One of our juniors in the supply chain program, Tanner Wegrowski, competed in a writing competition and as a result, had an article published in the “Business Today” journal. Read his article below.
With stories like BREXIT, trade wars, and the rise of nationalism inundating the daily news, it’s hard not to ask the question: is globalization dead? The rapid decline of global foreign direct investment, nationalist parties roiling politics in the European Union, and the weakening of global trade for the first time since the Great Recession intimate that this could be the end of an era. Yet all the while, blockchain is sending us an entirely different signal: hang on, because globalization is very much alive and well.
In a recent report from the McKinsey Global Institute, researchers found that the digital flow of data and information (which was essentially nonexistent 15 years ago) now has a greater impact on GDP growth than traditional trade goods. Furthermore, emerging economies, small companies and startups, and billions of other individuals formerly marginalized in conventional trade flows are becoming major players in the new world market. In contrast to traditional trade networks, the countries that are on the periphery of the global trade system are gleaning more from these new flows than their larger economic counterparts. Clearly the unrestricted flow of data and information has a profound impact on the way that businesses and consumers interact and there is arguably no better mediator for that exchange than the revolutionary digital ledger technology, blockchain.
What is blockchain?
In order to understand what blockchain’s implications are for business today, we first must understand what it is. Blockchain is a series (chain) of immutable data records (blocks) time-stamped, secured, and bound together by a vast computer network not owned by a single entity. With no central authority mediating transactions, it is a truly democratized system that is nearly impossible for hackers to manipulate. When someone begins a transaction, a block is created and subsequently verified by thousands or even millions of computers within the network, making it impossible to verify a fraudulent transaction without owning a majority of the computers in the network, a cost that nearly always outweighs the benefit. Furthermore, each block carries not only the data for the transaction that created it, but every transaction that precedes it. In this way, no one can change a block without altering the blocks before it, which would be virtually impossible to do.
What are blockchain’s business implications?
Blockchain means that small businesses and entrepreneurs in developing countries can more easily do business with consumers in more developed countries, and vice versa. Businesses and consumers become more connected as owners are able to receive direct compensation for the goods and services they provide without the separation imposed by a third-party matchmaker.
This characteristic is of particular import for developing economies, as the dismal rate of economic convergence for these countries has been found to be a direct result of the unstable, corrupt, and inefficient institutions they often house. Property rights are oftentimes poorly enforced in developing countries, causing distrust in the governments and institutions that are designed to enforce them. Blockchain provides a comprehensive solution to this issue with inexpensive, transparent, secure, and immutable data that doesn’t necessitate a central authority.
Such blockchain-based solutions have already been successfully implemented in countries such as Estonia, where you can use medical e-prescriptions, file taxes, or even buy a car online without needing to go to the vehicle registration office. Dubai wants all visa applications, bill payments and license renewals, which account for over 100 million documents each year, to be transacted digitally using blockchain by the year 2020. According to estimates from Smart Dubai, the strategy could save the emirate 25.1 million man hours, or $1.5 billion in savings per year.
What can we expect from blockchain in the future?
With worldwide spending on blockchain solutions estimated to increase from $1.5 billion in 2018 to $11.7 billion in 2022, businesses all over the world want to know how to address this trend. A recent survey found that nearly 50 percent of European business decision-makers expected blockchain to add to their current businesses operating model, with another 33 percent stating that they expected blockchain to entirely replace their current operating model. Around 66 percent of global organizations have some level of interest in blockchain, with nearly 10 percent currently in the experimentation or deployment stage.
How do businesses then translate this interest into implementation? The answer lies in the successes of its trials thus far in business around the world. But first, blockchain is by no means a panacea for the world’s problems. As incredible as it sounds in theory, it’s pragmatic use as a young technology is subject to flaws, some of which we have yet to discover. People and their creativity solve problems, not technology. However, through addressing the trend of blockchain through more widespread implementation, businesses have the potential to advance globalization like never before.
Imagine what more widespread implementation could mean for global business. It means that companies like Fivver, Uber, Airbnb, Spotify, and Amazon would simply cease to exist; matchmaking platforms, middlemen, and market-makers would be done away; virtually every business that charges a transaction fee would be rendered useless to blockchain’s fee-less power, connecting businesses and consumers like never before. It means struggling economies will be able to escape unstable currencies rife with inflation. Cross-border payments – which account for 40 percent of global payment transactional revenues – will be less costly and far more efficient, spurring economic growth in formerly marginalized regions of the world. It means that regulatory trade agreements like the European Economic Area will essentially become unnecessary and governments will be able to quickly adapt and implement better practices for facilitating trade.
In short, it means that globalization isn’t dead, it’s just taking a new form. The increasing flows of information and data are changing the landscape of international business forever, and blockchain is facilitating that change. By embracing and implementing the capabilities it provides, businesses can provide new opportunities for global growth and connect with global consumers more than ever before.