Blockchain technology is often associated with cryptocurrencies, which gained massive media attention when values skyrocketed in late 2017 and came hurtling down in 2018.
This relationship is quite understandable since the blockchain concept was first implemented as a core component of Bitcoin, the oldest and arguably the most well-known cryptocurrency to date.
It was developed around the time of the last economic recession as a digital cash system that could be used as an alternative to traditional financial systems.
How does Blockchain work?
A blockchain uses a peer-to-peer system, which means that records of transaction data are distributed as blocks over a network of computer nodes. The blocks are encrypted and securely linked together using strong cryptography to create a public ledger.
New blocks are added to the chain every time new transaction data is recorded. Each block also contains data that validates the previous block in the chain, which continues on until the very first block. In order to make changes to the ledger, all the computer nodes in the network must be able to validate all the blocks in the chain, which makes it extremely resistant to tampering.
This creates a trustless system that is also decentralized, meaning it is no longer necessary to hand over control of the data to a central authority or a middleman, such as financial institutions, central banks or companies, since everyone participates in maintaining the integrity of the data in the blockchain.
Using Blockchain for Business
Since transaction data can be stored in the blockchain in a very secure, accurate, consistent, and transparent manner, it is not only ideal for recording financial transactions, but also other sensitive data that can be accessed by the public or a large number of users.
By removing the middleman in a transaction, businesses can save time, reduce overhead costs, reduce security risks, and increase trust between everyone participating in the network.
A significant number of companies ranging from startups to giants like IBM are already leading the way in finding new ways to use blockchain technology in order to streamline a variety of business processes.
Let’s take a look at a couple of examples of how blockchain technology can dramatically improve how businesses operate.
Executing Legal and Financial Transactions through Smart Contracts
Smart Contracts are essentially computer programs built into a blockchain that automatically carry out a transaction once certain conditions are met. Smart contracts eliminate the need for middlemen or third parties to validate the transaction, which significantly lowers costs, removes human error or fraud, and saves time since the transaction can happen in real time.
Smart contracts can be implemented in a number of ways. It can eliminate the need for escrow services when purchasing real estate property since the parties can deal directly with each other using the blockchain as a platform.
Companies that offer services can also switch to a completely digital platform using smart contracts and allow people to access to their product instantly as soon as payment and any other requirements are verified on the blockchain.
Improving Supply Chain Efficiency and Transparency
Manufacturers and retailers can use blockchain technology to keep track of where exactly their inventory is coming from. Since many companies now operate on a global scale, it can be extremely difficult to keep track of products, parts and raw materials that are sourced from hundreds of different suppliers.
Using the blockchain makes tracking down batches of defective products much easier. Instead of trying to sift through data across different databases, having all transactions verified and stored on the blockchain makes the entire process virtually instantaneous.
An aircraft manufacturer like Boeing can quickly identify where specific parts can end up whenever a manufacturing defect is identified, and pull the entire batch out of production.
Retailing giant Walmart has also begun to implement blockchain technology to keep track of where its produce is coming from. If tainted food is ever found in any of its stores, it can immediately identify which farm or supplier it came from and which stores still have it on their shelves.
Securing and Sharing of Private Data
While most companies and a large percentage of the global population have already transitioned into the digital age, many of the ways we handle personal information are still stuck in the past.
Digital records of our private data are still mostly handled like paper-based systems. We still have to enter our personal details and financial information into different digital platforms, and only have our passwords to keep it safe.
Having our information in so many different places exposes it to more risk since there are more points of failure. This is currently unavoidable since different digital platforms don’t typically have any kind of interoperability with each other, so that one company can just easily pick out your personal data from one database and use it for their purposes without compromising data security.
Storing personal information on the blockchain eliminates these security issues. It can be used as a central database of private data, and protocols can be used so that only a specific set of data is revealed to authorized users. This can be especially useful in the healthcare industry where getting access to patient records whenever it is needed is extremely important. It’s also being currently used in the cloud storage space.
Enabling Faster and More Cost Effective Cross Border Payments
Businesses can benefit from blockchain technology without having to develop their own implementation simply by accepting cryptocurrencies as a form of payment, and to transfer funds to different countries.
There’s a large untapped market of customers worldwide who still don’t have credit cards, debit cards, or access to traditional financial systems, and are largely underbanked. However, these same people, often from developing countries, can quickly access cryptocurrency exchanges through their smartphones and computers.
Using digital wallets, they can conveniently pay for goods and services, as well as receive fund transfers from across the globe instantaneously without having to wait days for the funds clear or pay exorbitant fees to different companies.
It’s also common for people working remotely in the gig economy to accept cryptocurrency as a form of payment for their services because of its convenience, and also the possibility of crypto assets increasing in value in the future.
The primary hurdle that’s keeping cryptocurrencies from becoming a widely accepted form of payment is its high volatility compared to fiat currencies. Even though this volatility makes cryptocurrencies attractive to investors and speculators, and keeps it in the public eye, it also makes the prices of their products and services fluctuate on a day to day basis.
Most businesses are more likely to immediately convert crypto currency payments to fiat currency so the funds can support their operations, and not hold onto it as a form of investment.
Blockchain technology definitely has a lot of potential and many of the largest companies from all over the globe have already taken notice. Many have been experimenting with different uses cases for the last couple of years, and each has adopted their own way of using the blockchain to significantly streamline business processes.
We have yet to see blockchain technology cause a major disruption in other spaces aside from the financial industry where it is still viewed as a part of the cryptocurrency market, and is treated more like a commodity.
However, given all the development going on around blockchain technology, we will likely see blockchain behind many of the systems we use on a regular basis ranging from social media, travel booking, to the stuff we buy online or from our local retailers.