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CONTRIBUTORS

Sandy Kaul

Head of Digital Asset & Industry Advisory Services
Franklin Templeton

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Every major set of advancements in computing, networking, data encryption and communi­cations technologies has resulted in a foundational shift in the era’s economic model. Three of these cycles have already occurred, moving us from the 1) services economy to the 2) information economy to today’s 3) platform economy.

Innovations emerging from the crypto domain and ongoing advances in communications technology are rapidly shifting us toward yet another new cycle that we have termed the “protocol economy.”

This piece will explore how technological advances shifted each era’s economic dynamics and will demonstrate why the protocol economy may represent the most meaningful evolution yet.

Over the coming years, we see the protocol economy taking over from the platform economy to become the dominant model for commerce.

The protocol economy:

1) encour­ages broader participation via its permissionless access;

2) offers more opportunities for individuals and businesses to purchase or earn assets and leverage the assets they own more effectively;

3) facilitates more transparency around transactional data, while enabling more privacy and control around personal data;

4) allows for a greater variety and volume of transactions to take place via its self-executing contracts; and

5) fosters a sense of community since it is the network users that make decisions about the evolution of the network.

Read thecomplete PDF to learn more.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology, (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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