Bitcoin. Ethereum. Ripple. Cryptocurrencies have been all the rage in 2017, experiencing a remarkable bull run. Bitcoin, the largest cryptocurrency by market value, is up over 1,000% this year, even as it experiences wild price swings. In contrast, the S&P 500, the large cap US stock index, is up just 17% in what has been a record-setting year.
That said, look past the headlines and it is the underlying blockchain technology that cryptocurrencies are based on that promises to be a game-changer by driving innovations across key economic sectors in the years to come. Financial services firm UBS estimates that the amount of economic value created by blockchain could be as high as US$300 to $400 billion globally by 2027. Which begs the question: What is blockchain and how could it impact the economy, government and society? And how is blockchain taking shape in Singapore?
Blockchain is fundamentally a distributed digital database that is shared and continuously reconciled. Unlike traditional databases, where a trusted party alone holds complete authority, every user in the blockchain system has a copy of the database and is required to approve the transactions. This structure reduces costs (no need to rely on a central party or intermediary) and improves security and reliability as there is no central party at risk of cyberattack or malfunction.
Blockchain looks to be a disruptive technology because of its ability to digitize, decentralize, secure and incentivize the validation of transactions. In the blockchain world, every agreement, process, task and payment would have a digital record that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers and bankers might no longer be necessary. Individuals, organizations and machines would freely transact with one another.
A wide range of industries are assessing blockchain to determine what value propositions it brings to their businesses. Industries that could be disrupted include financial services, healthcare, aviation, logistics, transportation, music, manufacturing, security, media, identity management, land use and government. Here are a few cases to illustrate the impact that blockchain could have.
The global trade finance sector is worth an estimated $10 trillion per year. However, historic methods of trade financing are a major pain point for businesses due to the slow processes involved that interrupt business and make liquidity management a challenge. Blockchain could change that. British financial services firm Barclays conducted one of the first blockchain-based trade finance deals with customers in late-2016 using a system developed in partnership with Israeli fintech firm Wave. The transaction was a letter of credit — a document that guarantees that the seller will be paid and that the buyer will not have to make a payment until the goods are received. Usually, executing a letter of credit is a slow, paper-based process that takes a week to complete, but Barclays’ blockchain system was able to execute the deal in only four hours. Barclays’ successful transaction shows how blockchain could make trade finance deals faster and more efficient.
Blockchain could also impact the insurance industry through ‘smart contracts’ that allow customers and insurers to manage claims in a transparent and secure manner. A smart contract is a sequence of coding and a software program that encodes conditions and outcomes. The execution of a smart contract is done through technology and rules-based operations and does not rely on a third-party operator. All smart contracts and claims could be recorded on the blockchain and validated by the network, which would eliminate invalid claims. Automated claims payment processes linked to smart contract technologies will mean policyholders get paid more quickly compared to today’s manual processes where even non-contested claims payments can take weeks or months. Smart contracts should also reduce administration costs and the risk of fraudulent claims. French insurance firm AXA is testing a new flight-delay insurance product called Fizzy which will store and process payouts via smart contracts based on Ethereum’s blockchain.
Blockchain is expected to shape how data is managed and secured in the healthcare industry. Health data that is suitable for blockchain would include general information like age, gender, and potentially basic medical history data like immunization history or vital signs. None of this should be able to identify any particular patient, which allows it to be stored on a shared blockchain that can be accessed by numerous individuals without undue privacy concerns. Better sharing of such data between healthcare providers means a higher probability of accurate diagnoses, more effective treatments and the increased ability of healthcare organizations to deliver cost-effective care.
Image: Business Value Exchange
Blockchain’s benefits of security, efficiency and speed are well-suited to public sector organizations, which explains why many governments are actively exploring its uses. Blockchain experiments in the public sector are rising globally. From almost none three years ago, agencies in numerous countries, including Canada, UK, Brazil, China, India and Singapore, are running pilots and trials that examine the technology’s utility as a basis for government service provision, and developing individual blockchain-based applications for internal use. In the United Arab Emirates, the government is exploring a wide range of cases for blockchain in areas such as business registration, trade and central bank operations. In Estonia, a country often cited as a leader in tech literacy and e-services, the government is piloting blockchain-based solutions for healthcare, identity management and voting.
Blockchain could revolutionise voting, arguably the most important part of a democratic society, due to its attributes of transparency, accessibility, security and auditability. Votes once cast cannot be altered or hacked, and every node in the system can see the exact same results. A vote can also be traced to its source without sacrificing a voter’s anonymity. End-to- end verifiable voting systems will give the voter the ability to verify if their vote is correctly recorded and correctly counted. No more election fraud and manipulation.
Blockchain in Singapore
Not to be left behind, Singapore is exploring the potential applications of blockchain. In a bid to maintain Singapore’s edge as a leading financial and trade hub, the Monetary Authority of Singapore’s (MAS) Project Ubin aims to evaluate the implications of having a tokenised form of the Singapore dollar and its potential benefits to Singapore’s financial ecosystem.
Authorities are also looking at the use of blockchain in cross-border trading by linking the National Trade Platform (NTP) to that of other countries. The NTP is designed to be a trade and logistics IT ecosystem connecting businesses, community platforms, and government systems that acts as a one-stop trade portal for Business-to-Government (B2G) and Business-to-Business (B2B) services. When multiple entities across different jurisdictions are involved, there is no natural trusted central party. Blockchain technology offers opportunities for various parties such as shipping companies, banks and manufacturers to work directly with one another to make cross-border transactions cheaper, faster and safe. A potential boost for global trade and development.
As blockchain technology evolves, it will attract greater interest and investments from corporations and governments alike that develop its potential for application in various industries. Cryptocurrencies are just the tip of the iceberg. Blockchain has the potential to be a game-changer with profound impacts on the economy, government and society.