As countries and organisations contend with the effects of the COVID-19 pandemic, the space for disruptive technologies has emerged. The concept of blockchain has attracted attention over the past few years primarily through the discourse around cryptocurrency. In layman’s terms, blockchain refers to a kind of database that stores data in blocks of information, which are linked together to form a permanent chain. Even simpler, it is like a distributed ledger of entries/data. Considering its nature as a decentralised and distributed technology with peer-to-peer protocol, it inherently enhances traceability and transparency in real time and is almost fraud-proof.
A PwC report estimates that blockchain will add USD 1.76 trillion to global GDP over the next decade. While cryptocurrency is the primary use case associated with blockchain, it has a wide range of other applications across a variety of industries, from finance and banking to healthcare and education. To my mind, its best possible use cases are in the government sector with its complex problem statements in various domains like land records management, health, education, pensions, etc. An illustrative example of the same can be found in Georgia where the government was able to enhance efficiency in its land titling process by replacing the back-end software of the existing system with blockchain.
The economic reasoning for adopting blockchain at a global scale is plentiful. To demonstrate this, we can look at the tracking and tracing of products and services for companies’ supply chains. The aforementioned PwC report values the contribution of blockchain to this sector as around USD 962 billion over the next decade, since it will help cater to the needs of companies ranging from financial services to mining to textile.
If we take the insurance sector as a use case, we can see how blockchain mitigates various issues around information asymmetries. One fundamental concern in the insurance sector is the principal-agent problem, which stems from conflicting incentives amidst information asymmetry between the principal (insurer company) and the agent (of the company). Some adverse outcomes of this include unprofessional conduct, agents forging documents to meet assigned targets as well as a misrepresentation of the compliances, often leading to misselling of insurance products. These problems occur primarily due to the absence of an integrated mechanism to track and prevent fraudulent conduct of the agent. In such a scenario, blockchain has the ability to bridge the gaps and enhance the customer experience by virtue of providing a distributive, immutable and transparent rating system that allows agents to be rated according to their performance by companies as well as clients. When an insurer wants to check the rating of a particular agent, they will provide their hash-based address and a smart contract will be executed, fetching the required rating. This mechanism incentivises agents to conform with company procedure and align with the interests of the principal. The principal-agent problem arises in several other sectors as well, particularly in government, in areas like land governance, registrations, payment of property taxes, administration of food subsidies or payment of minimum support prices to farmers.