UHY GLOBAL JANUARY 2023 FEATURE


THE BUSINESS OF BLOCKCHAIN


 Though synonymous with cryptoassets, the transformative potential of blockchain technology in various industries and sectors is well known. But with widespread adoption yet to be seen, can it still change the way we do business? Comprising blocks of encoded batches of transactions, uniquely linked together, blockchain databases are based on a distributed ledger and are publicly available. Decentralisation means there is no requirement for third parties and hence no third-party fees. All transactions are recorded, and the transaction history is stored permanently within the network, meaning the data is fully transparent. The unchangeable nature of the data contributes to making blockchain innately secure. Along with being hugely adaptable, it is not difficult to see why blockchain technology could revolutionise business. Simon Denye, partner at UHY Hacker Young, Manchester, UK, believes blockchain is likely to have a significant impact on the business community in the coming years, driving competition and ensuring fair market pricing. “Any industry sector which lends itself to automation and requires accuracy will benefit greatly from blockchain,” he says. “The added benefits of anti-fraud protection and fewer intermediaries – therefore less transactional costs – all add to the appeal.” TRANSPARENCY AND BEYOND Three sectors that could benefit from blockchain are supply chain management, financial services and healthcare. Supply chain management seems a perfect fit for blockchain disruption. The technology could be used to provide transparency and verification throughout every step of the supply chain, and a permanent record even where there are multiple supply chain partners. There are numerous applications for blockchain in the financial services industry, including reducing transactional costs for payment processing, especially for cross-border transactions. James Foster, UHY Hacker Young’s head of tech and OMB strategy, also points to the sector’s ongoing interest in cryptoassets. “There is a lot of consumer interest in cryptocurrency too,” he says. “Many financial service companies are capitalising on this with their offering.” Blockchain’s record-keeping capacities also seem a natural fit for patient records in the healthcare sector. In fact, its ability to create anonymity and privacy where necessary, and non-reliance on third-party input, hold value in any sector where there is a need to process and maintain confidential records. On top of this, it is important to think about other technology that will incorporate blockchain and what this could mean for businesses. James explains that Web 3.0, referred to as the next iteration of the internet, will be decentralised using blockchain technology. It is also believed that it will provide the foundation for the metaverse, a combination of virtual and mixed reality accessed through a browser or headset. “While we don’t yet fully know what the metaverse will look like, this has the potential to radically impact many industries,” says James. For example, it could allow consumers to hold digitised versions of physical items before they purchase them, so it will have a big impact on the retail industry. We have already seen major brands trying to ride this wave of consumer interest.” PLAYING CATCH-UP At government level, some countries are adopting blockchain technology faster than others. The platform has a key role to play as central banks around the world explore the possibility of issuing their own digital currencies. The European Central Bank, for example, has progressed to working with five partners for a prototyping test as part of the investigation phase of the digital euro project, scheduled for completion in the first part of 2023. But it is not just about currency. Chile has been a pioneer of blockchain in the energy sector since 2018, when the national energy regulator, CNE, introduced an Ethereum-based platform for energy system data. In Estonia, the government is working with private companies to provide universal authentication services, applying blockchain technology to authenticate identity and identity documents. Malta is fast positioning itself as a centre for blockchain technology, encouraging investment and offering a range of assistance programmes for companies working with blockchain. In the Philippines, the government has identified blockchain as a key technological trend in the next ‘production revolution’. Currently, the majority of the country’s blockchain initiatives come from either the private sector or academia, and it is still considered an immature technology. Fundamental changes are needed to support the digitisation of business practices in the Philippines, and a bill filed in 2020 to establish a national regulatory framework for blockchain technology has not progressed. Jonah-Lyn Colona, assistant quality assurance manager at UHY M.L. Aguirre & Co. CPAs in the Philippines, says a change in how the population generally views blockchain may be needed before it is adopted more widely. “As of now, the majority of the citizens of the Philippines are intolerant of the current changes that blockchain technology offers,” she says. Even with the assurance of most technology companies that blockchain is tamper-proof, consumers still believe there are risks and loopholes in the technology. Lack of skills may also contribute to negative views. “Considering that not all people are well versed with technology, blockchain may be limited to individuals who know how the technology works,” says Jonah-Lyn. IMPROVING PROCESSES Despite this, the Philippines is host to 48 registered cryptocurrency exchanges. Of these, 37 are registered in the Cagayan Economic Zone Authority (CEZA), which is in the process of building the ‘Crypto Valley of Asia’ in collaboration with Northern Star Gaming and Resorts Inc. “Most of our clients who have an interest in blockchain are cryptocurrency exchanges service providers,” says Jonah-Lyn. "Their interest as pioneers of trading crypto is to improve their financial operations by increasing their sales and digital investments/assets.” The Philippines has also seen an increase in interest in digital technology investment from banks, Operators of Payment Systems (OPS) and other online intermediaries such as digital gifting, voice ordering systems, digital gaming and others – and a general interest in using blockchain to improve accounting. “Other clients interested in crypto are more inclined to improving their accounting process – the technology enables them to store transactions in a secured facility,” says Jonah-Lyn. This is based on blockchain’s capacity to help improve the way transactions are initiated, processed, authorised, recorded and reported. “As an example, a hospital that will use the platform may be able to reduce cost in manpower and storage if they shift to a secured but digital facility,” she adds. “The accounting industry may also be able to significantly improve its reports with the triple-entry bookkeeping blockchain introduces.” CAUSE AND EFFECT There are obvious caveats to blockchain’s widespread adoption – not least the energy needed for its use. “Maintenance of this technology also requires high energy, which may lead to a high cost – and high costs will discourage potential users,” says Jonah-Lyn. In an environment when economic, social and governance (ESG) parameters place high value on sustainability and environmental impact, this cost goes beyond capital. “Blockchain, and in particular crypto mining, has a notoriously high carbon footprint,” says James. “In this day and age, this will be one of the key hurdles that any industry needs to overcome for mass adoption.” There are signs, however, that these issues could be overcome. In September 2022, the world’s second largest cryptocurrency, ETH, merged with its Ethereum blockchain to create Ethereum 2.0. This is the biggest update to any cryptocurrency blockchain network to date and looks set to make the platform much more energy efficient. Whatever regulatory and efficiency changes are on the horizon, James believes that blockchain technology is not going away. “It is undoubtedly going to change the way we do business,” he says.


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