Blockchain technology is gaining importance due to its ability to transform industries. Though the technology has been initially adopted in cryptocurrencies, it is being increasingly integrated in various other industries. According to World Trade Organization, the blockchain deployment could open up over $1 trillion in trade over the next decade.
Industries leveraging the Blockchain technology
According to the PWC’s Global Blockchain Survey, the Blockchain technology is majorly dominated by Financial service sector. It is due to the growth of cryptocurrencies as over 44.69 million blockchain wallet users worldwide at the end of December 2019. Moreover, banking sector has shown positive inclination towards adopting blockchain technology in cross border payments & settlements and Trade finance. The technology is very promising for quick international transactions and also eliminates the need for middlemen in financial transactions. The manufacturing sector is the next major leader in leveraging the blockchain technology. The sector is witnessing simplification of manufacturing process with the adoption of technology. For example, IBM and Maersk are integrating the blockchain technology in supply chain management to track containers in the shipping process.
The health care sector has leveraging this technology to streamline its supply chain and medicine verification process. It also helps health care institutions for better data collaborations and increases the probability of accuracy in diagnosis. For instance, Gem Health Network is a health care startup which has deployed Blockchain to serve the data driven health care sector.
It is also important to note that the major governments across the world are exploring the benefits of blockchain technology. The technology is being incorporated to prevent the risk of frauds, reducing paper work and improving accountability. Moreover, in Switzerland, the municipal government in Zug has accepted Cryptocurrencies such as Bitcoin and Ethereum as a means of payment for administrative costs. Various other Governments are also slowly considering the potential of legalizing the cryptocurrencies.
Source: PWC Global Blockchain Survey
How Blockchain is impacting the Global Economy?
With data of users being used and analyzed to provide target advertisements to individuals, digital information has become crucial. The blockchain technology provides transparency and accountability by providing decentralized database. It allows keeping records open in a distributed ledger or a database where the ledgers are not linked to a common processor. Blockchain technology allows users to fully control their personal details that they would like to share in public. Moreover, it does not allow the data to be duplicated and it registers when the data or value is transferred from one to another and thereby creating a transparent history of record.
Though decentralization in finance sector is intimidating to governments but with appropriate levels of security and removing intermediaries is proven to be beneficial. For instance, finance service giants like JP Morgan is incorporating the blockchain technology to facilitate transactions between institutions with introduction of JPCoin.
Changing business landscape
The blockchain technology is revolutionizing the industries by altering the landscape of business. Tokenization’s such as representing a real or virtual asset on a blockchain, Initial coin offerings in place of shares are major indicators that the blockchain technology is changing the business landscape. For instance, Telegram, a messaging app raised $1.7 billion through Initial coin offering. The initial coin offerings are increasingly becoming the alternative to classic debt/ capital funding provided by private equities, banks and venture capitals.
In 2019, Commonwealth Bank of Australia (CBA) and World Bank announced to build a new blockchain operated deb instrument called Bond-i and thereby enabling secondary market trading of the bond on the blockchain.
Enterprise software platforms such as Microsoft, SAP, Salesforce are all integrating blockchain technology to streamline core business processes, improve data integrity and facilitate data sharing.
Rise of virtual currencies
Blockchain technology has led to emergence of numerous cryptocurrencies such as Bitcoin, Litecoin. The market caps of all the cryptocurrencies is around $237.1 billion. Cryptocurrency holders are majorly using it due to the absence of financial intermediaries and anonymity i.e., the buying and selling goods and services with cryptocurrencies does not require disclosure of personal identities. For instance, there are around 25 million Bitcoin users globally and most of them are using it for investment purpose. Though there are adequate government backed currencies functioning globally, the rise of cryptocurrencies is seen as a threat to fiat currencies. Several central banks are cautious given the market’s extreme volatility. But there is a shift in trend supporting cryptocurrencies by government. Government of China is willing to embrace the cryptocurrency and Central bank in United Kingdom has called it has part of revolution in finance. Most notable government favoring cryptocurrency is Venezuela, which launched its own cryptocurrency called Petro.
Emergence of new industries and territory leaders
Blockchain technology has led to rise of initial coin offering, crypto trading, digital wallets, alternative currencies which are relatively new in this millennium. According to the World Economic Forum, atleast 10% of the global GDP is being stored on blockchain platforms by 2025. Early adopters of the blockchain technology is currently the dominating the global landscape. Countries like US, China are dominating the Blockchain industry globally.
Source: PWC Survey
Reducing operational costs, Process streamlining and quick secured international transactions
The blockchain technologies digitize, secure and accelerate the business processes and supply chains across the global market. In International trade, generally a transaction can take around 120 days to complete. The technology can help to move from paper based business to digitally verifiably process and thereby facilitating quick international transactions in real time. The technology includes micro payment mechanism which was previously thought impractical and thereby increasing the security level of transactions. It also helps to reduce fraud and facilitates more rapid business operations. Moreover, the blockchain technology has the potential to solve major problems such as compliance problems, lack of trust. The historical record and transparency provided by the technology can help to overcome these issues.
Blockchain industry has the potential to disrupt various industries but has also proved to be a value creator in the global economy by enabling to transfer value to the clients or consumers directly. The technology gives users the opportunity to manage and self-regulate the platform themselves and thereby creating an efficient and independent platform. Major challenge remains in this technology is how to scale blockchain based systems in a decentralized environment. The industry also requires essential standards and frameworks to safeguard the investments made in blockchain innovations and applications.
Disclaimer: The author of this text, Robin Trehan, has an undergraduate degree in Economics, Masters in international business and finance, and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries, and/or employees.
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