Digital resilience podcast series | Episode 3: Blockchain beyond crypto: use-cases and key risks

Welcome to the third episode of our Digital Resilience podcast series, in which host Dino Wilkinson explores the opportunities and risks associated with blockchain technology beyond cryptocurrencies. In this instalment, Wilkinson is joined by Rachel Cropper-Mawer, co-Chair of Clyde & Co’s Regulatory and Investigations Practice Group based in London, Jehan-Philippe Wood, a litigation and investigations and disputes partner based in Perth, and Liam Hennessy, a regulatory practitioner and partner based in Brisbane.

The episode begins by exploring blockchain in the financial markets. We consider how its role is evolving, along with the key challenges and regulatory concerns. Guests then discuss blockchain within the insurance sphere; how insurers are underwriting blockchain activities, while leveraging its benefits for their own operations. Finally, they look at examples of blockchain use-cases in ‘real-world’ scenarios outside finance (and the legal risks associated with these activities).

Hennessy kicks off with a look at the rise of crypto-based Exchange Traded Funds (ETFs), including the approval of 11 bitcoin ETFs in early 2024, which has given “…very large institutional investors risk exposure to this asset class…” However, parallel to this is an equally transformative and rapidly growing market for tokenisation of private funds, using blockchain to enable more efficient trading, predicted “to reach about four to five trillion [USD] by 2030.”

In the case of blockchain ETFs, an increase in crypto stakeholders could lead to disputes regarding valuation methods, according to Wood: “…we're already seeing developing law and regulation and growing areas of tension and dispute around things like rights, duties, and obligations,” he says. From a regulatory perspective, Cropper-Mawer says that regulators have struggled to keep up, impacting confidence and raising the chance of regulatory arbitrage.

Providing the insurance view, Hennessy explains that insurers are both underwriting blockchain related risks and using blockchain internally. Operational initiatives include parametric insurance smart contracts, which are still in the early stages, blockchain-powered information storage and transfer, and even loyalty programmes. In underwriting, given the uncertain and rapidly changing regulatory landscape, Hennessy says insurance companies and brokers must proactively help clients understand their risk profile, saying: “I'm sure we're going to see stakeholders in this market exposed to more legal claims and risks than perhaps they've anticipated.” 

Beyond finance, Cropper-Mawer outlines some of the ‘real-world’ use-cases for blockchain, which maximise its benefits for trust, security, transparency and traceability of data. Examples include digitising and tracking the lifecycle of luxury goods and tokenisation of precious materials or land. However, guests agree that such uses are complicated by common law and civil law disputes frameworks: “…the system of laws, regulations and court systems that we've built up globally needs to be married up with the new and exciting landscape of blockchain,” says Hennessy.

 As Cropper-Mawer concludes, blockchain is an “exciting” area but “the challenge is to ensure that the technology is used in such a way as to comply with sanctions laws, anti-money laundering laws, and that it doesn't facilitate fraud or tax evasion.” Hence, expert legal advice is critical.

Clyde & Co has a growing global group of legal experts with specialisms across the regulatory, disputes, and commercial data aspects of blockchain, who are happy to discuss any issues or challenges your business is facing.

And for more on the world of virtual currencies, check out Clyde & Co’s Virtually Everything podcast, which focuses on how the technology and market is developing in the Middle East and around the world.