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Blockchain technology has potentially vast implications for countless aspects of the economy and society. Bitcoin and other cryptocurrencies are just one of many possible applications of this technology. Technological developments in this area could completely transform transaction systems as we know them today. After all, the existing financial infrastructure fails to move money and information at the same speed, leading to complexity and inefficiency. The failure points in many financial transaction systems are broadly relevant across industries. The potential benefits of progress here are enormous as transaction fees represent an estimated 6% of global GDP.1
In this paper, we outline eight exciting impacts and opportunities from blockchain technology.
Complex systems like global supply chains have three separate workflows for money, goods, and information. Each of these is handled by different parties. Within each of the flows, there are multiple handlers. For instance, a straightforward transaction can involve up to five banks to simply move funds.
There are a variety of pain points through these value chains, namely settlement time, inefficiency costs, and friction. The most frequent issues lie in error resolution. The current infrastructure defaults to a host of manual processes involving scores of people across different entities. These friction points exist across a wide range of industries that are ripe for disruption, both from blockchain technology and broader software proliferation.
However, blockchain technology comes with trade-offs. On the plus side, it increases trust, reduces friction costs, and automates manual processes. But on the other hand, it requires a large up-front investment in innovation and is challenging, as inertia is widespread. Moving to a decentralized system is a paradigm and technology shift for most parties involved that will require new skill sets to handle these changes.
Given the sheer scale of the opportunity, the systems with the highest transaction fees are therefore likely to be early adopters of blockchain technology. For example, we see early signs of this in Asia where a large cement company has implemented a blockchain-based procurement platform that connects 240 suppliers throughout their value chain. This has taken invoicing down to two days, from 30, because it took 28 days to reconcile and verify invoices prior to implementation.2 We believe progress like this is just beginning to be realized.
Crypto, software, and blockchain are all fundamentally rewiring transaction systems for the modern digital age to reduce complexity and more effectively solve problems. In our view, there are two key approaches to resolving the complexity of both financial and nonfinancial business processes…
1McKinsey, 2020 | 2Company meetings, January 2021
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