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What Does COVID-19 Mean For Blockchain?

Shriram Ramanathan, Ph.D., Research Director
December 28, 2020

For the past couple of years, we at Lux have been somewhat skeptical about the value of blockchain. While the technology itself is quite novel, it continues to struggle to find the right use cases. However, the world has changed drastically in the past year, and we believe that blockchain is likely to see a surge in the coming years, as we will outline in this blog.

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All businesses are built upon four major pillars – information (such as product use information), physical objects (such as products, raw materials, and equipment), people (such as employees and contractors), and money (such as underlying currency). Trust is the cornerstone of any business – trust in information, people, physical objects, and money. Unfortunately, the pandemic has exposed fissures in all of these pillars of trust:

  1. Information – There is widespread misinformation on COVID-19 and ways to mitigate risk related to the pandemic.

  2. Money – Bitcoin originated during the 2008 to 2009 Great Recession mainly because people had lost faith in fiat currencies due to the massive amounts of bailout money that were handed out by governments around the world. We are now in a similar situation, with governments throughout the world rolling out bailout packages worth trillions of dollars. This bailout is likely to lead to higher inflationary pressures, which in turn will decrease the value of fiat currency. Moreover, as national debt rises across the globe, governments will be able to make payments on those debts only by raising taxes. Under such fiscal pressures, bitcoin and other cryptocurrencies can act as a good hedge, especially when many countries, such as Germany and Singapore, treat bitcoin as a currency rather than an investment, thereby effectively offering a tax haven for investors.

  3. Physical objects – Counterfeiters are taking advantage of the pandemic and infiltrating the market with counterfeit products. It is anticipated that this will become worse as vaccines and other remedies are released into the market. At the same time, consumers and businesses will increasingly seek to track down the origin of their products, especially food, considering that the entire pandemic is supposed to have originated in the meat industry and workers in the meat and agriculture industry continue to fall sick due to COVID-19.

  4. People – As the crisis continues and nations seek to open the economy, there is an urgent need to track the health of employees as they return to work. Likewise, as international borders open, governments will eventually want to track the health of individuals as well as trace their contacts in real time if possible.

 

Given all these reasons, we believe blockchain can serve as a fundamental tool to enhance trust in these four pillars and is likely to see a surge going forward. Indeed, we are already seeing early signs of this surge in blockchain. Several large organizations, including the World Health Organization (WHO), IBM, Oracle, Microsoft, Johns Hopkins University, and China's National Health Commission, decided to adopt Hacera's MiPasa, a Hyperledger-based blockchain solution, to track the veracity of data related to the coronavirus pandemic. Another example, unrelated to COVID-19, comes from Verizon, which recently unveiled Full Transparency – a blockchain-based, open-source newsroom product that is meant to immutably document the company's own news releases on a public blockchain.

Many respected investors throughout the world are also anticipating this surge in blockchain and related cryptocurrencies and ramping up their investments in this space. Most notably, Stan Druckenmiller, Peter Brandt, and Renaissance Technologies, the hedge fund that returned a whopping 66% in annualized returns before fees between 1988 and 2018, have all doubled down on Bitcoin – the blockchain-based cryptocurrency that started it all. Even more revealing is the number of daily transactions on Ethereum that have more than doubled since the beginning of this year (see Fig. 1). This is an important data point considering that, unlike Bitcoin, which is largely used for peer-to-peer financial transactions or traded as a financial instrument, Ethereum is the preferred platform for many companies when it comes to enabling use cases within the physical industry, such as supply chain tracking. At the same time, traditional corporations are buying bitcoin as a treasury reserve, while consumer financial transaction platforms like PayPal are allowing users to buy, hold, and sell cryptocurrency.

Fig. 1 Number of Ethereum transactions per day

Fig. 1 Number of Ethereum transactions per day

We noted earlier that, among all applications, supply chain use cases like anti-counterfeiting, cold chain monitoring, and provenance hold the most promise. Indeed, in the early days of COVID-19, many hospitals joined Rapid Supplier Connect, IBM's blockchain solution for sourcing genuine COVID-19 supplies, including N95 masks.

This idea has now gone beyond tracking products to tracking people. Stakeholders are also working on other COVID-19-related blockchain projects, such as tracking COVID-19 cases as well as vaccinations. Airlines will soon be requiring travelers to sign up for a "health pass" – a vaccine certificate – before allowing them to fly. While most don't use blockchain, the International Air Transport Association (IATA) has launched a blockchain-based digital health passport called Travel Pass that is currently being tested in partnership with British Airways.

original_45e621a63afFig. 2 COVID-19-related use cases for blockchain, broader impact, and Lux Take8e2c62bf7a8f9a163a8ba028a79bc

Fig. 2 COVID-19-related use cases for blockchain, broader impact, and Lux Take

While challenges related to system interoperability and automated raw data collection remain, we believe that blockchain's moment has arrived and anticipate that blockchain will enjoy more traction in the next five years. While this might be the time to become more serious about blockchain, those interested should also use the decision framework we presented earlier to carefully evaluate their use cases and make the right decisions around blockchain implementation.

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