The Disruptive Potential of Blockchain Technology

The world has seen several innovations that have radically transformed the way economic value is created and captured by individuals and companies. Inventions like the wheel, the compass, intercontinental travel, the steam engine, railways, the automobile, the airplane, the computer, and the internet have played a major role in shaping the global economy.

In this chapter, we want to give you an idea of how profound the impact of blockchain will be, a decade or two from now. We will cover the following topics in this chapter:

• Blockchain and financial services
• Trade finance on the blockchain
• Blockchain and insurance
• Investment banking and blockchain
• Blockchain and financial regulation
• Blockchain and the retail sector
• Blockchain and intellectual property
• Blockchain and the food sector
• Blockchain and the transportation sector
• Blockchain...

Blockchain and financial services

Thirty years ago, the internet came on the stage, and it took less than a decade to scale it to mass adoption as a general-purpose technology. People quickly embraced it as another instrument shortening the distance between them and allowing them to communicate in real time.

Now, for the first time in history, a person located in the US can send an email to someone in Japan, and the message will be received instantly without the need to use the services of a courier or post stamps. It is as simple as clicking a button and the message arrives in the recipient's inbox.

Then of course, a lot of other amazing use cases have followed the birth of the internet.

People started creating informational websites, watching videos online, going on the internet for location services, communication with friends and colleagues, exchanging files, ordering...

Trade finance on the blockchain

Now, we'll have a look at a specific initiative by IBM and several global banks, which goes on to highlight what we discussed in the previous sections. Innovation in traditional finance is already underway.

The specific initiative we will examine is called Batavia, and it involves a partnership between IBM and UBS, joined by several other major banks such as Bank of Montreal, CaixaBank, Commerzbank, and Erste Group. Its main goal is to tackle the inefficient processes in the field of trade finance.

Trade finance is a slow process burdened by bureaucracy, as it stands now: a lengthy process involving multiple verifications carried out by different participants. In most cases, a single deal involves a buyer, a seller, a buyer's bank, a seller's bank, a transportation company, and local authorities. The entire process requires plenty...

Blockchain and insurance

The insurance industry doesn't seem to be as vulnerable to technological disruption as traditional banking. Insurance is a highly specialized business where risk assessment and the ability to pool a large number of insurance contracts with similar risk profiles is a critical success factor that is difficult, but not impossible, to replicate automatically in a decentralized P2P marketplace. Hence, P2P and decentralized insurance underwriting are way more complex to implement than traditional banking.

On the other hand, the advent of blockchain technology represents a potentially great source of efficiency and innovation for insurers. And this time, the incumbents are not too late for the party!

Some insurance companies are already taking advantage of blockchain technology to position their businesses for success and increase profitability.

For example...

Investment banking and blockchain

Earlier in this chapter, we said that there are two types of banking, commercial and investment banking. We discussed the potential impact of blockchain technology on traditional commercial banking services, but we didn't say much about investment banking.

We'll do that briefly in this section.

Investment banks typically have the following core business lines:

• Capital markets: Issuing stocks and bonds to raise capital for their corporate clients on the primary market, selling them to investors, and trading them on the secondary market for clients or for the bank's own account
• Advisory services: Consulting companies in times of specialized processes such as mergers and acquisitions, as well as corporate restructuring
• Asset management: Managing clients' funds professionally in an investment portfolio

OK, let's examine...

Blockchain and financial regulation

The rise of blockchain and cryptoassets in 2017 caused significant headaches to regulators around the world. Price volatility, significant interest from retail and institutional investors alike, the launch of Bitcoin futures on major regulated exchanges, along with a daily presence in mainstream media meant cryptoassets are becoming validated as a new asset class of their own.

In the traditional finance world, regulators oversee financial markets to make sure there are adequate rules in place that balance the interests of all parties involved. On one hand, they need to protect retail investors (private individuals) who are considered potentially vulnerable due to lack of experience and expertise in evaluating market risk and making investment decisions. On the other hand, regulators should also help maintain efficient and orderly capital markets...

Blockchain and the retail sector

Now, let's move on to the potential impact of blockchain technology on the retail industry. But first, we'll discuss a term that has been previously mentioned in this book.

The Internet of Things

IoT, which is how the Internet of Things is frequently referred to, is a concept that describes the interconnectivity through the internet of different devices we use in our daily lives.

We don't simply access the internet from a computer anymore. There are different smart devices surrounding us that have built-in functionalities based on the internet and are connected with other devices or the cloud:

We all know what smart TVs and smart phones are. Nowadays, many appliances are being...

Blockchain and intellectual property

Now, let's see the potential impact of blockchain on media downloads such as music or films, software installations, and other products that have to do with intellectual property (IP).

Intellectual property management is another field where the implementation of blockchain-based solutions could have an important impact. IP is a hot topic in the internet age.

By using a distributed ledger to manage IP rights, artists, authors, and businesses can have tamper-proof evidence of ownership of their IP and copyright protection. They can also use smart contracts in an ecosystem that allows smart IP rights management.

Let's consider what each of these developments means separately:

One of the most important aspects when talking about IP rights is their registration and protection. In most legislations, IP rights, trademarks, and copyrights...

Blockchain and the food sector

We have already mentioned several times that blockchain can provide great improvements and efficiencies to the food industry supply chain, and to pretty much any supply chain, for that matter. But since the food we consume is such an essential part of our daily lives with vital implications, and the food industry is such a big part of the global economy, we will focus on it here and analyze how blockchain technology can help deliver better outcomes for everyone. In fact, many of the food industry leaders of today have already recognized this and are launching pilot projects and initiatives to implement blockchain solutions in their business models. We'll examine some case studies of such projects here:

We'll start with a very important question. Do you like fish? Whoever does knows how important it is for fish to be delivered and served...

Blockchain and the transportation sector

Mobility services and the business of automotive companies in general will probably be one of the most vibrant and radically transformed sectors in the years to come. Traditional carmakers such as Volkswagen, Toyota, and GM face two main types of challenges over the next decade.

First, they have to adapt to a product line, which will be less reliant on traditional fuels, and focused on electric batteries. This is a significant change of pace and global car producers have no choice but to adapt their business models, or competitors like Tesla will continue to gain market share.

The other main business risk for auto producers is the threat posed by firms such as Uber, Lyft, and Didi. Well, this can also be an opportunity; depends on how you look at it.

The first type of challenge, the transition from traditional fuel to electric batteries...

Blockchain and the global tech giants

Now, let's consider the future of internet giants in the blockchain era. Many of the hypotheses and assumptions we will make are related to a scenario in which blockchain turns out to be a game-changing technology.

The current internet space is dominated by four tech companies: Google, Facebook, Amazon, and Apple. This is a centralized model in which four firms control a large portion of users' data.

Blockchain, on the other hand, is a technology that propels decentralization.

Therefore, it is very interesting how users would react when new decentralized alternatives come onto the stage. It is also important to note that all leading tech companies are looking into blockchain now and figuring out how they can incorporate it into their business models.

This is a purely strategic analysis of how blockchain could potentially impact the...

Summary

We have dragged this chapter on for a looong time, so I hope you haven't quit yet. We learned all about how blockchain will affect our day-to-day lives. We learned how blockchain will affect the financial sector. We learned about some of the issues faced in banks right now, and how blockchain will sort them out. We also understood how blockchain will disrupt common sectors such as food, transportation, technology, and many more!

I hope this chapter was exciting and illuminating for all of you readers out there. If this made you excited for the advent of blockchain, then our mission is accomplished!! Stay tuned, because the fun parts are just beginning! In the next chapter, we will look at how blockchain and AI go hand-in-hand and improve our quality of life.