Governments, businesses, and individuals are developing new use cases for blockchain as barriers to adoption continue to decrease.
Blockchain has already had a significant impact in the finance industry with the global cryptocurrency market cap now exceeding $1 trillion.
Blockchain looks set to be deployed in many other industries. The technology adds value by enabling trustless systems that don’t rely on third party intermediaries. Removing the middleman offers the potential to reduce transaction costs, increase data integrity and transparency by storing transactions in an immutable ledger stored on a decentralised network maintained by thousands of users, and bolster security by verifying transactions using cryptography.
Immutability and security are vital to the operation of government and business due to the sensitive information these institutions gatekeep. E-governments will need digital systems with impenetrable security to ensure privacy, effective service delivery, and election integrity. Low transaction costs will also be necessary to ensure efficient operations and to ensure that blockchain systems offer a cost advantage over the status quo.
Although blockchain offers a vision of efficient and effective e-government, historically governments have been technology laggards, slow to adopt new technologies due to a lack of awareness about technological capabilities, lack of incentives to reduce costs, political agendas that favour stability over innovation, and conservatism that prioritises minimizing mistakes (e.g. the risk of data loss) rather than improving the quality and accessibility of government services.
There are practical examples of where blockchain has already been applied to generate significant economic value. For example, Protokol is using blockchain to increase consumer trust for luxury goods brands. In 2017, Protokol estimated that $1.2 trillion worth of luxury goods were counterfeit. Using blockchain-based systems to authenticate luxury goods will make it easier to identify counterfeit products, and thus increase consumer confidence in brands that a typically targeted by counterfeiters, e.g. Rolex or Louis Vuitton.
Blockchain is also being used to improve supply chain management. For example, Tradelens uses blockchain to provide stakeholders with real time visibility across the entire supply chain. Highlands Foods, a fast growing Korean food supplier specialising in meat imports, has traditionally found it difficult to track cargo. This has led to delays, increased costs, and frustration for customers. Tradelens’ blockchain-based data platform has made it possible to track meat en route so that delays are quickly identified, and customers are kept informed.
Supply chain tracking also makes it possible to pinpoint the origins of products, and so ensure that goods are sourced from safe and sustainable suppliers. In May of this year, a scare over contaminated baby formula led to a recall and nationwide shortages in America. By tracking food through the supply chain it will be possible to identify contaminated food by batch number, and thus simultaneously protect consumer health while reducing the high cost of nationwide recalls.
Governments should support the adoption of blockchain technology. At a time when government debt levels are higher than ever, more efficient blockchain systems can help to reduce costs, while at the same time improving service delivery.
According to Deloitte’s Global Blockchain Survey, the majority of organisations worldwide view blockchain technology as a critical priority. China believes blockchain can be key driver of economic development. Although they ban cryptocurrency, they have conducted extensive testing of a blockchain-based central bank digital currency (DCEP). In contrast, Singapore supports cryptocurrency. The Monetary Authority of Singapore has adopted a “pro-blockchain stance with favourable tax treatment and public funding for blockchain development”. Israel, with its reputation as a ‘startup nation’, has many organisations developing a wide range of blockchain-based applications including digital assets, cybersecurity, cryptography, intelligence, DNA data storage, and diamond registration.
Global adoption of blockchain will likely lead to a global cryptocurrency. This seemed like a fairy-tale not too long ago, and it is still unclear which digital currency will dominate. Bitcoin is the obvious frontrunner in the world of private cryptocurrencies with a current market cap of more than $500 billion. However, governments are unlikely to give up control over currency without a fight, and central banks are exploring their options; for example, the Federal Reserve is exploring a U.S. CBDC.
Many businesses are trying to find use cases for blockchain. The focus on blockchain is not limited to technology companies like IBM, Amazon, and Apple, with investment also coming from companies like Berkshire Hathaway, Shell, and Disney. For example, BHP Billion, a global leader in the mining industry, is using blockchain to improve its supply chain; Ford Motor Company is researching a blockchain-based system for controlling traffic flow; and AXA Group, an insurance company, is using blockchain-based smart contracts to automate flight insurance payments.
Similar to Software-as-a-service (SaaS), we now have Blockchain-as-a-service (BaaS). This third-party service offering enables clients to use cloud based infrastructure to build blockchain applications. BaaS will remove traditional barriers to entry into the blockchain space such as lack of expertise, scalability, and accessibility. BaaS service providers like IBM, AWS, and Oracle have the bandwidth to offer scalable solutions as they already have the digital infrastructure to support large businesses. As a result, BaaS may be a catalyst that leads to the proliferation of blockchain technology. Gartner, in its report Blockchain-Based Transformation, estimated that blockchain will add $360 billion in value to the global economy by 2026, and $3.1 trillion by 2030.
Final thoughts
The conversation around blockchain has shifted from possibility and speculation to feasibility and implementation. As new use cases are discovered, adoption rates will increase. Although private cryptocurrencies may not achieve legal tender status in every country, the blockchain research that made these crypto-assets possible will have many other applications from state-backed digital currencies to automated smart contracts and optimised supply chain management. With continued support from government, businesses and digital communities with continue to build new capabilities in the emerging space of blockchain technology.
Rhulani (Ruce) Ndlala is an accounting student at the University of Cape Town, and former President of the UCT Consulting Club.
Image: Pixabay
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