Abstract
Blockchain technology is a digital ledger of decentralized data management that can be securely distributed. It is possible to collect, integrate and share data from multiple sources through blockchains. Blockchain technology is applied in money transfers, smart contracts, logistics, and personal identity security. The application of blockchain technology has been embraced over time in Kuwait, and organizations such as banks and Kuwait petroleum are developing blockchain technology in their supply chain management. In supply-chain management, blockchain application helps the participants record the price, certification, and other information, which helps better manage the chain. However, despite the application being helpful to businesses in the supply chain, some problems arise from its use. Such problems include paying blockchain developers, maintenance costs, and data immutability. Some recommendations that can be made to make blockchain technology more successful in the supply chain include the introduction of traceability, trust, and transparency in a case where participants are not known. This is because, in operation, supply chains are carried out in complex environments, which need a higher level of traceability. The paper looks at a brief background of blockchain and the supply chain, the challenges that the sector and its stakeholders usually experience, and then provides the ways that Kuwait can embrace blockchain technology in its industries as well as its supply chain. Recommendations are then provided on how this can be made a success.
Keywords: Blockchain technology, data, supply chain management, record, developers, immutability, Kuwait
Background About Blockchain Technology
The world is rapidly changing, accelerated by the increased technological sophistication currently being experienced. Technology has left a print in virtually every sector and continues to do so. Digitalization of systems has also taken shape, gradually changing and redefining how everything, including transactions, is done. The most significant development over the past decade has been blockchain technology. It has redefined how most sectors work. Initially embraced hesitantly, blockchain technology is gradually taking over most financial transactions. Blockchain was incepted in 2009, after the introduction of bitcoin as a possible avenue of decentralized currency. Understanding how it works can be helpful for a country such as Kuwait, which still has a lot of reservations about the whole thing to do with blockchain technology. People suddenly realized that they could work on different aspects of the same task on their ledgers.
Once the interest in blockchain and cryptocurrency started to accelerate a few years past, expectations surrounding the uses were uncertain. The technology is now witnessed to revolutionizing the speed and efficiencies of operations, though its application remains in the proof-of-concept stage. Blockchain greatly affects diverse sectors, including commerce, healthcare, government insurance, and banking services. With the recent shift in governments’ interests toward crypto assets, now would be a time for a state like Kuwait to revisit more mature developed technology and allow blockchain in the financial industry. Blockchains can be implemented across numerous use cases in the economic domain in public or private fields. As that, a new sector of banking services that benefit companies and clients would open up, allowing faster, cheaper, and more secure transactions. The focus of this paper is to discuss how blockchain and cryptocurrency can be applied in Kuwait in an industry like banking.
Brief Background about Supply Chain Logistics
Inventory control is among some of the emerging supply chain and logistics management factors. This factor has negatively impacted some firms that have not adequately addressed it. Some countries have greatly embraced and applied technology for their development and advancement. This, however, still took a long time when it came to inventory control before the advent of blockchain technology. In the U.S., for example, due to its superior innovation and use of direct sales, inventory control in most of its companies used to be done in an average of seven to eight days. Nevertheless, many firms have adopted efficient systems to control their inventories effectively.
The traditional supply chain in Kuwait comprised an integrated manufacturing process whereby the supplier was responsible for supplying the raw materials to the manufacturing companies. After the production of manufactured goods, the manufacturing companies were responsible for supplying the products to the wholesalers, where the goods find their way to retailers and consumers. This traditional supply chain was challenging to implement since it comprised much paperwork, making access to a company’s information challenging. Usually, a standard setup requires their companies to have logistics, backgrounds, and transactions on paper. The document consumed much time while storing them on shelves and during retrieval for reference factors. This posed a significant challenge to the companies, primarily when an emergency arose. The traditional supply chain involved thorough manual work in proofreading and storing information, which translated to increased management costs (Durugbo et al., 2021). Overhead expenses also increased costs in the traditional supply chain, thus making it unmanageable to many companies.
Currently, no industry in Kuwait relies on blockchain technology due to legal implications. The government does not recognize the concept of cryptocurrency in the state as a legal tender (Abdeldayem & Aldulaimi, 2020). With that, authorities take a stand against adopting services like bitcoins and other transaction systems as lawful money due to high volatility. Typically, the vulnerability of blockchain technology is widely recognized since criminals also use cryptocurrencies as a vessel to transport money obtained illegally (andHothefa Shaker, 2021). With such considerations, the Kuwait government garner further suspicions regarding the use of virtual coins.
A significant reason the central bank in Kuwait does not acknowledge cryptocurrency as a legal tool is the lack of regulation by authorities, thus challenging to monitor or control. Today, many people opt to conduct transactions in Bitcoins due to privacy reasons the technology offers. On the contrary, offenders misuse privacy to hide their true intentions, with extremist groups pouring black money into the system (Abdeldayem & Aldulaimi, 2020). As a large centralized exchange platform, there is no privilege of anonymity since only identity verification is needed to proceed with transactions. Conversely, smaller decentralized exchange systems support anonymity-enhanced coins, though they can attract offenders too. Therefore, the central bank in Kuwait banned commercial services from processing transactions done in bitcoins and recently issued a statement to reiterate that cryptocurrencies remain illegal in the state (Abdeldayem & Aldulaimi, 2020). The stance is not likely to change, as further guidelines are provided to citizens regarding the risk of investing in blockchain technology.
However, the Kuwait government has not banned people from using cryptocurrencies, as citizens still mine, invest and sell digital coins like bitcoins through a centralized exchange process. Kuwait is among the potential places for cryptocurrency mining due to factors like extremely low electricity costs (Hothefa Shaker, 2021). Cryptocurrencies leave traces of carbon footprint due to the amount of electricity used to mine them. The process helps add new coins to circulating services while miners earn numerous commissions. Following the steps of nations like China, Qatar, or India, government-controlled cryptocurrency in Kuwait could be a reality in the future. Digital currencies will be readily available online, where users can link currencies to individual bank accounts and access them conveniently. However, digital currency would be legal tender, unlike crypto coins, under monitoring and control by the state’s apex financial institutions like the central bank.
Application of Blockchain in Kuwait’s Banking Industry
Currently, there is high resistance towards this technology in Kuwait, saying there are too many unknowns and religious conflicts. This is due to the highly unpredictable nature of the technology, according to the government’s financial institutions. There is, however, enough traction for the technology to start being utilized by some of its sectors. Luckily enough, blockchain technology is already being used by banks in Kuwait and international companies based in the country, such as DHL.
Through a collaborative effort between the regulator and financial institutions in Kuwait, the banking industry should reap the rewards of blockchain technology. Developing standards is the key to the successful integration of cryptocurrencies to be used in private or public sectors and eliminate friction in transactions, labour hours, and back-end charges. The financial field should be able to expand offerings and generate profits by providing new levels of services to clients. The banking sector in the modern world is trying to grow innovatively, with increased needs to meet emerging customer needs for easier a faster access to transactions. About 80% of the world’s banks are planning to implement technologies of distributed registries such as blockchain (Zheng et al., 2018). However, in some places like Russia, blockchain development occurs slowly compared to other parts of the world due to negative attitudes toward the new systems. Blockchain and cryptocurrency technologies have significant applications in commercial services.
First, the Kuwait banking industry can implement blockchain technology in payment processes or distributed clearing systems. A credit mechanism is established in situations where there is no mutual trust between parties and problems of high costs created by non-technical aspects of centralization are solved. To a disadvantage, financial services are fraught with issues, including efficiency bottlenecks, fraud, transaction lag, and risks in operations. Most of these hurdles in Kuwait banking can be resolved by applying blockchain technology. In inter-bank payments, the process relies on processes done by intermediary firms, which have complexities like bookkeeping, balance, or transaction reconciliation. Using cross-border payments, a remittance might take up to three days to arrive, demonstrating low efficiency with an immense volume of occupied funds. Blockchain would allow point-to-point payment and eliminate the third party for improved banking services. Several financial institutions in other parts of the world have tested transactions on the blockchain, including Standard Chartered bank, which uses Ripple as an enterprise platform for cross-border transactions (Pečarić et al., 2020). Therefore, the main idea in applying blockchain to Kuwait financial institutions is to facilitate decentralized markets. The technology would help compile and record credits, arrangements, and deposits.
Second, the Kuwait banking sector can apply blockchain technology to the bank credit information system, which will help establish data ownership and promote information sharing. Essentially, identified ineffectiveness of bank credit records results from scarcity or poor information to judge and difficulties in inter-institutional data exchange. Although the solution to such obstacles might need cooperation with various stakeholders, blockchain would help Kuwait’s financial sector to address the mentioned problems. First, it will enhance information ownership since people produce massive data on the iterant that can be valuable proof of credit situation. By integrating data encryption, information can be controlled with a guarantee of authenticity or reliability and reduce agencies’ collection costs. Furthermore, blockchain will allow automatic recording by credit groups while storing encrypted forms in financial institutions. Suggestively, Kuwait banks should prioritize installing a credit solution called know your customer (KYC), whereby encrypted technology will be used to upload summaries for storage in the blockchain system (Polyviou et al., 2019). In case of issues, clarifications, or questions, the original data provider can be alerted using blockchain.
Impacts to Stakeholders
Applying the digital changes in the supply chain of the industry (oil and gas industry) will positively and negatively impact the stakeholders. For example, it will hurt brokers by removing them from the supply chain. However, the impact on manufacturing companies will be beneficial since transformational technology reduces costs (Park & Li, 2021). This will then reduce expenses on the part of the consumers.
The banking service in Kuwait needs to take the lead in using blockchain technology since the purpose of setting up a financial institution in such a state is to connect people or communities for commerce. Luckily, modern innovation provides a tool for the state to meet that goal by uniting traders locally and globally. Cryptocurrency and blockchain technology can revolutionize institutions’ auditing, accounting, or bookkeeping processes. Accounting is perhaps a sphere involving much paperwork, and in Kuwait, it has been digitalized slowly due to strict regulations concerning data integrity and validity (Abou Jaoude & Saade, 2019). With the power of blockchain platforms, accounting in the banking industry will be transformed from simplified compliance to streamlined traditional double entries. For instance, organizations can write transactions into a joint register with cryptographically protected entries instead of having separate details based on receipts.
Challenges
On the contrary, applying blockchain to the Kuwait banking industry might have a few limitations. For example, true disintermediation demands a solid decentralization foundation obtained in digital currency models such as bitcoins. However, in real-world cases, most scenarios require safeguarding by centralization, especially in the financial sector. Achieving true decentralization is challenging and nearly impossible, and this should be considered when implementing blockchain technology. Another barrier concerns how the introduction of blockchain should be regulated when applied in the banking sector in Kuwait. The current technology is in the development phase, and regulatory rules by the state are not fully formulated to ensure sufficient freedom in innovation and integration.
Recommendation/Conclusion
Kuwait needs to start taking baby steps toward technology. The world is rapidly changing, and Kuwait must also embrace the change. While most transactions employ blockchain technology, the country needs to shift towards the same gradually. While the country might have restrictions around technology, it is the best place to do so. Malak (2021) notes that Kuwait is the best place to do cryptocurrency mining due to the availability of one of the cheapest electricity rates in the region. This is perhaps due to the heavy subsidies on electricity and an abundance of oil, crucial in electricity production.
Despite the numerous problems that might couple with its implementation, blockchain technology has many advantages when implemented compared to the traditional supply chain method. Therefore, Kuwait oil and gas companies should embrace using blockchain technology in their operations. To reduce the related problem of fear of adoption among the key players in the chain, stakeholders need to be educated on the technology’s advantages of the technology.
The government also needs to provide goodwill for the country to try out blockchain technology in companies that are quite intensive on the ledger. A company’s and a country’s supply chain and logistics management future predictions greatly differ from others. For example, others might not believe that ordering directly threatens retailers in the long term. In the long term, however, all manufacturing firms must entirely adopt the direct sales approach and eliminate middlemen. However, the United States has gone a step ahead with its direct sales approach. With the changing retail landscape, countries must ensure they shield their companies and businesses by embracing consumer technology that speeds up customer operations. Kuwait stands in an important position, given that it faces modernity and sound embracement of technological advances.
To conclude, though the Kuwaiti government does not regard cryptocurrency as legal tender in the state, citizens are free to trade with the tools or platforms. Embracing it would be hugely beneficial, especially for its supply chain and the overall operations of its industries. Monetary institutions remain restricted from allowing virtual-based transactions. Notably, problems relating to regulations, security, and efficiencies have always sparked debate in financial innovations. Yet, technical issues with blockchain technology can ultimately be solved for top prospects when integrated into the banking industry in the near future. The time is now for the government and banking industry leaders to collaborate and facilitate the widespread adoption of blockchain and cryptocurrency systems.
References
Abdeldayem, M. M., & Aldulaimi, S. H. (2020). Cryptocurrency in the GCC Economy. International Journal of Scientific and Technology Research, 9(2), 1739-1755.
Abou Jaoude, J., & Saade, R. G. (2019). Blockchain applications–usage in different domains. IEEE Access, 7, 45360-45381.
Durugbo, C. M., Amoudi, O., Al-Balushi, Z., & Anouze, A. L. (2021). Wisdom from Arabian networks: a review and theory of regional supply chain management. Production Planning & Control, 32(15), 1265-1281.
Hothefa Shaker, R. A. A. H. (2021). Blockchain Technology’s Status of Implementation in Oman: Empirical Study. Int. J. Com. Dig. Sys, 10(1), 716–729.
Malak, L.A. (2021). Kuwait is a most affordable country for crypto mining. Retrieved from https://www.unlock-bc.com/81818/kuwait-is-most-affordable-country-for-crypto-mining
Park, A., & Li, H. (2021). The effect of blockchain technology on supply chain sustainability performances. Sustainability, 13(4), 1726.
Pečarić, M., Peronja, I., & Mostarac, M. (2020). Application of “blockchain” and “smart contract” technology in international payments–the case of reimbursement banks. Pomorstvo, 34(1), 166-177.
Polyviou, A., Velanas, P., & Soldatos, J. (2019). Blockchain technology: financial sector applications beyond cryptocurrencies. Multidisciplinary Digital Publishing Institute Proceedings, 28(1), 1-5.
Zheng, Z., Xie, S., Dai, H. N., Chen, X., & Wang, H. (2018). Blockchain challenges and opportunities: A survey. International journal of web and grid services, 14(4), 352-375.
write