Degree: BSc Business Studies
Cass Business School
Title: How Blockchain could revolutionise the world
Name: Jeremy Bornstein
Supervisor’s name: Dr. David Edelshain
Submission date: 15th April 2018
“I certify that I have complied with the guidelines on plagiarism
outlined in the Course Handbook in the production of this dissertation and
that it is my own, unaided work”.
The use of blockchain technology has increased across the globe. The system will modernise and bring changes to the global economy. There are multiple factors that enables the fast technology adoption rate, including the ability to create reliable and cheap forms of currencies. The ability of the system to be deployed by non-financial institutions serves an advantage to its assimilation. In this research, the survey determined the extent that blockchain will revolutionise the global economy. The research was carried out through a questionnaire due to the research method’s ability to generate first-hand information from all continents. The survey results demonstrated that blockchain will change the world market within the next five years. Through the data generated, the finance sector is influenced most by the system and stands as the main channel in spreading blockchain to other sectors. The report also identified that by 2022, most sectors would have adopted the technique even though blockchain stands to disrupt their current operations. Key departments used by companies in deploying blockchain technology include Research and Development units which are entitled with the responsibility of ensuring that the system is used. Some of the features that lead to the quick adoption of blockchain include the associated low cost and the security that this technology provides.
Key words: blockchain, global economy, revolutionise, survey, finance department
Table of Contents
1. Introduction 4
2. Literature review……………………………………………………………………………8
2.1. Advantages of Blockchain 8
2.2. Disadvantages of Blockchain 9
2.3. Technological approaches 11
2.3.1. Decentralised technology 11
2.3.2. Magic Computer 12
2.4. Governance Approaches 14
2.4.1. The Cost Transactions Approach 14
2.5. Economics of Blockchain: Public Choice 16
2.5.1 Catallaxy 16
2.5.2. Constellaxy 17
2.5.3. Commons 3.0 18
2.5.4. Competitive Federalism 19
2.5.5. Private Governance 20
2.5.6. Voting for Blockchain 20
2.6. Society Impact of Governance 22
2.7. Impact on Business 22
2.8. Impact on Technology 23
2.9. Impacts on Capital Market 24
2.10. Blockchain Trends 24
3. Methodology 27
3.1. Profile of Survey Participants 27
3.2. Blockchain Technology adoption 28
3.3. How to facilitate the Adoption of Blockchain 29
3.4. Budget for Implementation 30
3.5. Important Aspects to Participants 30
3.6. Sectors that could adopt Blockchain Faster 31
3.7. Familiarity with popular platforms……………………………………………………
3.8. Future of Blockchain based on survey Results 31
5.0 Conclusion and Final Remarks 46
Blockchain is among key products that have changed the global digital economy. Blockchain is considered a disruptive and foundational technology of the digital economy (Pilkington, 2016). Blockchain is the underlying technology used in cryptocurrencies (Evans, 2017). The best-known application of blockchain technology, is in digitised currencies such as Bitcoin. The unveiling of blockchain, led to the increase in value of Bitcoin in 2013 and subsequent years (Seetharaman et al., 2017). Currently, the intense publicity has resulted in a high valuation of Bitcoin (Seetharaman et al., 2017). Apart from Bitcoin, blockchain has led to the creation of currencies (Barber et al., 2012). For instance, beside virtual currency, the technology is also used as a digitised public ledger for each transaction. The technology is decentralised and transparent in the way it registers all the deals made. Companies from many different sectors such as banking, insurance, finance, healthcare, professional services and even government are using the blockchain technology (Tapscott and Tapscott, 2016)
Swan (2015) divided both existing and potential applications into three major categories, in an effort to group sectors in which the system is applicable. Swan placed currency to be in blockchain 1.0 whereas smart contracts were under blockchain 2.0. Government, science, culture, literacy, health care and art are categorised as blockchain 3.0 (Swan, 2015). The system is composed of the database that is distributed and dominates the market. Distributed databases have several advantages, such as improving transparency, security, and efficiency as compared to management models that rely on relational databases (Özsu and Valduriez, 2011). The databases used by blockchain allow for improvement and control of transparency, efficiency, and security of data by the administrator as opposed to the owner (Tapscott and Tapscott, 2016). More specifically, blockchain is a system composed of technology innovations such as encryption, smart contracts, and mutual consensus verification, that allows sharing of data and organising so that people experience better transparency, security, and efficiency (Tapscott and Tapscott, 2016). Blockchain is safer compared to the traditional database due to advanced encryption technology that is involved in the public and private domain and provides a form of virtual security. The system lies in a network that is extended beyond one organisation for assurance of transparency. Therefore, there is no enterprise responsible for auditing transactions or keeping records and so the technology prevents individuals from hiding transactions. It also grants security by making the transactions more traceable. As opposed to other types of traditional systems, no documentation is required to be signed by the parties involved (Pilkington, 2016).
Blockchain as well as Bitcoin have the potential to transfor and modernise the world’s economy. The technology is more sophisticated, especially in the manner in which it handles valued information. The evolution and growth of blockchain is reminiscent of the introduction of the World Wide Web in 1989 (Aghaei et al., 2012). Don and Alex, the thought leaders of the system, believe that the innovation will direct Internet to the new era (Tapscott and Tapscott, 2016). Tapscott and Tapscott (2017) believe that the technology is a ledger form that is incorruptible during economic transactions and can be programmed to document not only financial transactions but also trace its origins. The definition is concise and helps to understand the needs, that formed the foundation of innovating the technology. The system answered the question on the need to record valued data electronically, in a manner that provides an option for each client to participate in the world economy through computers without the involvement of brokers in transactions.
The underlining concept of the technology is that miners ensure there is a constant growth of blockchain through the addition of blocks. These blocks are a concealment for all the most recent transactions. Their incorporation usually occurs in linear as well as chronological order (Swan, 2015). Each computer connected to a Bitcoin network with a user whose task is to approve and relay transaction, does have a copy of the blockchain. When a new miner joins the Bitcoin network, the blockchain is usually downloaded automatically. The system records addresses as well as balances during the first and the last transaction. With the personal address covered, the query of block explorer for all the deals especially the ones associated with Bitcoin, becomes easy. The ability to query individual’s wallet address is enhanced since blockchain indicates the operation in which the first Bitcoin was earned (Swan, 2015).
The technology is seen as an innovation of Bitcoin because users trust public ledger, which is stored globally at different nodes that are under miner’s account (Swartz, 2017). The trust is directly opposite of what is usually anticipated since miners do not maintain confidence among themselves nor with third party serving as an intermediary. These transaction architectures are the necessary provision of blockchain innovation aiming at ensuring that transactions are decentralised and trustless (Adams et al., 2017). The system can be regarded as an application layer that runs on internet protocols, which are in existence and adds a new layer that allows for economic transactions for cryptocurrencies and contracts.
Blockchain is undoubtedly another product that will disrupt the digital world economy (Evans, 2017). With reference to WWW (World Wide Web), many similarities can be drawn on the magnitude and the impact that blockchain Technology can make. Therefore, people’s curiosity to learn and to understand how this new system operates market perception, is usually triggered. Due to the ease of transactions via the technology, blockchain is projected to impact the world economy (Iansiti and Lakhani, 2017). As a result, this research was conducted with the primary purpose of establishing how blockchain could revolutionise the global economy.
For the research to determine the extent of blockchain adoption in the world market, it focused on establishing the rate of technology deployment and obstacle that hamper the spread. Survey through questionnaire was chosen as the best method for collecting vital information on why there will be spread in use and the sudden rise of the technology across the globe. The survey aimed at establishing the number of organisations that have adopted the technique and those which are willing to adopt it in the future. IT decision makers and senior executives across the world were among those who the survey targeted as the sample in the study. The main reason behind the selection of the two groups of individuals as participants in this research, was due to their ability to provide data on how on the market perceived and received the technology. they were also capable of providing information on how Blockchain was to be adopted as well as the different parameters that professionals would rely on during decision making over the subject.
2. Literature Review
The literature review section provides a general overview of relevant literature on blockchain. The advantages of the blockchain to an economy and its impact on the capital market, technology and businesses will be examined. The technological approaches to a blockchain economy and the reason why the blockchain implementation may fail, will be explored as well.
The blockchain introduces new solutions to inefficiencies that may affect the industry. It also provides emerging new approaches to value information management and sharing. There are several advantages the technology can provide to firms.
2.1. Advantages of Blockchain
This section establishes some of the benefits of using the system. Blockchain is a database technology that has a distributed ledger which maintains an ever-growing list of information records that are decentralised and difficult to interfere with the data fed (Swartz, 2017; Swan, 2015). Data records can either be smart contracts or Bitcoin transactions, that later combine in blocks. The operations are automatically created, during that time computers verify this transaction with an advanced algorithm to affirm the exchange of value while they also create a historical ledger of all the performed activities (Evans, 2017). All computers that form the networks processing the transactions are found or located everywhere globally and are neither controlled nor owned by a single entity (Swan, 2015). The blockchain can be triggered to perform transactions automatically. With blockchain, contracts are implanted in a digital code and kept in a transparent shared database. There, they’re protected from tampering, revision, and deletion. All processes and payments have digital signatures and records. They can be stored, validated and shared. Intermediaries like bankers and brokers will be unneeded. Organizations and individuals will freely interact and transact with each other without friction (Iansiti and Lakhani, 2017).
One of blockchain most important characteristic is that it can record everything that has value to mankind. From legal documents such as marriage, birth and education certificates to provenance of food and diamonds as well as insurance claims. Everything that can be expressed in code, is possible to record (Tapscott, 2017).
The technology is a ‘worldwide ledger’ since it facilitates decentralised independent organisation, smart contracts, various transaction and services from a decentralised government. It’s an open global platform that can make distributed and vital changes to the online businesses. The blockchain facilitates the anonymous transfer of the digital asset. The system facilitates a fast, cheap and safe transaction (Bhardwaj and Kaushik, 2018)
2.2. Disadvantages of Blockchain
The most important disadvantage of blockchain is the time factor. The duration of the transaction can take up significant time. When buying a coffee for example, the transaction needs to pass through and be implemented to the blockchain before the balances are updated, meaning a waiting period for a new block to be found. It could take up to 12 seconds for the transaction to pass through. (Beck et al., 2016). During a transaction process, blockchain has to perform several similar functions as the centralized database, as well as three additional services. These additional services make the process go slower. The first additional service is the signature verification. Each blockchain transaction requires a digital signature using a private-public cryptography scheme. This is needed to identify and to prove the source from which it comes from. This procedure is technically very complex. The second service is the consensus mechanism. Blockchain is a distributed database, and thus it is important that nodes in the system reach consensus. This may take time due to the back and forth communication. In centralized databases this happens less as most transactions are processed in a single location. Thirdly, in blockchain, transactions must be processed separately by every node in the system whereas, in a centralised database, transactions are processed not more than twice (Woochul et al., 2016).
The switch to blockchain technology is costly and time consuming. Therefore, integration concerns are also a disadvantage. Another problem of blockchain is the huge amount of energy it uses. Morgan Stanley estimates that the original blockchain runs on algorithms that will use more energy than Argentina this year (Badkar, 2018). Top university and big tech companies such as IBM are trying to develop various “green” blockchain innovations to address the increasing demand of businesses that want to adopt blockchain technology in their firm (Zhao, 2018). In all countries, governments have always created and regulated new currencies. If governments regulations stay undecided regarding bitcoin then the financial institutions will act as a barrier to the widespread implementation of bitcoin. A barrier to the widespread implementation of Bitcoin, means a barrier to blockchain as well. Another drawback is the cyber security. While security is guaranteed by the system, there are still worries about cyber safety which must be addressed (Shrier et al., 2016).
2.3. Technological approaches
For a further understanding of Blockchain technology, this section provides an insight on some of the technical approaches to the system as discussed below.
2.3.1. Decentralised technology
Blockchain is a technology of decentralisation as well as an open platform. This can be compared to the internet, which is also an open platform. The fundamental developmental pattern in evolving complicated system from centralisation to decentralisation. Most systems tend to start with centralisation since it’s the most effective structure to create and enforce rules. This establishes a well-organised hierarchy and reduces duplication. Those characteristics shows that centralisation system starts incurring costs as they begin to accumulate, due to these influences becoming susceptible to exploitation. In an economic system, this leads to rent-seeking, inflation, and corruption.
Finally, these factors mentioned, drive the system to adopt a decentralised system, as the cost of centralisation is increasing due to exploitation, while the cost of the technology continues to fall as a consequence of technological development. Centralisation brings structure and order. While the adaptation toward decentralisation makes the system more flexible, efficient, secure and robust.
Blockchain technology has been shown in several ways to stress diverse issues on blockchain functionality. As a consensus mechanism, blockchains are a verification engine. Hence, making them important as a database to secure record value exchange. Blockchain technology commoditises its trust via the public protocols. The major blockchain operation is decentralisation since it aligns itself in the context of market and organisation. Organisations are centralised; markets decentralised. Markets are the other open platforms that practices the service of decentralisation.
Blockchain is a product of cryptography which was invented to provide solutions to design problems encountered by digital money. The following features seem to place blockchain as the centre of economic information. It establishes the money economy and emerging new technology. However, the blockchain has currently surpassed these three features rendering it a significant competitor to centralised objects that most economics research on such as markets and organisations. When the blockchain system is combined with the token system, the technology seems to outline the institutional orders referred to as an economy or catallaxy (Davidson et al., 2016).
2.3.2. Magic Computer
A technology unique to blockchain, the ‘Magic Computer’ has the capacity to solve the problem of double charging and spending in digital currencies. Moreover, the technology enhances decentralisation. A more sensible description would point out that blockchain is a computational singleton or a “world computer”, helping to build applications and to arrange and renew the position of this one global virtual machine (Steil, n.d.)
Another definition, is that blockchain is a magic computer, which enables people to add programs and it lets the program work on its own or self-execute while both previous and current programs remain publicly visible. Programs will have a powerful crypto-economically guarantee and will carry on executing in that specific way as the blockchain protocol defines. It is believed that any application running on a “magic world computer” will be without national boundaries and will extend more rapidly into the future.
The technology is thus used in the creation and execution of rule systems such as the Distributed Autonomous Organisations (DAOs) and smarts contracts, which enables the display of social-economic coordination. Most economists view the economic coordination, as an outcome of combination of institutions and organisation. For example, club organisation, markets institution, law institutions and firm organisation. These institutions and organisations are the base of the rule system. Therefore, alongside the markets, firms, commons, governments, and clubs we currently have the blockchain, which is a new type of rule-system for the economic coordination.
Bitcoin blockchain is considered a cryptographically transaction-based specialized technology whereas ethereum is a project, attempted to create and develop a more generalised technology that would enable all transaction-based device concepts to be built on. A special platform for no trust computing (Reijers et al., 2016). This technology is using the “Turing” language as well as customs with the aim of building decentralized application, that operates on the ethereum blockchain. It contains the cryptocurrency Ether. Agents can write and implement smart contracts in the ethereum. The self-execution of digital contracts may lead to the creation of decentralised applications such as the DAOs (Digital decentralised autonomous). DAOs and smart contracts allow the Internet of Things (IoT) which eventually needs a decentralised register, since the scale it uses practically exceeds all possible centralized ledgers. The way blockchain technology is designed, is unlike the usual way economists model new technologies. Economists model new technologies as a turn in the manufacturing task, that converts into multifactor productivity increase. The most transformational feature of blockchain is that they give rise to new institutional methods of economic authority.
2.4. Governance Approaches
This section offers a guide on how the government can use blockchain in governing markets, institutions and organisations. It also explores the application of blockchain in cost reduction and effective governance of market institution. The different ways that blockchain as governance can help reduce opportunism will also be explained.
2.4.1. The Cost Transactions Approach
Blockchain is an emerging technology that improves and ensures the possibility of having new types of organisations and contracts. The most relevant analytical framework is the New Institutional Economics (NIE), also referred to as the Transaction Cost Economy (TCE). The markets and organisation act as alternatives economic institutions which facilitates economic coordination in related transactions. The dynamic mix of an organisation or institution, is shaped by any agents wanting to economise the transaction cost. The product cost economisation may lead to an efficient allocation of diverse resources, while the economisation of transactional value may result in a suitable institutional structure that entails governance and economic organisation. Previously, the economy of an organisation established the terms of the contract but not its choice. The problem in governance begins with uncertainties, which are bounded rationality, thus leading to contractual inefficiencies (Davidson et al., 2016). Due to the asset specificity, where investments payoff relies upon other people investments, there is a broad capacity for opportunism such as reneging on a contract. Opportunism can be dealt with by proper and efficient governance structures. Markets always act as an effective governance institution for spot contracts or in other words a pure exchange economy. But when economic activities are in need of asset specificity or association between different parties or involves uncertainty then different governance organisations, including relational contracting and contracting, can be effective ways to manage opportunism. The valuable characteristic of blockchain such as smart contracts and DAO’s is precisely to remove opportunism with the aid of cryptographic mechanisms by letting a spot market exchange to go on forever. And if blockchain can remove opportunism, they will then surpass relational contracts and traditional organizational hierarchies. The issue is that blockchain only works with complete contracts whereas firms mostly work with incomplete contracts
The main reason why opportunism arises is that of agent’s intent to exploit trust, which is connected to bounded rationality. With this rationality, costless transactions and complete information, agents can take part in comprehensive contracting, and thus is trust unnecessary. But when transactions are costly and the information is not perfect then trust is needed. Blockchain is therefore a system that controls opportunism by removing the need for trust. It does that by using crypto enforced implementation of agreed contracts via transparency and consensus.
As an emerging technology, there is a lot of interest in how existing industries and firms will adopt and apply blockchain. Currently, blockchain is seen to be the primary competitor of markets and firm. Hence making markets and relational contracts, and now also blockchain an alternative governing institution, whose effectiveness is established by institutional transaction cost factors. This explains how blockchain, not only works as communicational and informational technology but also as a new institutional technology.
2.5. Economics of Blockchain: Public Choice
The section extends the use of blockchain as a public choice for organisations and institution of economics. It also focuses on blockchain as catallaxy; this is a public choice where everyone opinion is vital as a constellate and where the technology is law-abiding as standard. Its progression from 1.0, 2.0 to 3.0 will also be explained as well as the use of blockchain in private company and in anarchy. Finally, the application of blockchain in voting system as a collective choice for individuals and its use in rent-seeking and competitive federalism will be explored as well.
Blockchain as an efficient government plays a vital step towards a consistent economics of blockchains which is visible throughout ‘public choice economics.’ To know the extent of ‘public choice economics ‘, we should pass through the NIE of blockchains. The necessary foundation for rational blockchain economics is considered to be the collective action, government and political economics and is not laid by information economics, innovation economics or currency economics. However, when blockchain is viewed as a possible governance institution alongside relational contracting, market and firm, it sparks the innovation of advancing the blockchain operation features such as the rules on collective decision making, constitution, private money, and procedures. In this regards blockchain does compete with organisations, while not being an organisation. Blockchain is more of a spontaneous organisation. The blockchain is composed of similar features as that of a market. However, it’s not a market since it enables not only exchange but also transaction. By coordinating a distributed set of people, they truly become nearer to being an economy (Hayek, 1945). A catallaxy is described as a particular spontaneous order manufactured by the market by individuals functioning in the rulings of the law of property and contract. The advantages of a catallaxy are, that it uses the knowledge of all members participating in the economy and ensures it serves all the different objectives of all members regardless of their polarity and diversity.
According to Hayek are blockchains catallaxies and not economies as they do not serve on precise end. They rather help to the realisation of personal objectives without knowing their wholeness. The features of a catallaxy is that it’s composed of a group of agents that lives in extended order. The social rule governs the agents. The agents have specialised knowledge, the agents also formulate their personal plans which are synchronized with the price and market systems. Blockchain is regarded as orders of economies, comparable to a market order which is considered a catallaxy of mutually changing personal schemes (economies). Another characteristic of the blockchain mechanism is, that it operates in such a way that it reduces the scale and the size of efficient catallaxies. Wealth comes from the growing flow of knowledge, and its coordination that the catallaxy allows. All new technology that boosts the efficiency of catallaxies is a value and wealth generating system. This catallaxy or economy authorizes a basis for the public choice economics of the blockchain technology.
Constitutional economics is a choice over scarcity among restriction whereby collaborative economic agents want to adhere to the rulings they choose. Agents make constitutional choice switch whilst they jointly agree to handle all blockchain transactions. Through this, the agents jointly accept the contract of executing protocols on a blockchain, which is a common choice that necessitates legal jurisdiction (MacDonald et al., 2016).
2.5.3. Commons 3.0
Blockchain focuses on the discipline of polycentric governance and the management of collective pool resources that would help explaining the phenomena that goes beyond the world of the state and the market. The outcome of the research of Commons 1.0 to work was that the Common 1.0 was an efficient real-world organisation or institutional solutions to social dilemma’s (Ostrom, 2010), which was previously believed to be impossible. Based on the research by Wilson, Ostrom, and Cox (2010) small groups that are communicative and trustful engage in the recurrent and repeated transaction that commonly enhances efficiency in institution solutions, usually greater than government institution or market (Williamson, 2005). Commons 1.0 focuses on the economic world of natural resource commons such as forests and fisheries. While Commons 2.0 has expanded over the years to analyse knowledge and information commons especially the digital commons such as peer production, open source software and open science. Commons 1.0 demonstrated how efficient organisation and institutions of own administration could build up small partnership with cheap talk and maintenance. The Common 2.0 establishes in what manner essential public mechanisms could solve the free-rider challenge which is, the social dilemma on a broader range to initiate partnership in preservation and manufacturing of quasi-public products. Quasi-public products have characteristics of both private and public goods, examples of such goods are tunnels and bridges. Blockchain technology is Commons 3.0, since it gives technical solutions using the cryptographic mechanism to the difficulty of cooperation within groups productions while preserving the commons benefits such as the polycentric institutional authority. Blockchain is a trustless commons (establishes trust in itself) in which essential rulings are inserted in constitutional ‘smart contracts’ and which are crypto-economically implemented and cryptographically secured.
2.5.4. Competitive Federalism
Centralised systems only function when there is trust. That trust can be exploited to create rent if it is politically manufactured, resulting in rent-seeking. This is a prominent malfunction of a centralized system arising from the overusing of resources due to the chasing of these rents. Decentralisation is therefore the solution. In Decentralised system, that trust can be created cryptographically instead of politically. The blockchain political economy is therefore a type of private order for competitive federalism. The unrestricted entry to the single or multiple blockchains is the same as “voting with one’s feet”, where the advantages of efficiency is derived from the removal of rent-seeking. Which comes from removing a centralized monopoly dominance over constitutional policies. This is called a cryptosecession. Government or more specifically politicians and bureaucrats have to protect rent in order to sustain their monopoly over the governance. And thus, the upcoming crypto-governance is seen as a threat and significant competitor that has to be neutralised. (Arner et al., 2015; Hendrickson et al., 2016).
2.5.5. Private Governance
An economic order based on blockchain can fully and automatically execute a smart contract via the DAO. However, the challenge of contractual enforcement continues, especially when the centralised government does not sanction voluntary agreements (Sparkes, 2014). Blockchain ensures that transactions are not observed by the government hence, increasing efficiency. Most private institutions are seeking to transact using blockchain to avoid government prey in association with regulation, taxes and other limitations. The criteria above have led to a spontaneous new private ordering rule under the condition of underground economy and anarchy (Skarbek, 2011). The public choice analysts have discovered both empirical and theoretical reasons for optimism in the viability of private governed contracts to minimise conflicts and regulate rules for ordering disputes (Mildenberger, 2015). However, agents that are in conflict with a contract, still share the same interest of protecting and maintaining blockchain technology, or more precisely their own reputation within it because of the future value. In the future, a costly screening mechanism is expected to develop and expand to deal with issues on information asymmetries regarding contractual purposes.
2.5.6. Voting on Blockchain
Blockchain is a ‘cryptographic consensus mechanism,’ and the system is beyond applications to law, economics, and law (Berg, 2017). The extended application of blockchain is felt in politics such as crypto-democracy by enhancing safe and secure ‘low-cost tamper proof IP-IV voting’ (2017). The blockchain does this by reducing cost and by increasing trust in outcomes and voting institutions. Crypto-democracy shifts margins on the productive use of democracy, towards a frequent tournament-type of voting (Hendrickson et al., 2016). Studies have proved that the problem facing the voting system cannot be solved by well-informed voters or noble politicians. It can only be solved through better institutions. The most significant pathways to better institutions are through constitutional constraints and polycentric governance. Polycentric governance is where democracy is coupled with vastly efficient evidence and incentive situation. The technology-based authority is very accessible and can easily facilitate common choices at the low levels of political jurisdiction. The domination of majority groups, voter’s ignorance and exploitation of minorities can be resolved when independent communities adopt optimal sizes on governance rather than resource conditions.
The economics of blockchain can be looked at, as an innovative general-purpose technology, which is going through the different phases of adoption and diffusion, it can also be seen as a type of internet 2.0. blockchain is a governance mechanism for making catallaxies, this is why it is considered an institutional technology. Therefore, blockchain competes with, markets, firms and economies, as an institutional substitute for managing the economic activities of people, and may be more or less effective, depending on different conditions such as cultural, behavioural, environmental, technological, etc. This makes blockchain appealing from a public choice and institutional standpoint.
The Impact of blockchain on capital market, technology, businesses, governance and Understanding the implications of blockchain in business, society, capital market and technology is crucial in every economy. The section below explains the effects of adopting blockchain as a nation and how it might affect the economy globally causing a revolution in the world economy.
2.6. Society Impact of Governance
The effects of the blockchain on management is, that the system may push societies and individuals to a different level of understanding on issues of independence, authorities, participation, governance and on how they executed. Governance has never been a personal responsibility and a ‘peer to peer system’. It’s an external element imposed by a central institution (Atzori, 2015). Several aspects of the technology such as money back up, improve the ability of individuals to accept new behaviour and conceptualise when cooperating new technologies (Sun et al., 2016). With blockchain being used in another context, it will facilitate maturity in receiving a decentralised administration or governance.
Transparency in authority is currently universal in industries such as information facilities. Publishing industries have been decentralised with restructuring and blogging in the media industry (Tapscott and Tapscott, 2016). Institutions of entertainments which are equivalent to corporate media houses are embracing the blockchain technology by using their channels on YouTube or uploading private and personal content on the website. Therefore, exploring the value of chains into an extended format where an individual has a choice of taste, preference and quality arbiters. Blockchain has significantly impacted the 21st-century skills where individuals have to view content and make decisions or formulate opinions on the validity and quality of the product. The revolution of Bitcoin is equivalent to the changes experienced in the economics, finance, monetary policy and currency globally. However, it seems hard to get rid of a centralised power on issues like economics and governments as compared to information and culture.
2.7. Impact on Business
Blockchain technology has the potential to affect existing industries, functions and processes. The system structures data and information without the central authority, allowing the data captured to be stored in a distributed ledger (Woodside et al., 2017). The distributed ledgers offer significantly increased transparency and trust via an emulated record of all the accomplished transactions. The blockchain has recently been adopted by corporate finance and financial services companies which are used as experimental subjects. There are currently advanced commercial applications being developed. They are on the verge of revolutionising the traditional way of finance operation. The blockchain technology has a big role to play, in redefining the traditional role of CFO (Sun et al., 2016). The revolution finance function will use the blockchain technology to enhance information technology security, streamline contractual enforcement and maintain and monitor the extended value chains. Henceforth, it is vital for CFO’s to understand the possible implication of the blockchain technology to remain as a new paradigm.
2.8. Impact on Technology
Blockchain as a technology depends on the use cases of accounting, transparency of supply chain and control on the need of blockchain technology and its adoption in compliance with the industry standards. Many corporation require more straightforward applications which do not require substantial network impacts such as the Block chain (Woodside et al., 2017). The blockchain is coming up with a new way, where it organises a geographical multitude of individuals who do not trust or know each other in a tokenised economy, which is powered by the crypto-economic incentives system of the blockchain tokens (Conley, 2017). The governments should create more knowledge and awareness around the implication of blockchain as a new technology.
2.9. Impacts on Capital Market
Capital markets have seen an increased interest in blockchain over the years. With further investment in new technology, blockchain adoption has doubled. Blockchain in capital market has focused on front office function. The back and middle offices function that were used previously were very inefficient and very slow (Woodside et al., 2017). Currently, assets can be sold and transferred electronically in a blink, while the settlement is done later. Recently, blockchain investments have increased significantly. The Linus Hyperledger project is trying to build an ‘open source distributed ledger framework’ so that the developers can put more emphasis on building an industrial application. Consortiums such as the Linux Foundation are combining capital markets facilities and technologies to identify standards for the blockchain system. In future, blockchain will work in partnership with existing infrastructure, resources and ecosystem to aid in the restructuring and simplifying of the process. It will also help in eliminating inefficiencies related to reconciliation (Mathew and Md, 2018). Banks will be searching for ways to operate more efficiently and enhance customer services. Most regulators will shift their interest to increase transparency, settlement, and optimisation on execution.
2.10. Blockchain Trends
Blockchain can be used as an alternative traditional currency. Blockchain contains computer protocols that enables cryptocurrencies. Blockchain is used in different cases such as powering electronic currencies, to imitating the distributed ledger and ensure its security is maintained through its cryptographic encryption. The distinct features of blockchain has come up with appealing solutions to various challenges across several industries.
Blockchain technology has affected financial services trends. Since the first implementation of blockchain in digital money, there has been a significant change in financial services (Underwood, 2016). Cryptocurrency development can be done by small developers hence, eliminating the need for banks. The ledgers of all transaction activities are recorded in public, verifiable and evenly distributed. There are no trust issues since transactions do not require third parties (Szewczyk, 2016). Through distribution and public sales of a unique cryptographic token, industries are developing blockchain platforms which raise funds that may help in the industry growing project.
Secondly, there is supply chain management. International trade is one of the most complicated industries. International trade requires coordination of more than a million items through a thousand distinct channels (Woodside et al., 2017). Most key players in logistics and shipping industries are studying how the blockchain system can influence the supply chains of management. Using the blockchain platforms, companies can track their goods. Blockchain ensures that the industry keeps an extensive and safe record on transportation details, serial number, and ownership. Blockchain enhances operational efficiency and transparency and may also extend to enforcing the international custom regulation.
Foreign currency exchange impacts blockchain regarding remittance. Remittance are payments which are earned in a foreign country and later sent out to his home country. Most countries generate a significant amount of annual revenue from remittance. The network that facilitates international transaction runs a very high profit, estimated to be in billions of dollars due to transaction fees and currency exchange. International transactions such as purchasing overseas online products are heavily burdened with the cost charged on currency exchange. Borderless cryptocurrency developed within blockchain, allows the transfer of possession and assets instantly without any need of a third party thus eliminating any need of incurring extra fees.
E-commerce and retail business is undergoing exponential changes and is growing more competitive as the marketplace opportunities increases. Naturally, industries on e-business maximise the use of advertisement to search and seek new clients for their products. Starting new businesses previously required the presence of a third party or intermediaries and a network to advertise a new e-business (Wright and Fillipi, 2015). One of the fundamental principles of blockchain is, that it ensures a secure decentralisation of public ledgers which are verifiable. Blockchain emphasises on returning control of the user’s data eliminating the need for intermediaries. For example, BitClave is using blockchain advertisement services initiated by middlemen to promote the direct connection between customers and businesses. Other companies include the Brave and Research companies. The company ensures that users provide personal and private details or identity-based on their terms, while industries within the technology make it easier for customers to connect with the advertisement via a smart contract that is based on incentives programs.
The blockchain technology allows individuals to securely and carefully monitor how an individual or personal information are used. The data includes health records, financial loans or international travels this information plays a crucial role in our day to day life. The ability of blockchain to store identity details makes it quicker and more efficient in matters of proving one’s identity without the requirement of the third party. Online identification and verification can delay transaction, but through the help of blockchain, an individual can unify all their online information through their portal. With the identity technology, there will be an impact on the transaction that previously required identity verification since blockchain builds trust. Making use of blockchain will change how businesses use and collect data.
This section covers the research method used in generating the key findings which are documented in this paper. A survey research that yielded a high quality and valuable information, was conducted. The formulated questionnaire was created to generate data that would be useful, in projecting the impact of blockchain on the world economy. The first task was to include the identification of the right audience to involve in the survey. The selection was made based on the information gathered from the literature review. Participants identified, were the IT decision makers across the world and senior executives in various sectors. The selection of the two categories of individuals was mainly influenced by the fact that blockchain technology was managed primarily by the decision makers of firms.
3.1. Profile of Survey Participants
This section was included in the survey to generate information on participants and their respective firms. After identifying the target participants in the study, they were contacted through social media platforms such as Linked-in and Twitter. Details of the participants such as nationality, region, sector, job title, age, education, and year of practice were recorded, and a pie chart generated to show all the nations captured and percentage of individuals interviewed in the survey. The survey takes a keen interest in the particular sector in which the participants work. The data processing was completed to establish the industry, which produced the most significant percentage of respondents. Such report served as an indicator of identifying areas where blockchain gained appreciation. The data also helped in determining the countries in which the survey successfully worked. The retrieved information from participants were used to categorize them in hierarchy level, based on the size of their organisations.
3.2. Blockchain Technology adoption
As mentioned earlier, the survey was aimed at establishing how blockchain could revolutionise the global economy. Through this section, information was retrieved to identify the extent to which different organisations planned to adopt the technology. It also captured the number of institutions that have implemented the system. The number of organisations that explored the system were compared to the number of organisations that are yet to apply the blockchain technology. The number of institutions that are planning to explore the technology in the next five years were also shown to estimate the probable year upon which the system will be fully adopted in institutions. The results also showed the pace of blockchain technology adoption globally as compared to other technologies. For a quick response from the audience, innovation cycle was included in the questionnaire form which the participants had to indicate the position of their firm regarding the adoption of the technology. Eight choices were also included in the questionnaire under this section to assist the respondents in answering the question regarding the organisation plans, to invest in technology in the next five years. Options included blockchain technology, predictive analytics, AI (Artificial intelligence), IoT, virtual reality, Data Mining, Quantum Computing and Others.
3.3. How to facilitate the Adoption of Blockchain
The section provides an insight on how several organisations planned to support the deployment of the technique. The participants were required to provide information on how their respective organisations designed to ensure that the blockchain technology system was in place. In cases where the participant lacked knowledge about their organisational plans, other channels such as a company website were exploited. Some of the factors that acted as an obstacle to the implementation of blockchain were also analysed. The major obstacle factor that was indicated in the survey was the lack of expertise in implementing the blockchain technology. The question on expertise shortage was framed as either “important or very important” to ascertain the extent at which the lack of expertise hinders the use of the technology by institutions which are not using the system. The survey tried to identify other mechanism or channels such as outsourcing for experts in bridging the gap caused by lack of expertise. Within the institutions that have not adopted the system, determinations were made to identify the departments that are on the front line in embracing the technology. The insight on how organisations will support blockchain deployment was also covered. The results from challenges faced in the implementation of the system were compared to those found in the literature review.
3.4. Budget for Implementation
For the study to determine the rate at which blockchain is entering the market, this section helps gathering information on, how various companies were crosschecked to know whether they had their budget streamlined to the blockchain implementation. Budget is significant in indicating the pace at which technology enters the market of any mainstream organisation. The questions were tailored towards identifying the firms that have set aside a budget for deployment of blockchain and those which have not. For those without a budget, further inquiry was made to establish if there are plans to have a budget for the system in future. The surveyed participants were questioned on what they expect to happen to their firms and to the market upon implementation of the system. Such information assisted in determining the number of businesses that would be disrupted by blockchain in the future.
3.5. Important Aspects to Participants
The survey took consideration of some of the critical aspect of the technology to the participants. Questions under this section confirms whether individuals within firms that implemented the system received any benefit. The three crucial provisions (security, efficiency, and transparency) of the blockchain were put to the test to determine the one that best suits the interest of participants. The study also established the sources that organisations rely on, to know if the system benefits them.
3.6. Sectors that could adopt Blockchain Faster
Weighted average results from this section of the questionnaire were used to determine sectors that participants perceive to benefit most from the blockchain technology. Various domains such as finance, banking, accounting, and trade were included in the survey. The industries in which the system has an impact were determined at the end of the study.
3.7. Familiarity with Popular Platforms
The goal of this section was to determine the level at which participants were familiar with the different blockchain platforms. Key platforms that were included in the analysis comprised the Ethereal, IBM Open blockchain, Corday, Eris, BigChainsDB and BlockStream Sidechain Elements.
3.8. Future of Blockchain based on survey Results
The last section composed of open-ended questions, to determine if blockchain technology will revolutionise the global economy. Questions were framed as follows: “Why blockchain could potentially revolutionise the world economy?” The focus of the interviewer was also to determine whether such factors as transparency, efficiency, and security play key roles in reaffirming the answers by the participants. The last question was fundamental to the study since it acts as the thesis of the research. The data collected from the questionnaire were presented and discussed, this led to the conclusion of the study.
4. Empirical Analysis and Findings
Figure 1. Number of participants per working location
Key findings of the research are highlighted under the above heading. The section is partitioned based on the subheadings in the questionnaire and details the results of the survey. The identified participants were all contacted individually through their personal Linked-in and Twitter account. A total of 120 individuals successfully completed the questionnaire and answered all the questions approximately., 112 Of the 120 participants were successfully contacted through Linked-in account whereas the rest (eight) were contacted through their respective Twitter account. The survey attracted people from all corners of the world as seen in the pie chart in the Figure 1. 30% of the individuals interviewed were from the United States; the percentage accounted for 36 participants in the study.
Africa had a record of 4% which translated to 5 individuals whereas Europe had a total of 60 individuals (50%). Only 2 participants were from Canada, and they accounted for 2%. United Arab Emirates (UAE) recorded 2% (2) whereas Asia had 8% (10 participants). The remaining 4% were from Israel and accounted for 5 participants.
Europe had the highest of participants interviewed followed by the U.S. The following participant is Asia. In Africa, the five individuals interviewed were from Nigeria, South Africa, Egypt, and Kenya. Most participants in Asia were from Japan which had four individuals; three of them were from China whereas one was from South Korea. The remaining two participants came from India. In Europe, most participants were from the United Kingdom, Germany, and Greece. France and Italy also had a representative.
Figure 2. Various sectors represented by the participants who were involved in the study
Sectors offering financial services had the highest number (60%) of the individual interviewed. 23% of the participants were from different consulting firms whereas 16% originated from ICT sector (Figure 2). Other departments within the organisation were categorised under others and made 2% of those sampled. Communication departments had a representation of 12% while 3% of the interviewees representing the government. Insurance sector had an illustration of 4%. The high number of respondents originating from the financial services sector is an indication that blockchain has got high traction in the industry as compared to other sectors.
Figure 3. Various positions that are held by the respondent in their respective organisations
From the graph, the highest number of respondents (40%) were chief executive officers whereas chief information officers represented the list number (1%). All the respondents whose job title did not much-defined claims in the questionnaire were registered under “others” (Figure 3).
Figure 4. Size of organisation from which the participants were withdrawn
Determination of the size of various organisation presented within the survey was based on the number of employees in those institutions. The results were computed as seen in the Figures 4 and 5. Also, the study attracted and reached the required target audience who are key decision makers from large organisations to medium -sized and small sized. Within the questionnaire, the companies comprised of employees whose number exceeded 1000. Such sector had the highest number of participants in the survey and accounted for 42.60% of the total number of individuals interviewed (Figure 4). The least participants were recorded from institutions with employee number ranging from 201 to 500. The respondent interviewed in such organisations accounted for 2.1% of the total number of participants.
Figure 5. Adoption status of Blockchain across organisations
With the target of getting the insight on the status of blockchain in different institutions, the survey shaped the question to achieve the results displayed in Figure 6. The highest percentage was recorded among the organisations that have already implemented the technology. Of the respondent, 52% acknowledged that the technology is in use in their respective firms. 14% of the participants affirmed that blockchain was already introduced within some departments, but plans were underway to ensure that the technology spread to other departments (Figure 5). However, only 29% of participants demonstrated proof of implementing the system. The technology is in early stages of implementations in various sectors which accounted for 4% of the total companies surveyed. Only 0.2% of the respondents did not know if the technology exists, but at least they knew of Bitcoin existence. Those who do not have interest in the technology were 0.40% of the total sampled population. The questionnaire was expanded to capture a different view of individuals who were neither pro or against the technology. Such individuals represented 1% of the entire population. Those institutions which have not implemented the technology were a task to give answers on the technology they tend to adopt in the next five years as depicted in figure 7.
Figure 6. Attractiveness of technology to companies
The survey covered the participants who had not implemented blockchain technology yet. From the study, 85.40% of the participants indicated that their firms have plans to adopt the system in the next five years. Others planned to utilise various technologies as follows; Predictive Analytics (0.20%), Artificial intelligence (0.10 %,) IoT (3%), Virtual Reality (3%), Data Mining (4%), Quantum Computing (1.30%) and Others (Please specify) at 3% (Figure 6). The relatively high number or percentage of firms that are willing to implement the system in the future is an indication that the technology will lead globally as the fasted adopted technology.
Figure 7. Plans in place to adopt Blockchain technology
Out of all (85.4%) institutions that had plans to adopt blockchain technology, 70 % had a selected team ready to ensure that the system is successfully implemented. 21% of participants affirmed that their companies were prepared to establish a group that will successfully provide that the system was in place (Figure 7). Only 4% considered developing the team with 2% of respondents acknowledging that there were plans to outsource blockchain team from other non-competing firms. However, 3% of individuals within the survey were not sure whether their respective institutions were ready to form a group or outsource. Some of the identified challenges
Figure 8. Firms perceptions regarding Blockchain adoption challenges in comparison to those obstacles identified via the literature review
As compared to the literature, the highest number of individuals attributed issues of control, privacy and security as areas of concern during the adoption of the technology. The participants accounted for a total of 78% of all the individuals interviewed (Figure 8). 5% showed concern on emerging technology whereas 2% attributed cultural adoption as a critical challenge in the deployment of blockchain technology. Only 10% were concerned with integration related issues while 5% complained of lack of expertise. The results in figure 9 explain why a significant number of organisations are comfortable with outsourcing experts. Figure 10 illustrates the departments that were perceived by participant s to be leading in spearheading the deployment of the system.
Figure 9. Departments that will spearhead the adoption of Blockchain system
Figure 9 indicates that only 4% of participants had not decided on which department to head to the adoption process. However, R and D department leads among all the companies as the best unit to drive the implementation of the technology (Figure 9). Business strategy unit also had a high percentage thus indicating that most firms are willing to adopt blockchain as a part of the strategic decision.
Figure 10. Percentage of institutions with Blockchain budget
Being an important aspect that dictates the rate at which a given idea or technology will infiltrate an organisation, budget plays a pivotal role in the deployment of blockchain. Figure 10 displays the percentage of the organisation with blockchain budget and those without. The survey results indicate that a majority of institutions (47%) had budgeted for the system whereas a minority (8%) are still not sure whether their firms had such budget (Figure 10). Firms that have no budget represented 45% of the total companies sampled.
Most of the firms that lacked the budget planned to adopt the technology and the budget as from 2018 to 2022. The highest percentage of firms will create the budget this year (32%) whereas only 10% will produce the budget in 2021.
Figure 11. Duration in which organisations plans to link their budget to Blockchain
Other firms plan to link their budget in 2019 (22%), 2020 (21%) and 2022 (20%). Figure 11 illustrating that 72.5% of the surveyed participants anticipate that blockchain will disrupt their business domain from 2019 to 2025. The survey also established the size of the budget that each organisation was willing to place on initiatives involving blockchain (Figure 12).
Figure 12. Budget for organisations that have linked their budget to Blockchain
In as much as the research retrieves the financial information of organisations, such information may not be entirely trusted by the study since they are mostly approximations. Also, institutions are in most cases not willing to give details on company’s expenditure. Based on the data obtained, a majority of firms (35%) spends > USD 500K in blockchain development (Figure 12). Such colossal amount indicates that the pace of adopting the technology will continue to increase.
Figure 13. Years upon which Blockchain is expected to make a difference in worldwide market and different organisations
The participants anticipate that blockchain will make a huge difference in their organisations and the entire global market (Figure 13). A significant impact on businesses is expected from 2020 to 2022. After reaching the peak, there will be a slight decline in 2023 to 2025 (Figure 13). The study determines some of the critical benefits that stand to be enjoyed by institutions that adopt the system.
Figure 14. Some of the benefits associated with the Blockchain
Figure 15. Information source to institutions
A majority of those interviewed preferred the system due to the low cost of transactions. Transparency, longevity, reliability, and durability are some of the features that attract most firms into adopting the policy. Trust-less exchanges and quality of data had the least score (4) on a scale of 10 (Figure 14). On establishing the critical sources of information for organisations on blockchain technology, the research found that early adopters (60%) were the primary source. Only 2.3% of the institutions gathered information on the system from competitors (Figure 15). Social media was the second influencer where 20% of the companies gained knowledge on blockchain.
Figure 16: Perception of the respondents on the impact of Blockchain to their businesses
The study also determined the effect that the technology has on the organisations (Figure 16). 60% of respondents believed that the system would affect their companies if initiated or adopted (Figure 16). Only a few organisations (2.2%) tend to agree that the change of current system will not have an impact on their businesses. However, there are still some organisations that do not know the impact that blockchain will have in their institutions. On query over challenges associated with blockchain that worry the organisation’s scalability occupied the highest rank at 45% as seen in Figure 17.
Figure 17. Challenges associated with Blockchain to the Organisations
Cost of consensus had the least effect whereas limitation of the technology was the second biggest challenge (Figure 17). The reasons why organisations will adopt the system immediately were determined, and results can be seen in Figure 18.
Figure 18. Reason behind the quick adoption of Blockchain by Organisations
Most of the surveyed institutions (55%) believe that the system will strengthen their company values. 25% of participants argued that the technology evolves business operating models and propels companies to success (Figure 18). Only 2% of participants failed to provide the reasons behind the quick adoption of the system.
Figure 19. Main Business Domains that could be significantly impacted by the system
Figure 20. Cases that will be utilised while using Blockchain technology
Some of the key industries where blockchain would be approved sooner include the finance sector which is also anticipated to have significant disruption (7) (Figure 19). Most organisations believed that the system would be utilised mostly by the management at a score of 7 (Figure 20). Information security comes second with high chances of being used.
Figure 21. Preferred platforms used in Blockchain technology
Figure 21 indicated the most preferred platform for an organisation which adopted blockchain technology. Etherum was the most preferred platform with 30% of participants referring to etherum as compared to other platforms. The second preferred platform was hyper ledger with 25% of support (Figure 21).
Blockchain stands to revolutionise the global market by 2022. Based on statistics generated by the survey in figure 11 most firms would have switched from current systems to this form of modern technology. The sectors which will witness most changes include the financial unit, since this industry has better embraced the technology. (Figure 19). The success of blockchain implementation will, however, depend most on R and D sector which has been mentioned by participants to spearhead the implementation process. Companies that are yet to adopt the system are more likely to initiate the process due to information on the benefits accrued by firms which are currently using blockchain. With such a high number of companies being anticipated to join the platform, blockchain will swipe the global market.
Blockchain technology is not only an emerging system but further a platform set to disrupt the global market. Blockchain is a database technology that has a distributed ledger which maintains an ever-growing list of information records (contracts, money, titles, property, identity etc.) that are decentralised and difficult to interfere with the data fed. The economics of blockchain might be looked at as an innovative general-purpose technology and one that is currently going through the phases of adoption and diffusion. It can also be seen as a type of internet 2.0; blockchain is a governance mechansim for making catallaxies thus it is considered an institutional technology. Therefore, blockchain competes with, markets, firms and economies, as an institutional substitute for managing the economic activities of people, and may be more or less effective, depending on different conditions such as cultural, behavioural, environmental, technological, etc. This makes blockchain appealing from a public choice and institutional standpoint.
Some of the core concepts of blockchain has been exposed as well as the different major features of public decntralised ledger platforms. After showing how the blockchain technology is a disruptive technology and how blockchain revolutionizes the nature of the dynamics between economic agents, we have displayed a list of present applications of blockchain technology. These applications vary between ethereum and bitcoin to digital identity providers and blockchain-based voting systems.
With the results of the survey, there is evidence that the system is being implemented in many nations across the world. By 2022, the global market will be dictated by blockchain. However, it is expected that slight decline of the system influence will be witnessed past 2022. The decline will mostly be due to the emergence of other technologies. Some of the problems identified by companies while utilising the system are the limitations and scalability. The biggest uncertainties about the blockchain are the lack of expertise in the system technology and the lack of regulations. However, these uncertainties won’t cause for any drastic problems as organisations are confident that the blockchain technology will be of great value for the organisation. Professional services is the sector that is the most keen on this new technology. Evidently, we have only begun to understand the true potential of the blockchain, hence it is too early to speculate on all its possible features and capacities. Nevertheless, the future of blockchain technology looks bright. It is my hope that not only the numerous potential advantages, but also the limitations exhibited, might lead to further research on the gateway to trust-free transactions on the blockchain Technology.
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