Since its commercial availability in 2009, underpinning Bitcoin, blockchain technology has become increasingly vital in a growing range of domestic and cross-border transactions, providing safety, speed, transparency, and (for better or worse) a means to bypass government regulations. 

“Its design reduces the risk of fraud and errors, making it especially valuable in industries where secure transactions are critical,” said IBM’s blurb on blockchain technologies. “Additionally, blockchain helps businesses improve efficiency and reduce costs by streamlining processes and enhancing accountability.” 

Egypt adopts a split stance on blockchain technology. While the law strictly prohibits using it for cryptocurrencies like Bitcoins, it mentions no other applications. Meanwhile, most local companies are overlooking this technology. That should ultimately change as digitization increases in Egypt and around the world, making blockchain indispensable.

The tech

Blockchain is a distributed, interconnected ledger system that requires all “blocks” to be updated simultaneously. Past entries can’t be deleted or altered once on the block, even by the party that recorded them. 

Data is stored using “cryptographic techniques [a type of encryption] making hacking or data alteration almost impossible,” Weavers Web, a blockchain developer, posted on LinkedIn in March. And because all blocks save identical data, “this minimizes the risk [of] a single point of failure.”

Another advantage is “the time invested for processing transactions is considerably less” than traditional payment networks, noted Weavers Web. That is because “execution of [an] agreement does not require manual intervention” or intermediaries.

That full automation bypasses the problem that “traditional cross-border payments … may be halted at different points.” That usually happens because of “incomplete information and also different screening to detect fraudulent activities,” said Weavers Web. “Standardization … is something that is often lacking when it comes to dealing with the processing of international payments.”

Another “pain point” in traditional payment systems that blockchain resolves is additional costs. “Cross-border payments are associated with various fees, and this includes exchange rate conversion costs, intermediary bank charges, and service fees,” Weavers Web said. 

Lastly, blockchains allow trading parties to know where funds are at any time, Weavers Web said. It also reduces the “high chances of errors and delays” in traditional payment systems.

MSMEs and blockchain

Egypt’s corporate landscape is dominated by micro, small and medium enterprises (MSMEs). Malak El Baba, Visa’s country manager, told local media in July 2024 they account for 98% of Egypt’s private sector. 

A critical problem MSMEs face when dealing with foreign partners is “higher transaction costs and longer settlement times than large corporations,” a May note from the World Economic Forum said. “This locks up liquidity and hampers growth.”

Using blockchain to execute transactions would eliminate those problems, thereby “significantly lowering barriers to international trading … while promoting [their] financial resilience,” the WEF said. The technology also could help them offer “value-added services … from streamlining cash flow to enhancing customer experiences and expanding opportunities in the digital economy.”

Using blockchain also means MSMEs will face unconventional competitors, as “cross-payment solutions are increasingly collaborative, with traditional and fintech players working together, blurring sector distinctions,” the WEF said. 

Keeping MSMEs away from blockchain are concerns over “security and consumer protection [issues],” the WEF noted. The solution is “expanding collaboration across public-private, public-public and private-private partnerships … to further enhance trust, security and accessibility.”

Blockchain and energy

Building a marketplace where polluters purchase carbon credits from clean energy companies is a priority for Egypt. In its blurb on carbon markets, the Financial Regulatory Authority (FRA) said it is “adopting [an] ambitious plan to establish the first African voluntary carbon market,” stressing it is “part of FRA’s continuous efforts to support the government’s effective policies and procedures to achieve carbon neutrality.”   

According to Jan Haizmann, CEO of the Zero Emissions Traders Alliance, a platform for exchanging carbon credits, Blockchain technology would play a “foundational role in enabling regional trade of new energy commodities and carbon certificates across the MENA region,” he told Zawaya, a news portal, in June.

Using blockchain to verify a product’s eco-credentials (via environmental certificates) has been increasingly popular, as it prevents companies from deliberately exaggerating their positive environmental impact (greenwashing), according to DoxyChain, a blockchain developer.

Augmenting blockchain-backed eco-certificates is that the technology can be used in “carbon accounting [where] blockchain can securely record and verify greenhouse gas emissions,” as well as “sustainable supply chains [where] blockchain can track the journey of products from sources to consumers, verifying their environmental credentials at each step.”

Blockchain and logistics

With the Suez Canal accounting for 12% to 15% of global maritime trade and 30% of global container traffic, according to Pole Star Global, a think tank, executing transactions via blockchain is a growing trend.

According to Mather Marshal, a director at Freight People, an Australian logistics company, “Real-world applications include inventory tracking, route optimization, secure financial transactions, addressing inefficiencies and regulatory uncertainties in logistics operations, [and] freight management [which is] transforming freight forwarders’ operations.” 

Blockchain-backed “smart contracts [also] eliminate the need for physical paperwork, [including] invoicing, payments, and customs documentation, [and] streamlining financial transactions,” Marshal said.

The technology also allows freight companies to integrate new technologies, such as artificial intelligence, in their operations and supply chains, improving “security and immutability [of] data records,” Marshal said. 

According to DHL estimates in October, blockchain adoption should reach critical mass in five to 10 years. “Many pertinent and impactful use cases have been identified in the supply chain for existing blockchain technology,” DHL said. “It is only a matter of time before multiple players, along and across supply chains, coordinate and collaborate to create comprehensive blockchain ecosystems.”

First steps

For law firm Andersen Egypt, the standout blockchain application the country could benefit from is “smart contracts, which are gaining attention in sectors like finance, supply chain management, and corporate management.” 

In addition to storing information, safe in the knowledge they are nearly impossible to hack, smart contracts also can “automatically execute [pre-set actions] when predetermined terms and conditions are met,” as explained in IBM’s blurb on the topic.

According to Andersen Egypt, “in public life,” smart contracts can be used in such government services as “issuing licenses, managing taxes, and distributing subsidies.”

In “real estate transactions,” especially ownership transfers, a smart contract would automatically recognize the buyer as the new owner once the blockchain registers payment, explained Andersen Egypt. That would greatly expedite government ambitions to develop a “national property ID.”

In the corporate world, Andersen Egypt said companies could use smart contracts to “verify the receipt of goods and issue payments [almost simultaneously], streamline transactions between suppliers, distributors and retailers,” the law firm added. “This would be especially beneficial in Egypt’s growing logistics and trade sectors.” 

Andersen Egypt also mentioned insurance, where smart contracts could expedite claim approvals and compensation disbursements, or rejections. Lastly, the law firm said smart contracts could be used in corporate governance, “automating shareholder voting, dividend distribution and … employee compensation agreements.”

On the ground, local awareness of blockchain’s advantages is increasing. In July, ICP Hub Egypt became the first locally developed platform to enable customers to build blockchains and integrate artificial intelligence into them, among other features.

It also “enables developers to pay for decentralized computing and storage services directly on-chain using Egyptian pounds, eliminating the need for crypto transactions [which are illegal in the country],” the company’s blurb said  

The next step is for the government to develop a “dedicated legal framework for smart contracts,” Andersen Egypt said. That needs to happen quickly, because “as industries in Egypt continue to embrace digital solutions, smart contracts will likely become an integrated part of the legal and business landscape.”

This article first appeared in August’s print edition of Business Monthly.