BLOCKHAIN
IMPACT ON ECONOMIC SECURITY
Yurii
Matyskevic
Mykolas
Romeris University, Lithuania
E-mail: jumatyskevic@stud.mruni.eu
Zaneta
Simanaviciene
Mykolas
Romeris University, Lithuania
E-mail: zansim55@gmail.com
Iryna
Belova
West
Ukrainian National University, Ukraine
E-mail: ire@ukr.net
Kateryna
Fen
Yuriy
Fedkovych Chernivtsi National University, Ukraine
E-mail: fenkat.4@gmail.com
Yevheniia
Skljar
Yuriy
Fedkovych Chernivtsi National University, Ukraine
E-mail: skljar.ewgeniya@gmail.com
Submission: 11/17/2020
Revision: 1/5/2021
Accept:1/28/2021
ABSTRACT
The aim of this paper is to review impact
of the one of the most modern cutting edge technologies‘, namely Blockchain on
Economic Security. First of all article describes concept - technological
background of Blockchain technology nature, emphasizing main features that have
most significant and even disruptive impact on separate industries and even
whole Economy including Economic Security. Secondly contemporary challenges of
this technology are provided. Thirdly multifaced concept of Economic security
is explained, followed by importance of this phenomenon specifically within
modern mega trends such as Globalization and Information Society. Blockhain
impact has been researched through three main industries/functions – eCommerce,
Payments and Logistics. Finally conclusions of the paper suggest to use
Blockhain with another Industry 4.0 technologies (such as Big Data and Internet
of Thing) to reach maximum possible synergy.
Keywords: Blockchain; Economic security; Industry 4.0; Digital technologies digitalization
1.
INTRODUCTION
Economic security is the topic which
among other economic disciplines gains more and more popularity, interest and
even priority if we speak about that phenomenon at state level. The reasons are
quite straightforward and shall be found from the very definition of this
object. Before speaking about exact definitions it should be also noted, that
Economic security can be analyzed at different levels: – micro level (as outcome of microeconomy)
that analyzes economic security of
household and individual resident, some representatives of such
approach are Parthasarathy et al. (2014) which
examined economic security of citizens with focus on financial stability,
Mutchler et al. (2015) describe indexes, assessing economic security of senior
people, Muller (2015) analyzes impact of households’ debts level on economic
security.
Deprez (2013) focuses research on economic security of USA
women of working age. Cahill (2016) works on impact of set of different
economic vulnerabilities to economic security. Another group of scientists
working within same micro level
highlight economic security of
business units – commercial companies.
Large number of scientists see economic security as predominantly
security of financial markets Spketi et al. (2014),
Rogers, Felther (2013 and 2015), Boggerr
(2016), Bugratti et al. (2014) etc. Baldzhy (2017)
emphasizes importance of economic risks management.
Endovickaja, Volkova (2015)
analyze financial stability of the company as factor of companies’ economic
security. Another significant portion of insights are oriented toward macro or state level. Significant
contribution to that level was made by Brigugli, that
created model of economic security taking into account economic vulnerability
and capacity that can resist economic crises.
Quite often - just like at micro
level economic security is being analyzed thru associated risks (Knutsen, 2011; Hipp, 2016;
Angulo-Guerrero, 2017).
One
of the most proper and relevant view in perspective of this project is position
that poor level of technological advancement constitutes a significant threat
to economic security (Johnstone et al., 2013; Sternberg, 2009; Rosser & Taylor, 2008). So even scientists
within same level of the scale deliver quite different definitions of Economic
security, like Huber thinks that Economic security can be treated as State
economic status readiness to ensure proper conditions of wellbeing and personal
development, social and economic stability as well as political ability of
society and state to eliminate internal and external threats (Huber, 2010).
Other
scientists define safe business as state resources and business opportunities
to effectively use them for productive work and dynamic scientific,
technological and social development. (Vivchar,
2016). Panel of Lithuanian scientists has made exhaustive overview of majority
of definitions of economic security and produced the following statement:
conducted analysis of scientific economic security definitions demonstrates
that in all cases such elements as economic development and stability are being
assessed. Therefore, this approach allows to define economic security as
economic and state status capable to ensure defense of national interests,
state development in whole, sufficient potential of defense (Zuzevičiūtė et al., 2018).
Despite
these differences in definitions to authors’ opinion essential joint points can
be found – all of these are talking in essence about threats and risks. And
that’s why economic security comes into play – nowadays threats and risks are
increasingly growing due to globalization, increased level of competition and
market players, introduction of new types of data driven economy and technology
associated with it (Bid data, IoT - Internet of
Things), continuing global economic crises, huge amount of fraud and shadow
economy, etc.
To
authors’ opinion one of the most efficient way to contribute and strengthen
economic security is technological approach, which is human error free and
cost-efficient solution to majority of the challenges. This project is focused
on one of the most famous in recent time – Blockchain.
Despite the fact that Blockchain technology is
incredibly popular and quite well known in IT world, to authors’ opinion it is
still worth providing general description of its technological roots to
economic society (provided in Chapter 1). In simple
terms Blockchain is a technology which empowers creating
distributed or decentralized in economic and legal world ledger (in IT world
log) to record the transaction. As a relatively new technology, Blockchain is designed to achieve decentralization,
real-time peer-to-peer operation, anonymity, transparency, irreversibility and
integrity in a widely applicable manner (Tijan, et
al., 2019).
When
talking about exact tangible deliverables - impact of Blockchain
technology on Economic security, author suggests reviewing it in the course of
impact on separate economic areas/sectors, as such impact will vary. It shall
be said that this approach - relationship or impact between economic security
and separate sectors is already employed by some scientists. Broad circle of
researchers emphasizes connection between energy market and economic security (Franki & Viškovič, 2015;
Umbach, 2010; Popescu,
2014; Augutis et al., 2016).
Another
branch of scientists put focus on technology and innovations – analyzing impact
of innovations on economic and national security (Mitjakov et al., 2013; Bagariakov & Nikulina 2012). Hovewer it shall
be noted that due to the absense of single methodology it is impossible
nowadays to answer precisely which industries affect economic security in both
positive and negative sense the most.
2.
LITERATURE REVIEW
2.1.
Blockchain concept
In simple terms Blockchain
is a technology which empowers creating distributed or decentralized in
economic and legal world ledger (in IT world log) to record the transaction. As
a relatively new technology, Blockchain is designed
to achieve decentralization, real-time peer-to-peer operation, anonymity,
transparency, irreversibility and integrity in a widely applicable manner (Tijan et al., 2019).
Even literal analysis of this
technology allows to draw a conclusion that we are speaking about chain of
blocks - or blocks of information within one logical chain. The changes made by
the various parties are assembled and stored in the database at regular
intervals as bundled packets called ‘blocks’. When new blocks are added to the
original database, they form a Blockchain, or an
up-to-date database containing all the changes made (Mattila
& Seppälä, 2015).
Blocks contain the useful data
(initiated by the owner – or node) and technical information for encryption, so
called hash. The block after initiated by one participant is sent to all
participating nodes and their content and hashes will be accordingly verified
by all participating nodes. This creates a block interdependency accessing up
to a chain–the Blockchain (Hackius
& Petersen 2017).
The
origins and the purpose of the transactions could vary, but for economic
sciences main priority is the value – capturing value and registering any
modifications - tracking it (like owner, quantity, price, etc.). We ‘d like to elaborate 3 main
features that describe Blockchain technology the best:
Distributed
or decentralized ledger. This feature implies that there is no one single authority controlling
the database, as it is based on peer to peer principle. We have proposed a
system for electronic transactions without relying on trust. To solve this, we proposed a peer-to-peer
network using proof-of-work to record a public history of transactions that
quickly becomes computationally impractical for an attacker to change if honest
nodes control a majority of CPU power (Nakamoto, 2008). This feature gives us incredible flexibility
(avoiding time and effort costs associated with one - registrar, filling
complex procedures, registration lags, paying additional verification and
registering fees etc.) which is of great demand in multifaced
environment;
Public,
transparent and verifiable. When it comes to publicity – Blockchain can
be realized in different ways, but the main principle that it is based on well
known in IT security Public and Private key infrastructure. Regarding
transparency – as we already mentioned before all participants have the same
full database - full amount of the same information (that was before verified
together as well), therefore there is no room for data misinterpretation.
Overall, I wish to provide a system such that users can be guaranteed that no
matter with which other individuals, systems or organizations they interact,
they can do so with absolute confidence in the possible outcomes and how
those outcomes might come about (Wood, 2014);
Immutable and reliable. Under Blockchain technology new data do not replace old blocks,
instead of this new blocks being put „on top“ of the current blocks thereby
representing complete and exhaustive log or register possessing also historical
records with proper time marks of the transactions, which allows to have a big
picture with all details of respective facts‘ alterations. Consequently, the Blockchain technology is extremely reliable as a
distributed method of data storage (Mattila & Seppälä, 2015). Thus, data on a Blockchain
is more accurate, consistent and transparent than when it is pushed through
paper-heavy processes. It is also available to all participants who have
permissioned access. To change a single transaction record would require the
alteration of all subsequent records and the collusion of the entire network
(Hooper, 2018).
As a conclusion – Blockchain technology is extremely useful when we do
speak about variety of market players involved in multiple transactions among
them. Above mentioned features ultimately result in trust - trust in
transaction‘s participants (who is who), its amount, time and overall integrity
(Genuity). In this manner, as it is easy to verify
the origin and accuracy of the information whatever its source, no external
intermediary (such as a central server) trusted by all the parties is required
to validate the data (Mattila & Seppälä, 2015).
Moreover, some scientists have also found mathematical proof of economic
advantages of Blockchain application: From the
equilibrium analysis, we first show that a platform offers a higher QoS (Quality of Service) can set a higher equilibrium price
and get a larger revenue (Lee, Sung & Min, 2018).
2.2.
Blockchain challenges
Despite
clear advantages, Blockchain also faces certain number of challenges. Below
poll reveals the straightforward set of reasons why Blockchain
is not so widely used so far.
Figure
1: Obstacles to adopt Blockchain
To
authors’ opinion most important problems depicted in that pole are:
· Lack of standards/interoperability. This problem leads to the fact that majority of
currently implemented Blockchains are mainly
standalone technologies, that are unable to communicate within global
interoperable network. Main negative consequence is that such separate Blockchain implementations solve only temporarily local
efficiency issues but will fail gaining absolute P2P intercommunication
advantage (in terms of data transmission, security, etc.) simply because they
have been made by different algorithms. Vice versa presence of universal
standards would allow different networks to communicate with each other.
· Regulatory issues. It shall be admitted that regulation always following technological
progress, not vice versa – therefore there is always a delay in proper
regulation, same applies to Blockchain. Several
obstacles can be considered. First of all, it’s unclear to what extent Blockchain can be used in regulated industries such as
Banking/Payment. Another example is smart contracts – to which extent parties
can rely on smart contract provisions in litigation or concluding such a
contract with public administration? Last but not least is privacy and personal
data protection – to what extent customers can share their personal data and
who would be data controller/processor according data protection legislation in
that Blockchain case?
· Implementation costs. It goes without any saying that Blockchain
implementation costs (as any IT integration) and costs are both explicit and
implicit (changing organizational policies and business processes). Explicit
costs would be transition project – actually Blockchain
implementation into current IT infrastructure (aligning Blockchain
with ERPs in place) and maintenance of this new hybrid formation. It shall be
noted that both such activities most likely would be outsourced, as hiring and
maintaining Blockchain developing capacity within the
company is not an option unless this is core business.
· Permissionless vs permissioned Blockchain. Nowadays Blockchain
has evolved into 2 different types, which is essentially affected by the
implementation purpose or objectives. Permissionless Blockchain - the
brightest example is same cryptocurrency Bitcoin can be described as feature
‘‘shared by all network users, updated by miners, monitored by everyone, and
owned and controlled by no one’’ (Swan, 2015). In other words, permission less Blockchain
is absolutely open for users that have access to the devices as they can simply
joint this pure decentralized network. Therefore privacy is an issue. As system
is open to everyone in case of extremely sensitive data company owners may be
indeed reluctant to implement such model. On another hand permissioned Blockchain also has issues
to consider. This type of implementation – practical example would be for
instance Ripple has clear user administration system in place – e.g. it is able
to define user’s rights and permissions to work in, starting from the very
admission. As in this case Blockchain has a certain
administrator, it shall be considered as partially decentralized with all
respective consequences. “On one hand, with appropriate deployment of
access-control layers, a permissioned Blockchain has
a greater potential to maintain privacy and fit business governance needs than
a permission less. On the other hand, a centralized agency with override
privileges is allowed in a permissioned Blockchain
and might undermine the credibility of the Blockchain”
(Liu, Wu & Xu, 2019).
3.
ECONOMIC SECURITY
The purpose of this chapter is to reveal the concept of Economic Security
which is based on analysis of scientific sources, providing different paradigms
of this multifaced phenomenon. On top of that
importance of Economic security is described.
3.1.
Concept of Economic Security
As was already mentioned before it’s
essential to start defining Economic security from risks perspective, as in
general Security is absence of any risks. All human beings need a sense of
security, to give a sense of belonging, a sense of stability and a sense of
direction. People who lack basic security in themselves, in their families, in
their workplaces and in their community tend to become socially irresponsible (Ilo, 2004).
The country's economic security is a
complex socio-economic idea that reflects the enormous range of production, external and
internal threats to the country's ever-changing conditions (SENCHAGOV,
2011).
Lithuanian researches KREMER and CERNIUS have prepared comprehensive graphical definition of
Country’s economic security concept (see figure 3).
Figure 3: Country’s economic security concept
3.2.
The importance of Economic Security
Importance
of Economic security in Information society. Information society is one of the dominating
trends in modern economy nowadays. The importance of this sector may be seen in
the countries like USA, Japan, China and even India (which due to cost
efficient labor able to suggest favorable conditions to establish global
delivery centers for technology companies like IBM, Microsoft, DXC Technology,
etc.). Under these conditions the priority task of ensuring economic security,
especially noticeable in the rapidly changing conditions of the modern global
world, is the forecasting of challenges and threats, the implementation of
which must be prepared today. The universal digitalization is the most
important global challenge today (Popov & Semiachkov,
2018). In order to address these threats first of all specific features of this
digital economy shall be defined. Popov and Semiachkov
emphasize the following features of digital economy:
· Priority of intelectual property over material. Companies
like Google, Facebook, Airbnb, Uber have proved their vitality and interest for
investors despite the fact that they do not possess material tangible assets,
their main property is digital network and despite that their capitalization is
higher than the one of the industrial giants of real sector;
· Importance of data. In these ecosystems business models heavily
dependant on data in wider sence – database, software products, etc. One of the
modern trends - increasing part of so called cloud technologies, which replaces
traditional hosting/co-location. Main idea here is that hosting of all IT
services – computing power is outsourced to third party supplier (like Amazon,
Microsoft). After transition project these services can be accessed through
secured network and customer can benefit flexible connection, scalability (near
instatnt increase of computing power on demand) and also flexible pricing which
usually takes the form of PAYG (Pay As You Go) – so customer can focus on its
core business if all security aspects are properly handled;
· Matrix vs hierarchy. This model also leads to domination of matrix
structure in organisations rather than hierarchical. As innovation business
constitutes multifunctional effort, open matrix structure can better address
these new challenges by efficiently onboarding different functions from
horizontal layers on project based activity (with predetermined duration and
scope of effort);
· Internet as predominant search engine. Practise shows that usage of web sites,
messengers, digital platforms is the most effective way, therefore huge variety
of different gadgets are still being produced and developed to accomodate the
need of connection;
· Global data transmission. The nature of internet and network is
multinational, and agents that are limited only to one region‘s resources are
facing failure in glbal competition;
· Decentralization and shared sconomy. Availability of resources results in setup of
decentralized and flexible „bottom up“ organizations with no bureaucracy.
Another aspect is shared economy designed to efficiently use resources on
sharing principle (as a service without property right) and therefore applying
same PAYG principle with no capital investments. Derivatives of shared economy
are croudfunding and croudsourcing. Crowdsourcing is an example of mobilizing people’s resources using
digital technology to solve the challenges facing business, government and
society as a whole (Chizov, 2015). Crowdsourcing is
designed to attract any kind of resources in questions, not only monetary.
Crowdsourcing essentially is P2P (Peer to Peer) platform designed to attract
capital to specific, publicly stated purpose (donation). These specific features lead to specific economic
security problems of information society:
Table 1: Economic security problems of information society
|
Problem type |
Explanation, examples |
|
System |
Problems affecting whole economy or its significant part (dependance on digital technology, digital unequality, absence of own elements,
etc.) |
|
Structure |
Structural problems caused by digitalization
(significant changes in
labor markets and unemployment, etc.) |
|
Industry |
Absence of digital solutions for specif industries
(absense of National payment gateway, etc.) |
|
Specific company |
Industrial espionage,
data theft, hackers‘ attacks,
lack of IT competency, etc. |
|
Specific person |
Identity and personal
data theft |
Based on the findings above economic
security shall essentially contribute to the sustanable development of new
generation economy, timely and properly forecasting and estimating challenges
and threats of global digitalization and suggesting suitable instruments.
Importance
of Economic security in context of globalization. Globalization is undeniable trend
which essentially disrupts single markets and world economy in general. That
implies that this trend has both positive features and also contains residual
risks – risks associated with the nature of globalization. Essentially
globalizations means merge or integration and as a consequence interdependence
of previously separate and independent markets.
KUBAIENKO assessed impact of potential integration of
Ukraine to EU – e.g. globalization impact (both positive and negative) at
regional level (please check the figure below).
Figure 4: Determination of the European integration effects for the Ukrainian economy
Kahler (2004) analyzing relationship
between economic security and globalization in Asia has made 3 main outcomes:
· Globalization is attractive trend to
national Asian Governments as through the connection to global facilities these
Governments have positive gains to national economies, technological novelties
and even military power. Those that rejected expanded international economic
exchange risked conventional military inferiority;
· Globalization had a second and more
direct effect: reduction in vulnerability through diversification of
suppliers and markets;
· Finally, some of the states in the
Asia - Pacific region began to accept that economic interdependence and
integration might be promoted because of its positive security effects.
The
last statement confirms direct and positive impact of globalization on Economic
security.
4.
RESULTS AND DISCUSSIONS
Following
chapter describes impact of Blockchain implementation
on Economic Security. As Economic Security is multifaced
phenomenon, impact is being analyzed on industries/functions where Blockchain has the biggest impact nowadays.
Nowadays Digital
economy or so-called e-commerce represents a significant part of whole economy,
and as shows recent COVID 19 lockdown it can be the
only way to maintain trade. If we look to the future - global ecommerce market
is predicted to grow to 4.9 trillion US dollars by 2021. E-commerce starts with digital authentication
– or digital identity management.
However identity
management (identification, authentication and authorization) even given that
it is digital (access managed by the passwords) is already outdated compared to
today realities due to the following reasons: First traditionally digital means
that identity is managed by centralized server, which serves as a perfect
target for hackers. Thus, identification of security related requirements,
vulnerabilities, and threats are keys to the development of a trustworthy
system (Habib, Torjusen & Leister, 2015).
Federal Trade
Commission reports that in Fraud related to Identity theft resulted in $1.48
billion loss in 2018 (Siciliano, 2019). Second
traditional digital identity management systems heavily dependent on personal
data processing, which impose additional risks of non - compliance with GDPR (Regulation (EU) 2016/679 of the European Parliament
and of the Council of 27 April 2016 on the protection of natural persons with
regard to the processing of personal data and on the free movement of such
data).
As of January 21st,
2020, amount of EU wide fines of GDPR non –
conformity resulted in $126 million loss (IP, 2020) (since GDPR
came into force 25 May 2018). Last but not least even digital identity
management is still static – that means that persons shall maintain their
actual records (validity of passport and its ID, position, email address and
phone number, etc.) manually.
Blockchain
eliminates all these problems, offering trusted decentralized (near impossible
to hack), verified by relationships identity solution which doesn’t require
personal data at all, and which is dynamic in nature. This feature accompanied
with market realities – e-commerce organization’s demand to deal with great
variety of reliable partners and customers in order to find best quality vs
price ratio and provider‘s demand to penetrate new markets makes Blockchain application highly attractive.
On top of that strict
KYC (Know Your Customer) and KYS (Know Your Supplier)
procedures imposed on majority of regulated industries, therefore trusted and transparent identity management
with Blockchain enables to ensure great global
companies ‘compliance function.
First of all, Blockchain derived from payment sphere as it was and is
predominant technology supporting Bitcoin cryptocurrency. Blockchain
was first invented in 1991 by Haber and Stornetta as
a mean to avoid document‘s timestamp tamper, in 2008 Nakamoto described
how a network of users could engage in secure peer-to-peer financial
transactions, eliminating the need for financial intermediaries and
reducing the cost of overseas payments (Peters & Panayi 2015) and soon
after it gained real worldwide application with commercial launch in January 2009.
In 2015 the number of
retailers accepting the cryptocurrency bitcoin has passed 100,000 (Cuthbertson,
2015), while according to the Cambridge Centre for Alternative Finance study (Hileman & Rauchs 2017) in
2017 there were already 5.9 million Bitcoin (and consequently Blockchain) users. Since it (Bitcoin) allows payments to be
finalized without any bank or intermediary, Blockchain
can be used in various financial services such as digital assets, remittance
and online payments (Adams et al., 2017).
Speaking about Blockchain impact on payment industry first thing which
comes to the mind is hacker – proof reliable system (Fraud security. Blockchain is “unhackable”. It
decreases the probability of any kind of fraud. Furthermore, it does not work
on patches, which makes Blockchain the securest in
the market of cybersecurity initiatives (Robinson, 2016), Bitcoin has never
been hacked (Banker, 2016) which allows to eliminate or at least significantly
reduce fraud in this industry.
Moreover, it is a
cryptographically secure electronic payment system, and it enables transactions
involving virtual currency in the form of digital tokens called Bitcoin (Conti
et al., 2018). According to European Central Bank 2018 Fifth report on card
fraud: The total value of fraudulent transactions conducted using cards issued
within SEPA and acquired worldwide amounted to €1.8
billion in 2016 (ECB, 2018).
Another major banking and finance European player is UK market on which UK banking and finance industry association – „UK Finance“in its 2019 report (finance, 2019) revealed, that Unauthorized financial fraud losses across payment cards, remote banking and cheques totaled £844.8 million in 2018, an increase of 16 per cent compared to 2017. In addition to this, in 2018 UK Finance members reported 84,624 incidents of authorized push payment scams with gross losses of £354.3 million.
Table 2: Value of Card Fraud losses in Europe
|
|
2012 |
2013 |
2014 |
2015 |
2016 |
GR 15/16 |
CAGR 5Y |
|
Total card fraud losses with SEPA
acquired worldwide (BEUR) |
1.330 |
1.436 |
1.656 |
1.808 |
1800 |
-0,4% |
9,2% |
|
-thereof CNP fraud losses (BEUR) |
0.794 |
0.958 |
1.031 |
1.292 |
1.320 |
2.2% |
15.2% |
|
Value of card fraud losses as a
share of value of transactions |
0.038% |
0.039% |
0.038% |
0.042% |
0.041% |
-2.4% |
2.6% |
|
-thereof ATM fraud in % |
17% |
14% |
12% |
9% |
8% |
-11.1% |
-15.9% |
|
-thereof CNP fraud in % |
60% |
67% |
69% |
71% |
73% |
2.8% |
5.4% |
|
-thereof POS fraud in % |
23% |
19% |
19% |
20% |
19% |
-5.0% |
-5.3% |
|
Volume of card fraud losses as a
share of number of transactions |
0.017% |
0.020% |
0.020% |
0.020% |
0.023% |
15.0% |
7.5% |
|
-thereof ATM fraud in % |
11% |
9% |
7% |
5% |
3% |
-40.0% |
-22.9% |
|
-thereof CNP fraud in % |
63% |
71% |
75% |
76% |
77% |
1.3% |
7.8% |
|
-thereof POS fraud in % |
26% |
20% |
18% |
19% |
20% |
5.3% |
-11.1% |
|
NOTE: the total number of cases of
card fraud using cards issued in SEPA amounted to 17.3 million in 2016. The
total number of card transactions using cards issued in SEPA amounted to 74.9
billion in 2016. |
|||||||
Another distinct
advantage is its efficiency and cost saving. Blockchain
technology is uniquely positioned to tackle the problems of both speed and
cost. In sum, Blockchain technology solves an
important problem in electronic value transfers. The Blockchain
does not only move value; it also integrates several components of the
trading-clearing settlement value chain in an elegant, efficient, and
mathematical way (Kiviat, 2015).
Consumer of typical
banking or financial institution usually is being charged commission for any
type of operation, and a lot of these operations (like opening account) can be
fulfilled only during standard working hours. In a like manner with location,
cost is significantly reduced with Blockchain
technology in a supply chain system. Mainly due to large distance transactions
being slower through banks than with cryptocurrency technology, Blockchain provides an economic solution for the supply
chain (Litke, Anagnostopoulos
& Varvarigou 2019).
On top of that consumer
shall often be in front of the bank agent who will verify face to face Genuity of such application. In contrast Blockchain operates 24/7, as it is decentralized there is
almost no commission fees, it is remotely from its origin and average operation
lasts about 10 minutes – time needed to form the block and put it into the
chain. Bitcoin payment services are only of the order of 0.01%-0.05%, largely
due to the lower cost of not needing to process or perform disputes in
transactions (Peters & Panayi, 2015:30). European Bank – Santander
estimates that Blockchain could reduce banks’
infrastructural costs by $15-20 billion a year by 2022 (Perez, 2015). French
consultancy giant – Capgemini predicts that consumers ‘wallets could save up to
$16 billion in banking and insurance fees also per year (Capgeminy,
2016).
4.3.
Impact on Logistics
According to US biggest
logistics and supply chain association – MHI „The 2019 MHI
Annual Industry Report - Elevating Supply Chain Digital Consciousness“ (MHI, 2020) in 2018
usage of Blockchain technology in inventory
management was at about 5 % level but it is forecasted to grow at 54 % within next five years.
The advantages are
quite straight forward – with Blockchain companies
are able to track movement of goods proactively in real time mode, which is
crucial, especially for big retailers and logistics companies running huge
stocks and variety of products ‘movements flows. Tracking goods through Blockchain can improve the decision-making process with end
result being a more satisfying service for the end user (Tijan
et al., 2019).
Blockchain
introduction allows the companies to synchronize the data between different
supply chain players like suppliers, distribution centers, transportation
companies, retail partners and their different stock locations establishing
single time saving working procedure (as each of these potentially uses their
own different data processing methods and tools – which could result in delay
for market needs and consequent financial loss) and therefore to increase time
to market criteria and avoid under/over stocking.
On another hand it also
leads to human error, fraud (according to PwC 2018 report 47 % of respondents
experienced a fraud in past 24 months with overall loss of $ 42 billion for the
same time period (PWC, 2018)) and general workforce costs reduction through
efficient digital automation, which also contributes to competitive advantage.
According to 2013 World Economic Forum’s Report. Enabling Trade. Valuing Growth
Opportunities (FORUM, 2013): Blockchain can help all
parties involved in shipping to increase sustainability, reduce or eliminate
fraud and errors, improve inventory management, minimize courier costs, reduce
delays caused by paperwork, waste and identify issues faster. This could
increase worldwide GDP by almost 5% and total trade volume by 15%.
However, it also should
be noted that maximum advantage of the Blockchain can
be achieved in conjunction with another cutting-edge technology such as
Internet of Things (IoT). IoT
is supposed to connect the different smart objects vis Internet (things having
sensors connected to the Internet) and to provide that management tools of that
to authorized users. Concrete usage example can be seen from below statement:
Sensors and the Internet of Things (IoT) are enabling
goods container store port when a value limit has been exceeded, e.g.,
temperature, tilt or incoming light intensity. The freight being forwarded
remains in clear view across the entire supply chain (Tijan
et al., 2019).
5.
CONCLUSIONS AND RECOMMENDATIONS
During the conduction of research, it was noticed the following most significant statements and assumptions:
a) Analysis of Blockchain technology with focus on Economic security has shown, that Blockchain is the key technology of Industry 4.0 - e.g. new generation production (smart factories) and economy. Derived from cryptocurrencies it may have broad usage in modern economy and can significantly contribute to Economic Security due to its technological features – decentralized ledger (ledger that has no single authority to manage its records), immutability and reliability (which is ensured by the very technological nature) and also publicity and transparency (e.g. public access of general public for verification purposes). In other words, Blockchain can be applicable in any industry which requires to capture the fact (payment, property, product delivery, etc.). It is worth mentioning that nowadays business sees one of the most applicability option in logistics (together with other Industry 4.0 trends like IoT and Big data). Blockchain shall gain even greater popularity in globalization context – e.g. multiple players with multiple and constantly growing transactions, as in this case role of different intermediaries will decrease;
b) Research of Blockchain implementation revealed that despite great Blockchain benefits it also has some challenges. Lack of standards and interoperability may lead to the prevention of synchronized Blockchain systems, therefore companies would be blocked with Blockchain operating only at company level. Another similar problem is lack of regulation. As was already mentioned Blockchain is perfectly suits for regulated industries to capture legal facts, however this shall be explicitly allowed by according industry regulations, otherwise it creates misunderstanding on usage’s scope and boundaries. It also shall be noted that Blockchain implementation costs – both in terms of technical integration (with mentioned ERP) and also in terms of effort which company shall dedicate (revision of current ERP, definition of Blockchain processes and scope, etc.). Finally, company shall define the balance between publicity and sensitivity of data processed by Blockchain. Classic Blockchain implementation is Permission less - that means self-organized, open to general public. However, it is not suitable to process sensitive data. Permissioned handles that issue but then it becomes manageable by single administrator – which contradicts to the very nature of Blockchain.
c) Analysis of various scientific studies and researches has shown that the concept of economic security is multifaced and ambiguous, and its research as a separate field of economic science is still developing. Economic security is understood on two levels (micro and macro). Economic security at the micro level is analyzed according to the presented Anglo-Saxon assessment methodology, at the macro level - according to the categories: economic, commercial, financial and social security assessment indicators. Economic security is usually studied at the micro level, to which the economic security of a household or individual and business belongs. At the macro level, economic security is examined by analyzing internal and external economic security threats using BRIGUGLI model. Taking into account the definitions of economic security of various foreign and Lithuanian countries, it has been clarified that economic security is a field of science that provides a high and stable growth trend of economic indicators, combats poverty and unemployment, develops social security and prevents competitiveness, economic needs are effectively addressed, threats are responded to in a timely manner, neutralized and anticipated, and national security is formed.
d) Plenty of scientific reviews and researches also provide insights about importance of Economic security and its value, while practical implications shall be considered in wider context of current circumstances, especially within 2 major contemporary trends – Information society and globalization. Under conditions of Information society (data and internet driven economy, decentralized and shared economy) the priority task of ensuring economic security, especially noticeable in the rapidly changing conditions of the modern global world, is the forecasting of challenges and threats, the implementation of which must be prepared today. On another hand globalization has direct impact on Economic security through access to new markets and technology, diversification of products, vendors and suppliers and also because of interdependency of national single markets.
e) Analysis of Blockchain impact on economic security allowed to identify economic activity/industry/function that could be affected the most. Impact on identity management which is key in Information society is huge due to extremely reliability of Blockchain which means that identity becomes indeed purely digital – dynamic and online. Companies can handle compliance to KYS and KYC in much greater efficiency than before. Derived from cryptocurrencies Blockchain is perfect solution for payments (subject to proper regulation) in terms of reliability (Bitcoin never been hacked) – therefore eliminates fraud, time and cost efficiency. Worth to remind that in fully integrated environment there is no more need to have banks as intermediaries – which positively disrupts whole market. One of the most suitable application is logistics – products’ delivery. Accompanied with other technologies such as IoT and Big data it helps to predict demand (storage management) and to organize product delivery in fully online manageable and also fraud-free manner.
6.
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