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In the minds of most economists is usually how to maintain a stable and prosperous global economy. A key ingredient to this is a credible and reliable medium of exchange. The introduction of blockchain technology in 2009 by Satoshi Nakamoto through Bitcoin created a new and arguably more advanced medium of exchange, the blockchain-based cryptocurrency.
A key concern is just what the effect of blockchain on the global economy is. Does it highlight global operations’ evolution, or is it a disruption to an otherwise beneficial status quo? An analysis of its effect on global transactions and beyond may provide an answer.
Blockchain technology encompasses a decentralized currency as a medium of transaction. It uses a peer-to-peer (P2P) system to effect transactions, employing a distributed ledger system. Transactions are grouped into blocks, which are all linked. Being the basis of cryptocurrencies, it uses open-sourced coding, allowing anyone to access data about a specific transaction.
After the transaction, a user keeps a copy of the ledger, with all copies of ledgers being regulated by a consensus algorithm. This eliminates the need for a third party to maintain the ledgers, while the P2P circumvents the use of a third party to carry out the transaction on behalf of the clients. Blockchain is applicable in several fields other than cryptocurrency transactions.
Impact on the Global Economy
The effect of blockchain technology on economies in the coming decade is expected to be profound. By 2030, blockchain is expected to boost the global economy by up to $1.76 trillion.
The potential key transformations include:
Blockchains creates the possibility of immutable data, meaning changes on data regarding a transaction are extremely difficult to make. Once a transaction is done, a copy of this transaction gets hashed and is publicly displayed. Subsequent transactions get hashed and displayed too, with all these hashes being paired, leaving one hash as the block header. The next block also holds the hash of the current block, going on until a chain that safeguards against altering a transaction is formed, eliminating the risk of fraud.
Lower Transaction Costs and Time Minimization
The current global money transfer model employs the services of a trusted third party, such as banks. To enjoy their services, high fees are charged, making low-value transactions very costly. The processing of these transactions takes a long time, at times, several days to go through. Thanks to the blockchain system, cryptocurrencies are emerging as an increasingly preferred avenue for international transactions. The processing of a transaction is instantaneous. The P2P system of the blockchain technology eliminates third parties by enabling direct transactions between trade parties, tremendously cutting down costs.
Global Interoperability of Currency and Data
Thanks to blockchain, a globally accepted currency in the form of cryptocurrencies is a reality. Fiat currencies, issued by governments as their legal tenders, are usable only within the issuing government’s jurisdiction. Cryptocurrencies, on the other hand, can be used as a transaction medium across the world. The challenge arises with having to increase the numeric distribution of crypto accepting outlets.
The data immutability aspect also creates strong reliability on information regarding a commodity. In the event of faulty items, their tracing is made much easier. The wholesale recall of entire product lines is easily avoided.
For sub-sectors like custom clearance and logistics, huge pile-ups of documentation seem like an indispensable norm. Blockchain allows for the possibility of complete digitization of these processes. Using a P2P platform, actors could be keying in data and broadcasting it in real-time on the blockchain, freeing them from requiring huge record files.
It also allows for smooth cross border movements of commodities. The need by traders to present to customs official documentation regarding the commodities is eliminated. That’s because such information is displayed on the blockchain. It is estimated that governments worldwide could save up to $1 trillion through effective digitization.
Potential High Impact Sectors
Several sectors stand to be most transformed by blockchain technology. They include;
The rise of cryptocurrencies promises to increase the global banking rates while reducing costs and cutting down on transaction times significantly. Up to $433bn in additional economic output could be generated, according to PWC.
With increased digitization and improved tracking and tracing, the sector could potentially be the most positively transformed. According to PWC, about $962bn could be added to the global economy via this sector.
Fraud and identity theft create a huge leakage from the global economy. About $224bn, as estimated by PWC, can be saved by employing blockchain technology to control services such as issuing certificates and personal identification documents.
Contracts and Dispute Solving
Lengthy and costly court cases in a bid to solve contract and dispute issues provide for a huge economic loss. According to PWC, the trusted nature of data through blockchain can easily solve most of these problems, saving up to $73bn.
Currently, blockchain implementation is still a new phenomenon, slightly more than a decade old. Much needs to be understood regarding its workings and potential pitfalls. The process of maturing in blockchain technology is ongoing, with many issues being discovered. Solutions to these issues are also being developed and implemented.
There exists a hostility towards blockchain adoption, more so by governments, directed at cryptocurrencies. The overall success of blockchain technology will be heavily dependent on a positive perception by stakeholders. Governments and businesses should have the will to exploit this new technology that promises to transform the world’s economic environment for the better.