Blockchain is already a driving force in finance, contract management, supply chain operations, and a host of other business-related activities. But all signs are pointing to even greater advances in the future, quite possibly sparking enhancements to productivity and profitability that put the last three decades to shame.
The first thing to realize about blockchain and decentralized ledger technology (DLT), in general, is that its first iteration as a means to transfer digital currencies is long past. These days, blockchain is underpinning the exchange for all manner of assets, including photos, documents, and metadata.
This significantly enhances the speed and reliability of digital transactions, which, despite the gains made since the 1990s, still lagged in the final execution of the exchange – namely, the verification of the actual transfer.
What Can Blockchain Do?
Today’s blockchain provides a trusted, verifiable means of automating not just financial transactions but many of the key aspects of doing business, such as:
- Contract Management: Organizations no longer have to manually ensure that terms are being enforced.
- DevOps: All changes to applications and platforms are recorded and analyzed to ensure optimal productivity and efficacy.
- Manufacturing: Each step in the process, from the provision of raw materials to the delivery of the finished product, can be recorded and scrutinized.
- Business Processes: From sales and marketing to HR and IT, all activities can be recorded and tracked to weed out inefficiency.
- Security: Blockchain enhances network traffic management and firewall performance while reducing reliance on centralized storage.
All of this is creating a level of automation that propels business activity to a level unimaginable just a few years ago. In large part, it does this by elevating many of the rote, redundant processes to new, intelligent platforms so that human labor can focus on more creative areas, like revenue generation and the development of new markets and business models.
How Can Blockchain Improve Investment Climates?
On a more macro level, blockchain addresses the fundamental goal of a capitalist economy: allocating capital in the most efficient, productive way possible. A recent white paper by researchers at China’s Guangdong, Nanjing, and Shanghai universities shows how blockchain can restrain overinvestment in emerging business opportunities and alleviate underinvestment as well. The team noted that the benefits of using blockchain were most pronounced for organizations implementing the technology for their own internal uses, not when developing blockchain products or services for others.
The study consisted mainly of a review of A-share companies in China between 2016 and 2020, some of which were further along in the implementation of blockchain than others. The data showed that firms with higher levels of blockchain activity saw the most pronounced results in terms of investment efficiency.
Not only were the costs associated with their investment lower, but they experienced reduced principal-agent conflict. Moreover, firms that had lower CEO shareholding ratios and poorer business credit environments saw increased effectiveness of blockchain on their investment performance.
How Can Blockchain Enhance Global Trade?
Trade is also a key element of a functioning economy, especially on the international level. As the recent pandemic showed, trade is highly dependent on a number of factors, such as tariffs, logistics, and a wide range of regulations. Blockchain stands to reduce the complexity of all these measures by fostering a more collaborative and trustworthy footing on which to build relationships.
For this reason, the United Nations Conference on Trade and Development (UNCTAD) has launched a project in conjunction with regional trade commissions around the world to establish blockchain as a global resource for trade facilitation and crisis resilience.
The aim is to create the proper legal and regulatory framework for blockchain to effectively support global trade, as well as to establish proper training and monitoring programs to promote best practices and continued refinement of the technology.
Who Benefits Most from All This?
All of this will likely have the most dramatic effect on emerging economies, which tend to struggle more with the vagaries of international trade and the effective allocation of capital. Again, the inherent trustworthiness of distributed ledgers is a key factor here in that they greatly enhance critical economic drivers like supply chain management, land ownership, and the distribution of government and non-government services.
At the same time, blockchain’s support of digital currencies provides greater access to capital, in large part by side-stepping the regulatory frameworks that govern sovereign currencies. And perhaps most importantly, blockchain helps to stymie public corruption and the diversion of funds away from their intended purpose, which allows capital and profits to reach those who have earned them and will put them to more productive uses.
None of this should imply that blockchain will put the entire world on easy streets. Significant challenges remain, not the least of which is the cost to establish the necessary infrastructure to support secure digital ledgers. Multiple hardened data centers are required to prevent hacking, along with high-speed networks to connect them.
Blockchains also require sophisticated software to track and manage transactions, maintain security and provide high levels of resource optimization, particularly as the number and size of chains increases, which is inevitable.
Equally problematic is the potential for blockchain technology to become centralized in the hands of a few powerful entities, which can then set the terms of its use for the rest of the world. At the moment, this seems unlikely, but as it continues to take on a bigger role in the broad spectrum of economic activity, the temptation to control it will rise as well – both by private sector institutions and governments.
The Bottom Line
For now, though, it appears we are on the cusp of a dramatic upswing in economic activity across the globe, powered by a relatively simple tool that takes much of the labor and guesswork out of nearly all forms of business activity – essentially reducing risk and increasing reward.
