The most common use cases of blockchain are in the banking, finance and insurance, retail, and transport industries. The potential of blockchain is still being explored in sectors such as healthcare through initiatives such as Covid-19 vaccine supply chain management.
Listed below are the key use case trends impacting the blockchain theme, as identified by GlobalData.
Blockchain is being used to speed up payments, improve transparency, eliminate intermediaries, and reduce costs. Cross-border payments through traditional payment methods are complex, expensive, and slow. The World Bank estimates the average transaction cost for remittances to be around 6.5%, and even payment disruptors such as PayPal and TransferWise take days to settle cross-border payments. Smart contracts can be used for consumption-based payments, dispute resolution, and facilitating chargebacks apart from enabling faster and cheaper payments.
Blockchain has a role to play in supporting the digitisation of supply chains and increasing transparency and efficiency. Businesses are looking to blockchain to reduce the time and costs of moving products. Integration with other technologies, particularly internet of things (IoT), will be crucial for getting the most out of blockchain in the supply chain. Freight and logistics account for more than $1.5tn in expenditure in the US alone, with more than $30bn lost due to theft in transit.
Many of the leading players in the logistics sector, including FedEx and UPS, are making investments in blockchain. Companies can trace products through supply chains with blockchain to flag potentially damaging in-transit events such as signs of tampering, extreme environmental conditions, or careless handling. Blockchain can help vendors expedite recalls by quickly determining the location of any inventory across the supply chain that needs to be kept out of circulation if a manufacturer identifies a quality issue with a product.
Central to the digital capabilities of every company is the ability to unlock the value of data by creating actionable insights. Much of this depends on meeting stringent security and privacy requirements over data use. The ineffective data sharing process in most industries is due to the lack of trust between parties and the lack of interoperability between information technology (IT) systems and applications. This is a problem that the security and reliability of blockchain can solve. Secure and scalable data sharing is fundamental to providing effective collaboration.
Smart contracts are code programmed on a blockchain designed to always function in the same manner and therefore trusted to perform exactly as specified. It results in fewer transactions being blocked due to disagreements between systems. Automation allows for fewer administrative staff, thus saving significant amounts of money. Smart contracts translate to less human interaction, which reduces the cost of doing business and limits the possibility of data being lost, sold, or stolen.
Cryptocurrencies are the most well-known use case for blockchain technology. Most people associate cryptocurrencies purely with bitcoin, but there are more than 9,000 cryptocurrencies including stablecoins, privacy coins, utility tokens, security tokens, which have different functions and characteristics. Cryptocurrencies started gaining wider institutional acceptance in 2020 when firms like Visa, PayPal, and Tesla began incorporating them into their payment infrastructures.
Central bank digital currencies (CBDCs)
CBDC is issued and regulated by the monetary authority of a particular nation or region. About 60% of central banks are conducting CBDC experiments and proofs-of-concept, according to a 2020 survey from the Bank for International Settlements. Emerging market central banks are in particular pushing for CBDCs, citing financial inclusion and payment efficiency as top motivating forces. The push for digital currencies will intensify, driven by the diminishing use of cash and the digitalisation of the economy. China is on track to become the first major economy to launch a CBDC.
Decentralised finance (DeFi)
DeFi is a blockchain-based financial system that does not rely on centralised intermediaries like brokerages and banks to offer traditional financial instruments. Users can transfer, trade, and invest P2P using cryptocurrencies and other digital assets via automated smart contracts. Most DeFi applications are built on top of Ethereum. Popular DeFi applications include decentralised exchanges, lending protocols, and synthetic assets.
A stablecoin is a type of cryptocurrency pegged to an external asset, such as a fiat currency or a commodity. Stablecoins are not subject to the highly volatile market prices experienced by the likes of bitcoin but enjoy many of the benefits of being a cryptocurrency, such as transparency and security. Stablecoins aim to facilitate fast and secure transfers between digital assets and fiat currencies without incurring extra fees.
Trade finance, which covers activities including issuing letters of credit, lending, factoring, export credit, is an old industry inundated with paper trails and inefficient processes. It facilitates almost $20tn of global trade every year. Blockchain can speed up trade settlement times, reduce fraud, and dramatically cut costs. Advantages of blockchain for trade finance include real-time reviewing, transparent factoring, smart contract execution, and proof of ownership.
Non-fungible tokens (NFTs)
NFTs are a way to transform a digital good that can be endlessly copied into something unique that can be verified on a blockchain. NFTs try to solve a problem that the internet created, which anti-piracy advocates and rights owners have struggled with for decades, namely giving credit where credit is due. NFTs could theoretically enable artists to create a piece of work, tokenise it, and keep that token as proof of creation and ownership.
Decentralised digital identities (DID)
Identity management is slowly shifting from old, fragmented paper-based systems and moving towards digital identities. Simply digitising identities, however, does not solve the many issues that come with its use. Blockchain allows users to create and manage digital identities that provide greater privacy and control of data. Users’ sign-up to a self-sovereign identity (SSI) and data platform to create and register a DID. A pair of encrypted private and public keys are created during this process and then used to prove or control an identity.
Brands are exploring new ways to secure trust due to burgeoning consumer concerns regarding product authenticity and sustainability. Blockchain provides a way to convince consumers of the authenticity of their products, mitigating the risk of counterfeit products and boosting P2P marketplaces for everything from car parts to gemstones. This is of particular interest for luxury goods, with brands like LVMH, Lamborghini, and De Beers implementing blockchain to add value to products, bolster brand equity, and ensure authenticity for pre-owned items.
This is an edited extract from the Blockchain – Thematic Research report produced by GlobalData Thematic Research.