World Bank turns to blockchain for tokenization of infrastructure process amid regulatory challenges

The World Bank may move to blockchain technology in the future following the release of a report exploring tokenization for infrastructure projects.

The 49-page report highlights the benefits of digitizing the debt financing processes for global infrastructure projects using blockchain. A large part of the report turned against the use of blockchain by the World Bank in the face of dwindling funding sources, but pointed to several challenges plaguing full-scale adoption.

Right out of the gate, the report identified two ways blockchain tokenization could improve the processes of the World Bank. The first is to democratize funding to a wider class of investors by tokenizing infrastructure securities and reducing the cost and time of issuance.

The second application identified by the report’s authors is the use of blockchain to improve the transparency of processes, especially those related to budgets. By relying on blockchain and smart contracts, the World Bank’s contractors and subcontractors can avoid disputes by relying on the immutable nature of blockchain-based transactions.

“Smart contracts enable the programming and automatic execution of various operating scenarios to transparently verify invoices according to the terms of the contract,” the report said. “This increases transparency in contract administration and reduces the need for a full-time contract administrator.”

Although there are several benefits associated with tokenization for the World Bank, the report highlighted a number of challenges that stand in the way of its adoption. The first of such challenges is the lack of a globally recognized tokenized standard characterized by varying anti-money laundering (AML) and Know Your Customer (KYC) processes.

Other challenges related to its use include cybersecurity issues and the legal status of smart contracts and digital tokens. The report hailed the US, Luxembourg, Switzerland and the EU as jurisdictions with a robust legal framework to support tokenization.

Emerging markets bear the brunt

According to the report’s findings, emerging markets and developing economies face the greatest challenges in implementing tokenization due to a lack of regulatory frameworks and the absence of pilot programs.

However, the authors argued that emerging markets stand to gain the most from tokenization, given their ability to improve trust in the private sector. Other benefits include automated auditing, lower financing costs and detailed project monitoring.

To achieve these benefits, the report suggests harmonization of regulation across different jurisdictions, capacity building, and increased pilot testing and sandboxing “to gain actionable insights.”

Watch: Tim Draper talks tokenization with Kurt Wuckert Jr.

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