Carlozo defines blockchain as publicly circulated ledger in which transactions made using cryptocurrencies such as bitcoin are recorded sequentially (Carlozo, 1). A block is a record of operation which is linked to other transactions of similar nature using cryptography (Gupta, 3). The blocks are composed of timestamps, transaction data, and a cryptographic hash. The cryptographic has created a link between the blocks; timestamps indicate the exact time when a transaction data was processed. The chains work when a transaction is initiated by a customer which is then subjected to a structured verification process before joining other blocks to form a chain. In case the validation process recognizes that a transaction is coming from a fraudulent source, it is instantly dismissed and removed from the list of operations (Gupta, 3). Therefore, blockchain is constructed to resist any fraudulent modification of data once it is recorded. The design makes it a secure platform for manipulation and change of data. Blockchain technology strengthens digital transactions by providing secure platforms for financial transactions (digital currency), business transactions and protection of documents hence boosting the growth of the digital economy.
Development of Blockchain Technology
Before examining blockchain technology and how it has affected the global economy, it is essential to think of how smartphones have transformed our way of life. Today, research by indicate that the use of smartphones has increased internet consumption, digital interactions as well as connections (Carlozo, 1). However, the onset of the phone technology has a unique origin and challenges just like the blockchain technology. The technology we enjoy today started from a series of trials and improvement to reach where they are currently. The primary question that we need to ask ourselves is why has there been an increase in consumption of smartphones though telephones are still available? The primary reason is that phones were tied to a fixed location hence limiting its usage. The same applies to the development of blockchain technology. Blockchain provides its users with the ability to maintain digital ledgers and currency thus transforming local transactions using domestic currency to international e-business.
Blockchain technology has reduced complications in currency conversions as well as access to funds from any part of the world using a computer as opposed to the traditional way of currying local currency to forex facilities for exchanges. The blockchain technology has transformed the financial industry by boosting e-commerce while its volatility has raised issues of concern among bankers and business people.
The first secured chain of blocks designed in 1991 by Scott Stometta and Stuart Haber gave access to a collection of documents into blocks (Gupta, 2). By 2008, Satoshi Nakamoto developed blockchain, a primary component of bitcoin by keeping ledgers for all dealings on the network (Kharpa, n.pag). The use of blockchain enabled bitcoin to be the first digital currency to provide solutions to the problem of double spending as it did not require a reliable authority. However, the second generation of blockchain was introduced between 2014 and 2016 that enabled the creation of persistent digital ID and persona (Gupta, 2). The digital identification helped in reducing social inequality by diversifying wealth distribution. It incorporated the use of Oracle technology, enabling blockchain to access any external data according to market situations and time stamps (XXX, 2).
Blockchain technology has undergone a lot of transformation in the past ten years. Bitcoin became the first break-even innovation in digital currency with a market of 10– 20 billion dollars (Gupta, 3). The use of bitcoin has rapidly increased all over the world to make online payments and remittance. The second technology which is the blockchain that operated bitcoin was separated from the currency and used by financial institutions for organizational cooperation. By 2017, 15% of banks already adopted the use of blockchain (Gupta, 3). The second generation blockchain used “smart contract” in designing ethereum which allowed the use of financial instruments including loans and bonds to be represented in the blockchain. Ethereum has a billion dollar market share with several projects being designed for the market. Blockchain has also incorporated “proof of stake” which allows firms with great computing power to be leaders in decision making. The “miners” operate volumes of data while maintaining the security of the system. The current innovation which is blockchain “scaling allows” all computers in the network to process every transaction without compromising on security (Kharpa, n.pag). Therefore, it evident that before the introduction of blockchain in 1991, e-commerce did not exist as it was impossible to process credit cards on the internet (Gupta, 3). However, the question is, how does advancement in blockchain technology benefit the digital economy?
Impacts of Blockchain on Digital economy
The success of every business units depends on the ability to outperform the competitors by attracting and rewarding talents and ideas. Thus, because of the decline in physical interaction and communication, there is an increase in new platforms which have increased the efficiency and delivery of products. The emergence of digital markets has led to the rise of digital marketers who utilize the changes in technology to offer business models with value chains. The digital players have created platforms where individuals, products, and services are matched efficiently (Carlozo, 1). The digital platform provides an end to end user encryption and review process that enhances the safety of transactions. However, with the increase in the assimilation of the blockchain technology and cryptocurrencies, online transaction is becoming more secure. The adoption of technology in conducting online businesses is redefining the future role of intermediaries. The depth and nature of intermediation are rapidly shifting from traditional local market operation to global presences. The use of blockchain enhances the use of computers and internets in making orders and payments for goods and services. The blockchain records and validates information using the nodes and immediately recording them in the ledgers automatically. Hence, it implies that any online business transaction can be traced. The advancement and adoption of technology have transformed the world from traditionally segmented blocks and a global village hence increasing the market for products and services.
Besides, the success of online retailing entirely depends on a reliable and verifiable system that is free from fraud. Blockchain provides an (Gupta, 4) opportunity for the online market players to do business transactions without the information reaching the third parties. The deposited figures can be used by the management for decision making because it can easily be retrieved from the system. Moreover, blockchain technology creates the opportunity for the utilization of artificial intelligence in decision making. The increasing rate of interdependency between organizations together with specialization creates a demand for application of technology that would assist in diffusion, generation, and processing of information. Blockchain technology has provided the solution to this demand by combining a series of components like timestamps, cryptographic has and transaction data that automatically process, validate and record transactions in blocks and nodes as they take place (Carlozo. 2). Therefore human personnel is left with the interpretation of the records and making decisions. Some of the organizations and industries where blockchain technology has been used include banking, online payments, transport and logistics, health and medicine.
Impacts of blockchain on Banking and Online Payments
Blockchain technology has been instrumental in running of banking transaction due to its security features. For instance, JPMorgan Chase has made considerable investments through pilot projects to understand the effectiveness of the technology (Carlozo, 2). Blockchain technology is rapidly being adopted by international banks due to the high security and tamper-proof system that it offers. For instance, Barclay Bank became the first bank to use blockchain technology successfully (Kharpa, n.pag). Currently, IBM and Google are now working with leading banking institution in the United States to rationalize their operations to improve proficiency in conducting transactions. The banking industry needs a sophisticated transaction method that helps customers to make and receive payments from different geographical areas. Online transactions are prone to cyber-attacks hence the need for a secure and tamper-proof way of payments which blockchain provides.
With the increasing access to finances, the online business is booming as individuals can make payments for products and services online thereby increasing the number of business transactions (Neyer and Benjamin, 220). The growing number of transactions implies an increase in revenue for business leading to economic growth. How does blockchain prevent fraudsters from making fake transactions? Once a transaction has been processed and validated, it recorded in the nodes; the technology makes it impossible for individuals to make modifications. In others words, it makes it impossible for fraudsters to make fraudulent transaction because the system will reject the transaction immediately and delete the data from the nodes. Therefore, the fraudsters initiate fraudulent transactions and demand for payment hence reducing cybercrimes.
Impacts of blockchain on Transport and Logistics
Blockchain technology has transformed the transport and logistics industries by reducing the number of intermediaries in the distribution channel through its application dubbed smart contracts. The adoption of smart contracts by leading online retail distributor has made transactions secure, verifiable and transparent (Shahadi et.al, 8). Transport industry has recorded steady progress since the beginning of the 21st century due to the integration of technology in handling and recording transactions (Neyer and Benjamin, 217). Besides, the introduction of smart contracts will relieve market player from the fraudulent activities of dishonest employees in the chain because the system has time stamps that indicate when transactions are initiated, completed and recorded in the online redistributable ledgers. Blockchain technology provides a detailed record of transaction thereby making it easy to monitor the flow of transaction within the system. Being that transport industry is one of the sectors faced with corruption and increasing demand for services, the technology is instrumental in reducing the menace. The introduction of online ticketing in freight companies, airline companies, bus companies and payment for the services online has made possible using blockchain technology.
In addition, blockchain technology is instrumental in reducing overhead costs such as transport costs and transactions costs by automating the process. Firms heavily incur expenses related to the hiring of personnel and transportation. Therefore, blockchain assists making business transaction cost-effective through cross-border payments, time effective through the transfer of funds and transparent as the system does not allow for the involvement of a third party in the transaction. Businesses can monitor the circulation of money because nodes in the chain detect all the initiated operations and record in ledgers. For instance, Dubai has invested over 344 billion dollars to transmute its harbor services using smart contracts (Neyer and Benjamin, 218). Therefore, the blockchain technology has minimized improved the transport and logistics industry hence leading to the development of the economy as it reduces leakages from transaction and money circulation process.
Impacts of blockchain on Health and Medicine
The increase in advancement in technology followed by growth in cyber hacking had exposed health organizations to various risks. The increasing threats to online transactions and data protection prompted the health organizations to adopt blockchain technology to protecting online transaction and confidential data from getting into the hands of the wrong people. Data breaches in the health sector in the United States amounted to over 112 million records during the year 2015 which resulted in massive loss of data belonging to millions of people. The table below summarises the data (Munro, n.pag).
Figure 1https://www.forbes.com/sites/danmunro/2015/12/31/data-breaches-in-healthcare-total-over-112-million-records-in-2015/#1fa9bfc67b07
Based on the data above, it is apparent that more than ten health care providers lost crucial information regarding their clients which constituted about 35% of the US population. However, the adoption of blockchain technology and its features have helped to increase the security of online information and data (Munro, n.pag). The transaction conducted by health providers online are protected from third parties. The adoption of blockchain technology elevates the prospect of data safety hence saving on the exploitations of the vulnerabilities associated with the digital platforms.
Impacts of Abandoning Local Currency At The Expense Of Digital Currency
Blockchain technology is the driving force behind the success of digital currency especially the cryptocurrency bitcoin (Gupta, 2). One of the advanced blockchain technologies called Ethereum which is a crypto-token represent a new type of organizational forms. The new forms of marketplaces take after a spot market due to its incentives drove and decentralized nature that replicates the complicated structures of administration used in the classical corporation. Smart contracts refine transaction on cryptocurrencies creating the emergence of additional agreements and exchanges. Organizations implementing the use of blockchain are likely to benefit through increased economies of large-scale operation characterized by increased demand for capital, movements of talents and ideas because they will acquire resources on a global scale devoid of infrastructural costs. With the development of open protocols and series of innovations, business will expand their operation beyond measure.
Nonetheless, blockchain and crypto tokens are attributed to a reduction in the costs. These costs include that of verifying transactions elements recorded in the blockchain and that of networking (Carlozo, 2). A working market function requires verification of crucial market components like firms, products, individuals, and services and thoroughly audited before and after transactions (Kharpa, n.pag). The process of auditing business transactions may require a colossal amount of labor and third-party expertise. However, this process is simplified by of use of blockchain technology that automatically records these transactions in distributed ledgers. The endless functioning of the blockchain and time-stamping of validated transaction makes it an excellent technique for reducing costs and offering natural forms of reconciliation of the transactions. The reduced costs initiated by the use of blockchain technology promotes the growth of digital economy due to an increased market for products as well as easy payments for products and services (Neyer and Benjamin, 215).
However, the use of cryptocurrency poses a lot of challenges due to its volatility, especially bitcoin. Abandoning of home currency may not be economical in the long run because the digital money originates from domestic currencies. Bitcoin has undergone a lot of fluctuations since its inception in 2013. Sometimes, the cryptocurrency gains value while other times it loses value by significant margins as witnessed in the year 2025 as illustrated in Figure 2 below (“European Parliament|The implications of digital currencies for monetary policy,” 7). Domestic currencies are very stable compared to digital currencies hence only affected by inflation. An economy can easily collapse if it destroys its local currency and adopts a digital currency.
Figure 2European Parliament: The implications of digital currencies for monetary policy 2017
Therefore, the economy of a country can collapse if it destroys its currency and shifts to use of digital money due to its volatility. The digital currency is highly susceptible to speculations and is characterized by the spontaneous and unpredictable trend in the market (Shahadi et.al, 5).
However, due to the high volatility of digital currency, the value of a nation’s currency can diminish with increase in foreign currency fluctuations. For instance, when bitcoin dropped in value by over $1,400 less than twelve hours, it had significant effects on firms and individual having large amounts of the cryptocurrency units (“European Parliament|The implications of digital currencies for monetary policy,” 7). The most important factor to note about blockchain technology is that despite presenting a promising future ecosystem where talents and ideas will be well enumerated, it subject to technological challenges. The system entirely relies on the internet, and any problem with the network may tamper with the progress of the digital economy. Before the full adoption of the technology by governments, there is need to formulate policies that would govern its operation to establish a central authority to create control.
Besides, other studies conducted by the Gulf Cooperation Council (GCC) into the impacts that blockchain technology has in boosting physical and digital economic growth established promising findings ((Shahadi et.al, 10). The gulf is currently developing strategies to protect the regional banks, oil facilities, gas facilities power grids from disruption using the technology. The increasing attacks by the RanSomware expose financial institutions to data loss, reduced customer loyalty thereby causing fall in revenue. The application of the technology will speed up the growth of financial institutions. The development of cities in the gulf integrated with technology to rapidly transform the physical infrastructure into a digital economy through the adoption of smart transport, smart healthcare and smart finance (“access to the Islamic capital market, smart Islamic loans, managing identity theft and smart grant financing”) (Shahadi et.al, 13). The adoption of the technology by the GCC countries and other countries in the world would create a digital trust ecosystem with Dubai leading in the creation of Global Blockchain as well as creating new markets for products.
Conclusion
The expansion and implementation of blockchain technology is a positive step towards creating a hybrid digital trust ecosystem that will boost business transaction on a secure platform. The paper has established the blockchain technology will increase the market for goods and services, protect digital transaction from attack by Ransomware, increase healthcare provision, revolutionize transport industry as well as the general infrastructural facilities ((Shahadi et.al, 15). It will reduce costs incurred by the government in production and monitoring of physical currencies while enhancing the expansion of financial institutions to global appearance without the complicated procedures in clearing houses. The system will also enable making of payments online as well as online remittance of bills. Therefore, blockchain technology is likely to transform the world business and management to another level.
Works Cited
Carlozo, Lou. "What Is Blockchain?" Journal of Accountancy, vol. 224, no. 1, July 2017, pp.1-2. European Parliament: The implications of digital currencies for monetary policy 2017
Gupta, Vinay. "A Brief History of Blockchain." Harvard Business Review Digital Articles, 28 Feb. 2017, pp. 2-4.
Iansiti, Marco and Karim R. Lakhani. "The Truth about Blockchain." Harvard Business Review, vol. 95, no. 1, Jan/Feb2017, p. 118
Kharpal, Arjun. "Barclays Has Spoken To Regulators About Bringing Bitcoin 'Into Play'." CNBC. N.p., 2017. Web. 14 Apr. 2018.
Munro, Dan. "Data Breaches In Healthcare Totaled Over 112 Million Records In 2015." Forbes.com. N.p., 2015. Web. 14 Apr. 2018.
Neyer, Gene and Benjamin Geva. "Blockchain and Payment Systems: What Are the Benefits and Costs?." Journal of Payments Strategy " Systems, Autumn/Fall2017, pp. 215-225
Shahadi, Ramez et al. Blockchain Technology: Can The GCC Economy Thrive Without It?. Dubai: The Gulf Cooperation Council, 2017. pp 1-16
