Corporate cryptomania: Bitcoin catches the C-suite gaze

PayPal’s existing technology, integrated with traditional banks, was clunky and slow, taking as long as ten days to complete a transaction. First, it relied on a Georgia-based startup called Ingo Money to upload and verify the images of stimulus checks, and then a bank in Georgia to clear and settle them. Five to ten days later, the cash showed up in an account at PayPal or its millennial-friendly subsidiary Venmo. If the customer is willing to pay a 1 percent fee, the cash is credited in minutes, but behind the scenes the bank assumes the risk if the check doesn’t clear.

Schulman, who was already familiar with blockchain, the technology underlying bitcoin, knew there was a better way. Blockchain technology could easily—and much more quickly— distribute cryptocurrencies like bitcoin directly into electronic wallets. Sure, the unbanked would need an internet connection to spend it—or turn it back into plain old greenbacks—but that was also true of PayPal’s current solution.

Schulman knew that the federal government—the supplier of stimulus payments—could soon become his competition. Digital currencies issued directly by central banks, so-called CBDCs, were on the horizon; their development would enable governments to send payments directly to citizens. According to the Bank for International Settlements, 70 percent of central banks were already exploring the new technology—and some, including China, Sweden and Uruguay, would soon launch their own digital currencies.

Under Schulman’s direction, PayPal immediately started hiring employees with expertise in bitcoin and blockchain. In October, Schulman announced that it would let customers buy, hold and sell cryptocurrency directly via their PayPal accounts. Cryptocurrency now can be used as payment at any of PayPal’s 26 million affiliated merchants worldwide. Not that most people would want to spend it: Since the onset of the pandemic, the price of bitcoin has increased from $4,803 to more than $36,000 as of mid-January.

Schulman is not alone in believing that crypto is the future of money. Hundreds of sizeable companies are now using bitcoin and its underlying technology to make their operations more efficient—and, thanks to its extraordinary returns, boost their profits. From JP­Morgan to Boeing, Honeywell to Aramco, there have never been more businesses that qualify for Forbes’s annual Blockchain 50 list of large companies undertaking meaningful projects using this technology.

This year’s list has 21 newcomers, including five from Asia, one from Australia and one from Africa. South Korea’s dominant messaging app, Kakao­Talk, for example, has its own cryptocurrency, Klay, which can be traded and loaned to others as collateral in exchange for rewards. Tech Mahindra, a big information technology (IT) outfit in India, is using blockchain technology to help millions of mobile-phone customers avoid spam calls, and Industrial and Commercial Bank of China, the world’s largest bank, with $4.9 trillion in assets, is helping importers and exporters get financing in as little as two days, as opposed to the seven it would normally take. Notably absent from this year’s list: Google, which hasn’t progressed far beyond a limited blockchain search engine, and Facebook, which announced an ambitious token called libra in the summer of 2019, only to face widespread backlash. The coin, since renamed the diem, has yet to launch.

By contrast, Jack Dorsey’s Square has been moving fast. In addition to doing a brisk business facilitating cryptocurrency purchases and trading on its popular Cash App, Square moved some $50 million of its cash into bitcoin in October. Boeing is using a blockchain-powered app called SkyGrid to work as an air traffic controller for drone flights. Holders of Visa cards will soon be able to spend their crypto using its plastic and earn reward points in bitcoin. In Chicago, Northern Trust, a 131-year-old bank servicing corporations and ultra-wealthy individuals, recently expanded its services to include digital cryptocurrency wallets.

PayPal had been dabbling in crypto since 2016, when it filed a patent for a new kind of digital wallet that speeds crypto transactions. In 2019, Pay­Pal Ventures made its first blockchain investment in Massachusetts-based Cambridge Blockchain, which is developing a crypto wallet that lets individuals prove who they are without leaking unnecessary personal information. It also bought stakes in TRM Labs, a startup focussed on helping financial institutions prevent cryptocurrency fraud and financial crime, and TaxBit, a Salt Lake City firm that automates cryptocurrency tax payments.

Fuelled by small-fry speculators, demand for PayPal’s easy-to-buy crypto services has been so great that there is both a wait list and purchase limits, currently $20,000 a week. It’s a similar story at Square. Pantera Capital, a Menlo Park, California–based blockchain investment firm, estimates that PayPal and Square are buying up most of the 900 new bitcoins being mined each day. This year, Schulman says, PayPal will expand its cryptocurrency service to Venmo’s 40 million customers. “It’s not just an investment instrument,” he adds. “It’s a way that we will enable commerce.”

Another bitcoin adopter jolted into action by the pandemic is $483 million (sales) business intelligence software company MicroStrategy. Michael Saylor, the 55-year-old chief executive of the publicly traded company, spent $1.1 billion buying bitcoin in 2020, borrowing $650 million of it. The digi­tal asset, currently worth $2.6 billion, sits on the Tysons Corner, Virginia–based company’s balance sheet alongside more mundane stores of value like Treasury bills. Saylor, outspoken and controversial since he briefly became a multibillionaire during the first internet bubble in 1999, sees it as a hedge against the federal government’s easy-money policy, which he figures is devaluing the dollar at a rate of 15 percent per year.

“As the energy is sucked out of the dollar, the currency’s value is collapsing,” Saylor says. “That means that every stock, bond, piece of real estate or other asset that rests on the foundation of fiat currency is sagging.” With MicroStrategy demonstrably unable to produce organic growth that measures up to the likes of Amazon or Netflix, Saylor effectively turned his enterprise software company into a leveraged bitcoin ETF. Its stock is up by 270 percent in 12 months. By Forbes’s count, at least 25 other publicly traded companies have bitcoin on their balance sheets.

Most companies on the Blockchain 50, however, are not bitcoin speculators but rather are looking to employ the technology underlying the cryptocurrency in innovative ways. North Carolina–based Honeywell, for instance, is using blockchain to connect buyers and sellers of used aviation parts. So far 117 suppliers, including Boeing and Lufthansa, have signed up, and in 2020, some $65 million in parts changed hands. That’s small potatoes for the $37 billion (sales) giant, but Honeywell executives hope that their proprietary platform could one day move the entire industry for second-hand parts online.

South African wood-pulping giant Sappi uses blockchain to track its products from the sustainable forests it cultivates to manufacturing plants used to spin the pulp into fabric for clothing. The blockchain continues to track the garments all the way to retailers who can charge more because they can prove that no naturally occurring forests were harvested to make T-shirts and underwear.

Atlanta’s CONA Services, a newcomer to the Blockchain 50, provides technology services to the 12 largest Coca-Cola bottling companies in North America. Prior to its adoption of blockchain technology, orders and shipments between bottlers involved antiquated spreadsheet forms, inconsistent recording practices and cumbersome regulations that sometimes left the bottlers bickering over lost products and unexpected costs. Using its new encrypted system, order confirmations, proof of shipment and proof of receipt are added to the blockchain in real time.

Among the most frequently used blockchains on our list this year are four standouts. Twenty-five companies used one of the free versions of software provided by Hyperledger, the blockchain branch of the non-profit Linux Foundation. Twenty-two used Ethereum, the blockchain that runs the $160 billion ether cryptocurrency; nine used Quorum, an enterprise version of Ethereum developed by JP­Morgan and sold to New York blockchain startup ConsenSys; and six used Corda, developed by R3, a blockchain startup that has raised $112 million in venture capital. Then there’s bitcoin, of course, which is being used by no fewer than 11 members of our list.

According to the Gartner group, there were more than 1,000 corporate blockchain projects underway in America as of November 2020. Most are early-stage and experimental, but 14 percent are either in production or will be soon. Forrester Research is even more optimistic, predicting that as many as 30 percent of active blockchain projects will be ready for customer use this year.

One significant trend amid the excitement over digital assets has been a flood of major companies getting into cryptocurrency custody services. It’s telling, for example, that Micro­Strategy’s Saylor and other institutional investors won’t reveal how they store their bitcoin. This difficult task—bitcoins worth billions have gone missing over the years—has long been a barrier to institutional adoption. There are other problems besides fraud and theft. If the owner of a bank account forgets her password, the bank simply resets it. With bitcoin, for which banks aren’t necessary, losing the password, called a private key, is like losing the asset itself, with no recovery possible.

In July, the Office of the Comptroller of the Currency published a letter stating that banks would now be permitted to provide custody services for crypto assets. It’s no surprise that financial institutions, preparing for a day when digital asset ownership is common, are rushing into the crypto-custody business. No fewer than six institutions, including Spanish bank BBVA, Dutch bank ING and Swiss securities firm SIX, are now crypto-custodians. In December, hedge fund One River disclosed that it was using Northern Trust’s custody services to manage $600 million worth of cryptocurrency and was looking to increase the amount to $1 billion. That same month, Northern Trust invested in London-based cryptocurrency custodian startup Zodia Custody.

In many ways, companies like Northern Trust and Fidelity, which is also offering crypto-custody services, are perfectly positioned to build a bridge to a regulated digital asset reality. Northern Trust has already partnered with a Singapore fintech startup named BondEvalue to act as servicing and custody agent in a business that uses blockchain technology to carve up and sell fractional interests in corporate bonds. In August, the partnership executed the world’s first blockchain-based bond trade, an $8,000 sliver of a $300 million, 4.375 percent coupon bond originally issued by Singapore agriculture giant Olam. The trade, which normally takes two days to settle, required just seconds.

“We’re going to continue to invest in digital asset programmes across the landscape,” says Justin Chapman, an executive vice president at Northern Trust. “We think the technology is there, the understanding is there. Clients are ready.”