According to JPMorgan, the adoption of blockchain technology in banking is only three to five years away. Could the spread of COVID-19 speed up adoption?

As the coronavirus epidemic inches closer to global pandemic status, its effects continue to grow. It’s become a public health crisis, it’s wreaked havoc on the stock market, and it’s roiled global supply chains.

In an effort to slow the spread of the coronavirus, the Chinese government has been forced to disinfect and even destroy gigantic amounts of paper currency. Of all of the coronavirus’s many effects, this is one of the most surprising: highlighting the shortcomings and dangers of fiat currency, and the massive potential that blockchain and digital currencies have to disrupt global finance.

A blockchain is a distributed, decentralized ledger that can store digital information in public, private, and hybrid databases. Blockchains can create discrete and immutable units of digital information that cannot be duplicated, infected, or invaded. One of those unit types of digital information format is cryptocurrency, such as Bitcoin. Blockchain-generated cryptocurrencies such as Bitcoin are looked at as possible alternatives to fiat currencies for reasons ranging from digital convenience to the risks of handling paper currency…which lately has included the threat of coronavirus.

Blockchain’s ability to create value and authenticate information adds a new layer of functionality to the web. Already, users are able to perform transactions directly with one another — in 2016, Bitcoin transactions averaged over $200,000 USD per day. As well, the unbundling of traditional finance institutions is creating a wide range of new business opportunities. Nearly $23 billion of venture capital and growth equity has been invested in the emerging technology over the past five years.

Digital Currencies & Electronic Payments

Digital money, electronic money or electronic currency — digital currency is basically money available in digital form. This can be a cryptocurrency or a central bank digital currency (CBDC). China, whose President Xi Jinping called for China to focus more on blockchains, is aiming to be the first country in the world to launch a digital currency. Under a digital payments system, the government would be able to track cash transactions, and would help fight money laundering, illegal gambling and terrorist financing.

In a recent interview Lihui Li, former President of the Bank of China and now the blockchain lead for the state-run National Internet Finance Association said the current efforts to combat the coronavirus could accelerate the Chinese central bank’s plans to issue a digital currency. He argued that a digital currency’s efficiency, cost-effectiveness, and convenience make it especially desirable during an epidemic.

Millions of consumers in China are already used to a digital payments system with the popularity of smartphone apps such as WeChat and Alipay. Chinese tech companies have taken the lead well ahead of American tech companies Amazon and Facebook.

Many observers worry China’s digital currency could threaten the US dollar’s dominance by boosting the internationalization of the yuan. This is especially alarming in the context of China’s massive Belt and Road Initiative designed to connect Asia, Europe and Africa with six sophisticated marine and road corridors that could be infused, empowered, and controlled with China’s digital currency and digital infrastructure. This intricate network offers China a market of magnitude to expand digital money and digital infrastructure.

These recent developments around Facebook’s Libra and China’s digital

yuan has also had other countries looking into issuing their own CBDCs with

Japan announcing recently that ruling party lawmakers are working on a

proposal for Japan to issue its own digital currency.

Other strong use cases for blockchain technology that are already close to being implemented revolve around the automation of financial services and processes, allowing traditional businesses to replace aging back-end systems create new revenue models while lowering costs by automating manual processes and radically improve efficiency. Strong use cases include Smart Contracts, Smart Assets, Clearing and Settlement and for Digital Identity

Recognizing the risks and the potential of blockchain technology, institutions around the world, including banks (J.P. Morgan and Barclays) and exchanges (The TMX Group, Nasdaq, and the London Stock Exchange), are working intensively to develop an appropriate blockchain strategy, one that will allow them to keep pace with FinTech startups and, at the same time, make use of the technology to secure an advantage over their peers.

Those functionalities (and more) position blockchain-based solutions to go head to head with old-guard financial institutions such as banks and stock exchanges. Add in blockchain’s ability to revolutionize other business sectors ranging from real estate to energy to healthcare to supply chain management, and you can see blockchain’s massive potential.

Some of the biggest corporations are taking notice. A JP Morgan report predicted that banks will adopt blockchain technology within the next three to five years.

“The groundwork is now in place for more mainstream adoption of blockchain technology at the same time that the foundation is being established for the development of digital currency and fast payments,” the report said.

Many big companies aren’t waiting that long to move more aggressively toward blockchain technology. Last year, Facebook acquired blockchain startup Chainspace, a move designed to absorb Chainspace’s skilled team, which had expertise in smart contract sharding, scalability, and transaction throughput. That move built on Facebook’s ongoing foray into blockchain technology, which includes the creation of Libra, a Facebook-built cryptocurrency built on the tech giant’s private blockchain.

Other companies are choosing to partner with blockchain services providers, rather than going the acquisition route. Airline giant KLM recently announced a partnership with Dutch software services provider unchain.io that will give KLM a new, blockchain-based strategic finance application to streamline its financial processes.

“After initial learnings in smaller projects with the Digital Studio, KLM Finance is happy to announce this project, which we see as strategic to simplify our financial processes and to set an example for future blockchain projects that are no longer ‘test,’ but have real business impact,” said Dominique Vijverberg, innovation specialist at KLM Finance.

Necessity is the mother of invention. As blockchain technology continues to gain traction, expect more corporate behemoths to take action, whether in the form of partnerships, acquisitions, or building their own blockchain-based solutions. If those companies don’t act soon, the next great technological breakthrough could pass them by.

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