Corporate Cryptomania
Up 300% in 2020, Bitcoin is suddenly getting respect in the C-suite. Here’s how PayPal, Square and the 48 other big companies on Forbes’ third annual BLOCKCHAIN 50 are outpacing their competition using Bitcoin and the underlying blockchain.
Up 300% in 2020, Bitcoin is suddenly getting respect in the C-suite. Here’s how PayPal, Square and the 48 other big companies on Forbes’ third annual Blockchain 50 are outpacing their competition using Bitcoin and the underlying blockchain. Plus: The crypto billionaires
LLocked down in his Palo Alto, California, home last March, as the coronavirus spread across the U.S., PayPal chief executive Dan Schulman knew that the pandemic was a once-in-a-lifetime business opportunity.
The pioneering electronic-payments company he took over in 2014 had been working toward a world without cash for two decades, but recently its growth had begun to slow. Over the decade after eBay acquired the startup in 2002, PayPal’s revenue grew at an average annual rate of 38%, but today, the company, again independent, is growing at half that rate. Now, as people retreated to their homes, online commerce and digital payments had suddenly become necessities in everyday life— for grocery shopping, banking and more.
Almost immediately, PayPal’s active accounts began increasing—by more than 50 million, to 361 million, by the end of 2020. Its stock took off along with other digital-economy shares, from $86 last March to a recent $247. In April, some $269 billion in stimulus payments needed to be distributed, and PayPal stepped in to help get cash to the 7 million American households without bank accounts. As PayPal worked to accommodate the unbanked, Schulman felt a sense of urgency.
“You were seeing the acceleration of trends that would have typically taken maybe three to five years happening in three to five months,” says Schulman, 63. “I thought it was important that PayPal help shape what that future could look like and not react to it.”
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% 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% 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 sizable 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’ 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 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 fi
nancing 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 ultrawealthy 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 focused on helping financial institutions prevent cryptocurrency fraud and financial crime, and TaxBit, a Salt Lake City firm that automates cryptocurrency tax payments.
Fueled 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 easymoney policy, which he figures is devaluing the dollar at a rate of 15% 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 270% in 12 months. By Forbes’ count, at least 25 other publicly traded companies have Bitcoin on their balance sheets.
Most companies on the Blockchain 50, however, are not Bitcoin specula
tors 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 secondhand 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 CocaCola 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 nonprofit 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% are either in production or will be soon. Forrester Research is even more optimistic, predicting that as many as 30% 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 blockchainbased bond trade, an $8,000 sliver of a $300 million, 4.375% 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 programs 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.”