockchain, indeed, is not just about cryptocurrencies. Bitcoin is the most well-known token of the cryptocurrency type that’s built on the most well-known blockchain ecosystem, which is Crypto Blockchain. But there are other blockchain ecosystems, namely Ethereum being the other main system, and there are lots of different applications of that blockchain that go beyond just these tokens that represent a cryptocurrency. So, that’s really important and critical to understand.

And then thirdly, the value that we see today at Wilmington Trust is not just the potential value in any particular token of the cryptocurrency type that may go up or down in value. But we see value in the underlying blockchain ecosystems, particularly the Ethereum ecosystem, and we are thinking about how do we in a sensible way structure exposure, for our clients, to the growth and success of that underlying ecosystem, the Ethereum ecosystem. And there may be others, but right now that’s the focus through some of the things that Paul’s talked about, so that we can participate as an economic matter in the growth and success of the ecosystem as a whole and not just a particular token on that ecosystem.

So, Paul, thank you again so much for your insights today.

PAUL BRODY: Thank you so much for having me. Great questions, great conversations, and hopefully we’ll get a chance to talk again.

TONY ROTH: Yes. Well, certainly we’ll benefit from that and as the ecosystems continue to evolve. So, I want to encourage all of our clients and listeners to visit for a roundup of our investment and planning ideas. You can subscribe to Capital Considerations on Apple Podcast, Spotify, Stitcher, or your favorite podcast channel to ensure that you get updates on future episodes. Thank you again for listening today.


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