The World Bank recently published a report that took an in-depth look at the use of blockchain technology in infrastructure projects such as roads, power plants, and renewable energy schemes.
The Center for Global Infrastructure estimates that there will be a $15 trillion financing gap for infrastructure projects between 2018 and 2040. Annual spending on infrastructure is around $3-4 trillion, a significant portion of which is borne by governments.
Blockchain can assist infrastructure projects in two different ways. First, it can help bridge the funding gap by tokenizing infrastructure securities, whether in the form of debt or equity.
Leveraging blockchain has the potential to reduce issuance costs, although specialized tools are still required for this. The second application involves leveraging blockchain transparency for budget management of infrastructure projects. This includes sharing data on purchase orders and invoices between subcontractors and contractors, with the aim of minimizing potential disputes.
The report recommends that the World Bank should consider launching a proof-of-concept project to help drive financial regulatory transformation and play a leading role in blockchain technology. Additionally, it will gain first-hand experience interacting with the “cryptocurrency ecosystem”.
Infrastructure projects are critical to economic growth and social development. However, traditional financing models often face challenges in meeting the huge funding needs. The World Bank’s exploration of blockchain technology in this area aims to address these challenges and unlock new opportunities.
The tokenization of infrastructure securities has the potential to attract a wider range of investors and facilitate more efficient and transparent fundraising. By converting infrastructure assets into digital tokens, investors can gain fractional ownership and liquidity, increasing accessibility to traditionally illiquid asset classes. Additionally, the use of smart contracts on the blockchain can simplify the execution of agreements, automate processes and enhance trust among stakeholders.
The benefits of blockchain go beyond financing mechanisms. The transparency and immutability inherent in blockchain technology can revolutionize project management and accountability.
By recording all transactions on a shared, decentralized ledger, stakeholders have access to real-time and auditable data. This transparency helps uncover inefficiencies, reduce corruption, and strengthen overall project governance.
Although blockchain technology offers promising solutions, challenges remain. Scalability and interoperability are key hurdles that need to be addressed to accommodate the complexity and volume of infrastructure projects. Additionally, ensuring compliance with regulatory frameworks and data privacy standards is critical for widespread adoption.