Blockchain technology has radically transformed and gained traction in the capital markets industry as one of the most revolutionary technological developments in the recent history. The last few decades was about the ‘Internet of information.’ Now the internet is entering an era based on the blockchain. The industry is witnessing the rise of ‘Internet of Value.’ In the era of the Internet of Information, the industry experienced the convergence of computing and communications technologies, while the Internet of Value will be powered by a smart combination of mathematics, cryptography, software engineering and behavioural economics.
The blockchain technology which is also called the distributed ledger technology promises to disrupt industries by challenging how we define value, structure society and reward contribution. The technologists strongly believe that blockchain will disrupt the business and redefine organizations and economies. Blockchain technology is although, in the early stages of R&D and Prototyping of use-cases, has significant potentials and helps create value by simplifying business processes and create trust, reducing the settlement times, safe records of transactions and business agreements, minimize counterparty risks, increase transparency for regulatory reporting, improve contractual term performance and User controlled networks.
Today, almost every company be it a start-up or a corporation is trying to create their own blockchains with specific use-cases to disrupt an array of industry sectors like Manufacturing, Healthcare, Trade Finance among many others. According to a survey conducted by “World Economic Forum, predicts that 10% of global GDP will be stored on the blockchain by 2027.” Even though the majority of the blockchain technology is in the finance industry, there is increasing interest in exploiting the application of the blockchain technology in other sectors especially in the manufacturing industry is growing.
Knowledge and Understanding of the Blockchain technology remains one of the principal challenges of the blockchain as there is lack of awareness and understanding of how it works, especially in sectors other than the banking industry. The blockchain will be able to create the most value for organizations only when they work together on areas of shared opportunity or pain, especially issues related to each industry sector. However, the problem with the current approach is that they are stove-piped – Organizations are developing their independent blockchains and applications to run on top of them. Hence, in any one industry sector, there are many different blockchains being developed by so many organizations for many different standards. This defeats the purpose of the distributed ledgers as it fails to harness the network effects, becomes inefficient in the current approaches that the industry is adopting.
Several big companies and start-ups are investigating the application of blockchain technology for supply chain management and auditing. Recently, IBM and Maersk recently announced a joint venture to create and deploy the world’s first blockchain based electronic shipping platform that will digitize the supply chain and track the international cargo in real-time for the manufacturing industry. The objective of this project was to reduce the paperwork and effort involved in the shipment. It is an end-to-end shipping solution which will give all the parties involved in the global trade a single view of where the cargo is and allow authorities to grant electronic approval for its movement. Blockchain will enable a single view of all the goods and shipping information via a virtual dashboard for the concerned parties right from manufacturers, shippers, port authorities and government agencies. IBM and Maersk hope to reduce the shipment costs dramatically, by reducing the paperwork, providing critical information rapidly and frequently, and prevention of shipping fraud. To learn more about this use-case, please refer to the link here.
However, the problem which I foresee might arise say for, e.g., Maersk has their containers across the world. The containers are lifted from London and shipped to Dubai where Maersk’s has its own terminal, but if Maersk wants to ship to an ‘X’ country where it has no terminal and is represented and operated by a local vendor since the ‘X’ country might not allow for direct investment. Likewise, in every country, if Maersk were to go through a different vendor, there might be a possibility of a massive problem as Maersk might have to work with various blockchain technology platforms in each of these countries with the individual suppliers. Assuming Maersk has one million suppliers and one million transit points of its different suppliers how are IBM and Maersk going to solve this problem?
Similarly, the world’s Metal Exchange (LME) is based in London just like the United Nations, or NewYork Stock Exchange is in the United States. The registrar of shipping is in London. Let us assume that country ‘Y’ might disagree to get the metal rates from London. Similarly, every country might come up with its own challenges. For, e.g., With Iran, India has signed a deal for trading in ‘Indian Rupees.’ Hence, India has been able to circumvent the sanctions against countries – Iran, by being able to work out an agreement for transacting with them in Indian currency.
These challenges have led companies to develop their own blockchain platform for authenticating their transactions or claims for a particular currency or product for that country alone since they would own millions of nodes or computers within their network to provide solutions to the businesses and countries for smooth operations and expansion of their business across the world. The idea of eliminating the intermediaries or the traditional cumbersome processes has led to the companies swarming with use-cases using blockchain technology to disrupt the conventional way of doing business and adapt to simplified ways of doing business era of digitization.
The blockchain is touted as the world-changing technology in many ways. Imagine with every company getting into blockchain; they will need to own millions of computers for building the blockchain network or platform of high-performance systems or nodes powered on for authenticating the transactions. This has led to the growing demand for high-end systems which in turn has led to the increase in the hardware, software, service and infrastructure costs. Besides, there might be a potential demand-supply issue to meet the market demand.
However, these technological advancements potentially might lead to server overloads, bandwidth issues, and a significant increase in the power consumption. With millions of systems in use and every node having to authenticate a transaction, it might become the cause of critical outburst for data storage given that all data will have to be stored on Cloud, and the cloud infrastructure shortly might enter a zone where the incapacitation of the data storage is bound to happen.
Johann Snorri Sigurbergsson from Icelandic energy company HS Orka told BBC that, “The energy used by Iceland’s bitcoin mining market is experiencing “exponential growth,” and data centres may use more energy than all of the country’s homes in 2018.” He also said, Iceland “won’t have enough energy” to power numerous new data centres that have been proposed. This indicates that the world is going to face a severe demand-supply challenge for Energy and Power Supply; with the growing number of data centres, high-performance computing systems owned by both organizations and individuals would require energy which might not be available.
Amazon has already stepped up in addressing this issue by announcing the launch of 18 wind and solar projects across the United States with 35 more to come to address its ever-expanding global network of fulfilment and data centers. These projects will generate sufficient energy to power 330,000 homes annually and also provide hundreds of jobs and millions of investment across the country for now and globally in the future.
The next issue is the growing electronic waste which poses a massive risk to the environment and human health. E-waste management is a critical issue in today’s digitally dependent world, where the use of ever-increasing electronic devices are polluting the environment beyond one’s imagination. Only 20% of the approx 10.5 million metric tonnes of all e-waste was recycled. What happens to the remaining 80% of the e-waste un-disposed? Many start-ups along with their Government are coming up with solutions for recycling and disposing of the e-waste. The ramp up can only be possible with corporations investing and supporting the effort.
In my opinion, blockchain technology would work wonders if it is regulated and follows the Industry standard and methodologies. The solution which I am proposing is that every industry should develop their own industry-specific blockchain which is authorised and approved by that particular industry bodies globally with well-defined relevant industry-specific Standards, Policies, Legal and Regulatory Frameworks. I believe this will create a ‘Secured and Trusted’ Industry-specific ‘Shared Network.’ This solution will eliminate the need for an individual company to build their independent blockchain platform and this by itself will resolve many of the above challenges which I have raised.
To summarize, any new transformation has its underlying challenges which could pose significant roadblocks on the path of implementation if not address early-on. However, blockchain technology will evolve in the coming years which I predict to be a ‘Trillion Dollars’ Market, and after all, just like nature, technological advancements will find their way around the artificially constructed barriers as they evolve.
