DESPITE the ongoing debate around the long-term significance of cryptocurrency, the real strength of the underlying technology known as blockchain is in facilitating supply chain and payments solutions.
For the past several months the world has been reflecting on the importance of cryptocurrencies and initial coin offerings. Following crackdowns by regulators around the world, including in China and Japan, there is growing doubt about the viability of cryptocurrencies such as Bitcoin which can’t even be used for normal transactions.
The future of cryptocurrency may be uncertain, but the size of the global blockchain market is predicted to grow from US$411.5 million in 2017 to US$7.7 billion in 2022 representing a compounded annual growth rate of 79.6%, according to data from Markets and Markets. According to the research data firm, payment applications of blockchain are predicted to have the greatest impact on the market. The growth is driven in part by various industries, including healthcare and financial services, turning their attention to blockchain technology for its ability to validate and record transactions between parties.
Blockchain technology is expected to play a significant role in facilitating financial transactions, such as in the supply chain market. Blockchain has enabled companies to create digital smart contracts where a computer programme, rather than a third-party, can facilitate the transfer of assets under certain conditions. Technology company IBM and shipping company Maersk have been experimenting to enable physical trade documentation to be validated on a single platform based on blockchain.
Similarly, in Thailand 14 banks including Kasikornbank and Siam Commercial Bank have agreed to create a Thailand Blockchain Community Initiative that would digitize letters of guarantee on a shared platform. The Blockchain supply chain market, like the overall blockchain market, looks bright with research firm IndustryARC predicting that the market will be valued at US$424.2 million by 2023.
The payments landscape has also seen the influence of blockchain. Technology company Ripple has been busy in creating a network of financial institutions around the world to operate on its blockchain platform. The company recently created a payment app named “Money Tap” in Japan with 61 banks to speed up the settlement time of Japanese domestic payments.
While blockchain technology has grown from strength to strength over the past several years, there is still the need of more public commercial use cases in order to provide comfort for those companies who are still sceptical about the technology. “There have been many proof of concepts on blockchain between banks, but clients need to see a commercial use case to really entice them to take a look at the technology,” explains a transaction banker from a global bank.
Nevertheless, it is clear that blockchain is gaining support from influential government entities. Financial regulators, which have previously been conservative about new technologies, have embraced the blockchain trend. In Asia, Singapore’s finance minister Heng Sweet Keat stated that blockchain provides an opportunity to conduct cheap and secure transactions and therefore allow for the promotion of “financial inclusion for underserved and underbanked segments in Asean.” In November 2017, the Monetary Authority of Singapore announced a collaboration effort with the Hong Kong Monetary Authority to develop a cross-border blockchain platform focused on trade finance.