‘Blockchain 2.0’ era in the business world

Today, the decreased risk appetite of investors with the effects of the rising inflation and economic turmoils, leads to loss in value in the crypto currency sector, which is the first thing to come to our minds when we say ‘blockchain’. Moreover, the sector is not only shaken by the economic turmoils, but also the cost of bitcoin mining and its affects on the environment draw more and more criticism. The report published by Glassnode, which makes financial evaluations for the crypto technology, in the past weeks determined that the bitcoin production cost got close to the value of bitcoin and miners spend approximately 19.3 thousand dollars to produce one bitcoin, which will return either very little or no profit. In another research, economists state that the harm caused by bitcoin production to the climate has reached the estimated 35% of the market value and this is almost equal to the share of the red meat sector which holds 35%.

While bitcoin is criticised due to its high risk, the insufficiency of regulations, and its controversial levels, McKinsey forecasts that the era it named ‘Blockchain 1.0’, which is one of the areas of use blockchain in finance and is dominated by crypto currencies, will slowly come to an end and the use of blockchain technology in business processes will rise with the opportunities it offers such as an increase in efficiency and cost saving, namely the ‘Blockchain 2.0’ era will come to the forefront. In an article published by MIT Sloan Management, authors state that blockchain, which is the technology that lies under digital currencies such as bitcoin, will have deep impacts on the nature of companies. Based on this, blockchain will change companies’ way of acquiring finances, management, and value creation and will transform their functions of accounting and marketing.

So, what is the blockchain technology that meets the needs of companies from many parts of the world and from many sectors regarding supply chain problems, energy crisis, and increasing costs in such a period that they try to make savings, and what is the value it promises to companies?

Transformation is at the door

Blockchain is a notebook in which records that serve as big data are recorded irreversibly. In other words, the records are processed into interconnected blocks. This technology that works like a database is open to anyone. Since it controls the previous one while connecting to a block, it cannot be changed. Thus it is reliable because anybody can keep the irreversible records. This can help companies understand the benefits because blockchain promises the potential of offering companies certain advantages, such as data protection, improving processes, and operational efficiency. Thus McKinsey expects that big technology companies will start offering a different usage of blockchain, Blockchain as a Service (BaaS) and it will rapidly spread, thanks to its benefits. The reason for this is the companies which abstain from integrating blockchain technology into their current business processes can start leaping forward as blockchain becomes less complicated and more cost-effective.

• What is it? BaaS is a blockchain service which makes available for customers to use cloud based services to improve, use, and store their blockchain applications, functions, and smart contracts.

Area of use

Deloitte’s, which is a consulting company, ‘From Promise to Reality’ themed global blockchain survey, revealed that blockchain is an important part of organisational innovation today. According to that, executives stated that the doubts they once had about the practicality of blockchain now diminished and they invested in blockchain. One of the sectors that came forward in this sense was finance. While 63% of banking and capital market executives state that blockchain technology will play a significant role in the foundation of digital assets, Deloitte expresses that it promises much more to the finance sector since it saves time and guarantees security to banks in loan approval processes by increasing data transparency and the quality of data collected. The consortium of 45 banks including BBVA, Credit Suisse, JPMorgan, Deutsche Bank, and UBS makes use of the Corda platform of an enterprise called R3 which aims at integrating blockchain technology into physical currencies such as euros or dollars. It is also stated that the first bond trading was made by Barclays in 2016

Another field where transparency is crucial is supply chain operations. While the disruptions that started with the pandemic were fuelled by the impact of the economic crisis which was triggered by Russia’s invasion of Ukraine; according to McKinsey, blockchain makes it possible for companies to facilitate their processes with smart contracts, to track and watch their products, to provide customers with transparent information about the origin of a product, to improve logistics, supply chain operations, and product quality thanks to the traceability it offers. 

Efficiency in the supply chain

Walmart Canada was able to solve a frequent problem it faced with a blockchain network called DL Freight which was established as a result of its partnership with DLT Labs, which proposes innovative corporate solutions by making use of distributed ledger technology. The company used to deliver more than 500 thousand packages a year to distribution centres and stores and it had difficulty in third party shipping companies about payments. Multi-information systems used by carriers in their processes that had no data flow among them required operations to be done manually. While this brought about inconsistencies, it was also energy and time-consuming.

One of the technology leaders of the company offered to automatise the process by creating a blockchain network that will overcome the problem by making a single source to be used by all parties involved. DL Freight used to collect data in many steps, such as the offers of shipping companies, delivery documents, and payment approval; and they used to be automatically transferred to the network in real time. The records being displayed only by the permitted parties reduces the cost of additional transactions and shortens the period of payment, which increases reliability. Before the DL Freight network was put into practice, 70% of the invoices of shipping companies were erroneous, whereas this rate declined to 1% at the beginning of this year.

The potential in retail

Retail, e-commerce and consumer products sectors are considered to greatly benefit greatly from this technology as well. ‘E-commerce platforms tend to integrate the technology to create a chain of information that vendors and customers can easily access to check the origin and authenticity of the product.’ says Brent Hale from TechGuided. Benefits of it not only increase the consumer trust and loyalty, but also make it possible to detect defected products much earlier and provide efficiency in their reparation processes.

On the other hand, IBM is one of the most outstanding technology companies with its services for companies to integrate blockchain technology into their processes. For example, with IBM Food Trust which is one of the first blockchain projects in the food industry and is put into practice by France-based retailer Carrefour, Nestlé, Unilever, and Walmart, helps companies to prevent contamination by determining the origin of the products. Walmart states that while it usually takes 7 days to track the origin of food products, now it takes 2.2 seconds with this blockchain based project. Another company, Carrefour, expresses that with this network between manufacturers and distributors, they collect traceable information about the product origin and quality, nutritive values, and whether there are allergens or suspicious substances and, in case of recalls, control is available along the entire supply chain.

Predictions

Such advantages whet the appetite of companies, especially those which exhibit intense production and logistic processes to integrate blockchain technology into their businesses. Thus, 42% of the executives of production companies who participated in Deloitte’s survey say they have made significant investments in blockchain technology. Considering that companies like Boeing and Airbus could not deliver their orders due to the problems such as bad or missing parts in the previous months, it now seems clear that blockchain can serve not only companies that directly make sales to consumers, but also giants from different sectors that make productions for companies. Moreover, according to research of Verified Market Research, blockchain use in the production sector has been forecasted to become a 766.2 million dollar market by exceedingly surpassing the 40 million dollars in 2021 with an 80% compound annual growth by 2030.

Besides the advantages blockchain provides companies with, McKinsey puts forth that the use of blockchain remains theoretical in the business world to a large extent because leaders may stay abstinent because of high costs, uncertain revenues, and technical difficulties. With that, the investments in this area seem to be rising, yet, ‘Worldwide Semiannual Blockchain Spending Guide’ report published by IDC found out that the global spending on blockchain solutions between 2017 and 2019 rose from 950 million dollars to 2.7 billion dollars. Investments that grew by 66% on an annual basis, even during the pandemic, are expected to reach 12.4 billion dollars in the next 3 years.